Underrated Marketing Theories: Why Service-Dominant (S-D) Logic Should Be in Your Marketing Playbook

Did you know that our view of business is undergoing a quiet revolution? Enter Service-Dominant (S-D) Logic, a game-changer that's often underestimated!

Service-Dominant (S-D) logic was provided by Vargo and Lusch in 2004 and represents a shift in how we understand business and value creation (Vargo et al., 2008). Unlike traditional thinking that focuses on selling tangible goods, S-D logic emphasizes that all economic exchange revolves around services. This means businesses aren't just selling products—they're providing services that benefit customers. Whether it's repairing a car or offering advice, every business activity contributes to customer value. S-D logic encourages us to see beyond physical goods and recognize that the core of business lies in delivering meaningful services to meet customer needs.

With S-D logic, we can now think far beyond just products as this theory spins the script, placing services, knowledge, and skills at the centre of economic exchange. This theory challenges the old mindset that identifies businesses only as producers of goods. Instead, it emphasises how every business, whether you are fixing cars or selling phones, is fundamentally about providing valuable services to customers.

Now, why is this theory important? It turns focus from what businesses make and puts focus on what they do to benefit customers. It's not just about the phone itself; it is now about the services it enables, such as communication and access to information. S-D Logic isn't just a theory but a new perspective that restructures how we understand and create value in today's economy. Let's explore how could we embrace this theory and unlock new opportunities and innovations in marketing!

Harnessing S-D Logic in Marketing for Maximum Value Creation-

1. Identify Customer Needs and Goals within the Service Ecosystem: First, a business needs to understand the needs of all actors in the service ecosystem. This includes direct customers, partners, and even competitors. This needs active engagement and communication to gather insights.

Example: Let’s think about an olive oil producer who engages with retailers, chefs, nutritionists, and competitors. They did research and found that retailers want attractive packaging and branding, chefs seek flavour-enhancing oils, nutritionists highlight health benefits, and the competitors focus on innovation and sustainability. At the same time, consumers seek high-quality olive oil with distinct flavours, health benefits, versatility, and sustainable sourcing.

2. Develop and Customize Services: Based on these insights, the business tailors services to provide personalized solutions that benefit all actors in the ecosystem.

Example: Back to the producer, now based on gathered insights, the olive oil producer develops a detailed strategy. It includes elegant packaging and point-of-sale materials for retailers emphasizing origin and flavour recipe cards for chefs showcasing the versatility and flavour enhancement; educational materials for nutritionists on health benefits with scientific backing; a sustainability initiative with competitors promoting transparency; diverse olive oil blends for consumers with pairing suggestions, recipes, and details on health benefits and sustainability.

3. Engage in Continuous Interaction: The business also needs to maintain ongoing communication with all actors in its value chain to gather feedback, adapt services, and ensure relevance and value for everyone involved.

Example: Next, the olive oil producer implements ongoing interaction strategies. These includes an online feedback portal for consumer experiences and product suggestions, regular meetings with retailers to review sales and discuss packaging and promotions, webinars and workshops with chefs for culinary insights and product feedback, participation in industry forums for trend awareness and collaboration with competitors, surveys and focus groups with nutritionists to integrate latest health research into educational materials.

4. Foster Collaboration and Partnership: The business could encourage active participation and co-creation of value among all actors in the service ecosystem. This could involve collaborating with other businesses, engaging with online communities, or involving customers in product development.

Example: The olive oil producer cultivates collaboration through several initiatives: partnering with local restaurants to co-create exclusive dishes and share profits; establishing an online community forum for recipe sharing and product ideas; involving customers in sensory panels for blend feedback; collaborating with agricultural groups for sustainable farming education; and working with food influencers to create content highlighting the olive oil's qualities and culinary versatility.

5. Measure and Communicate Value Created by the Service Ecosystem: Track the outcomes and communicate the value created for all actors within the service ecosystem. This reinforces the interconnectedness and shared benefits of the ecosystem.

Example: The olive oil producer measures and communicates value across their ecosystem: tracking sales and customer feedback to enhance product performance; surveying retailers to assess co-branded impact on sales and perception; gathering chef input to refine recipes and educational content; publishing an annual sustainability report on industry initiatives' environmental and social impact; sharing community forum success stories; monitoring adoption of sustainable practices among growers for improved olive quality; and evaluating social media campaign impact and influencer partnerships for brand and collaborator value.

Real-life Implementation Example of S-D Logic in Marketing: Starbucks

Starbucks, as part of a larger service ecosystem, understands that customers seek more than just coffee; they desire a unique, comfortable experience. It starts by considering the needs of coffee bean farmers, employees, and local communities (Customer Needs and Goals within the Service Ecosystem). Starbucks offers a variety of beverages, food items, and customization options to cater to individual preferences. They also provide a welcoming environment and engage in ethical sourcing practices (Develop and Customize Services). The company engages with customers through loyalty programs, mobile apps, and social media platforms but also works with suppliers and community partners (Continuous Interaction). Starbucks involves customers in product development, collaborates with other businesses (like Spotify), and supports local initiatives (Foster Collaboration). The company tracks customer satisfaction and measures its impact on the environment and communities. It communicates the value created through its sustainability reports, community projects, and fair trade practices (Measure and Communicate Value Created by the Service Ecosystem).

Core Axioms

In their 2016 update, Vargo and Lusch refined the Service-Dominant (S-D) logic, consolidating its foundational premises into five core axioms (Vargo & Lusch, 2017).

●????? Service is the Fundamental Basis of Exchange: This axiom tells us that the fundamental basis of exchange is service instead of goods. Service is the application of skills and knowledge for the benefit of another party, whereas goods are simply a medium for delivering service.

●????? Value is Cocreated by Multiple Actors, Always Including the Beneficiary: This axiom indicates that the producer alone is not determined by the value. ?The value is co-created through the interaction and participation of multiple actors, even if it includes the beneficiary, namely the customer or user.

●????? All Social and Economic Actors are Resource Integrators: This axiom illustrates that either individuals or organizations, everyone involved in the exchange process, are resource integrators. They combine and integrate different resources like knowledge, skills, materials, etc., to create value.

●????? Value is Always Uniquely and Phenomenologically Determined by the Beneficiary: This axiom tells us that for each individual, value is mainly subjective and unique. It could be determined by the own experiences, perceptions, and context of the beneficiaries.

●????? Value Cocreation is Coordinated through Actor-Generated Institutions and Institutional Arrangements: This axiom indicates the role of institutions, lets say the rules, norms, and beliefs, could contribute t in shaping and coordinating the process of value co-creation. These institutions can be formal like laws and regulations or informal like social norms, cultural values etc.

References:

Vargo, S. L., & Lusch, R. F. (2004). The four service marketing myths. Journal of Service Research, 6(4), 324–335. https://doi.org/10.1177/1094670503262946

Vargo, S. L., & Lusch, R. F. (2015). Institutions and axioms: an extension and update of service-dominant logic. Journal of the Academy of Marketing Science, 44(1), 5–23. https://doi.org/10.1007/s11747-015-0456-3

Vargo, S. L., & Lusch, R. F. (2016). Service-dominant logic 2025. International Journal of Research in Marketing, 34(1), 46–67. https://doi.org/10.1016/j.ijresmar.2016.11.001

Vargo, S. L., Maglio, P. P., & Akaka, M. A. (2008). On value and value co-creation: A service systems and service logic perspective. European Management Journal, 26(3), 145–152. https://doi.org/10.1016/j.emj.2008.04.003