expert perspectives

AMAS 75 YEArS IN MArkETING HISTOrY

By roBert f. lUSCh anD StePhen l. VarGo

editor@ama.org

marketing Value

D
roBert f. lUSCh is executive
director of the McGuire Center
for Entrepreneurship and the
James and Pamela Muzzy
Chair in Entrepreneurship and
Innovation in the Eller College of
Management at the University
of Arizona. He is past chairperson
of the AMA and past editor of
the Journal of Marketing. His
current work is primarily around
developing and advancing the
service-dominant (S-d) logic
of marketing. For more
information, visit Sdlogic.net.

StePhen l. VarGo is a
Shidler distinguished Professor
and Professor of Marketing
at the University of Hawaii at
Manoa. He has articles published
in the Journal of Marketing,
the Journal of the Academy of
Marketing Science, the Journal
of Service Research and other
major marketing journals, and
has been awarded the Harold H.
Maynard Award and the Sheth
Foundation-Journal of Marketing
Award for his contributions to
the field of marketing.

30

espite the tradition, most textbooks,

industry jargon and government
accounting that proclaim that goods
and services are distinct categories of products are wrong. Similarly, markets do not
exist, a priori, to be entered and shared.
Rather, they merely represent the transitory
point of exchange between buyers and
sellersand producers do not create value,
nor are consumers just destroyers of value.
All of this, of course, flies in the face
of the traditional common sense of the
goods-dominant (G-D) logic of marketing
thought and practice. Although disheartening to some remaining staunch advocates
of G-D logic, an alternative and, arguably,
more inclusive, service-dominant (S-D)
logic seems to be emerging and globally
proliferating.
G-D logic developed out of the
Industrial Revolution, along with the
celebrated thinking of Adam Smith
in The Wealth of Nations and the
neoclassical model of economics. G-D logic
can be summarized as follows: The purpose
of economic activity is to produce and
distribute value-laden goods, which, for
efficiency, should be produced away from
the interference of consumers, standardized
and inventoried until demanded so that
they can then be exchanged for other goods
or money in markets. Markets, however, are
far from the neoclassical textbook model
of perfect competition and, in fact, one can
view the role of marketing as making sure
that market equilibrium does not occur via
the introduction of innovative offerings that
represent compelling value propositions
that distinguish the firm from competitors
and destabilize markets.
Service-dominant (S-D) logic, on the
other hand, views all firm offerings, tangible or intangible, as service offerings,
where service (singular) is the act of
using ones knowledge, skills and capabilities for the benefit of another (the beneficiary). When a tangible good is involved,
it is as a distribution vehicle for service.
All goods are thus appliances, media, for
transferring service. In a real sense, the
skills, knowledge and capabilities of those
who conceived, designed, engineered
and produced these goods are frozen, or
embedded, in the appliances.
When goods are viewed as service
appliances, it becomes crystal-clear that the
value of a washing machine, wood pallet,
cosmetic or computer can never be in its
production, distribution or marketing,
but only in its use. That is, if no one uses a
computer or applies cosmetics, there is no
benefit, no value created. This suggests that

the repository of value is not the good or

market offering, but rather the experience
of the beneficiary of the offering, as he
uses it. This experience is unique to each

brand extensions; they are reframing P&G

as an enterprise that has a value proposition
around helping households by offering to
clean their clothes and automobiles.

The value of a washing machine, wood pallet, cosmetic

or computer can never be in its production, distribution
or marketing, but only in its use. That is, if no one uses
a computer or applies cosmetics, there is no benefit, no
value created.

individual; thus, value also is unique.

Homogeneity and standardizations, then,
while perhaps useful engineering and
production concepts for firm efficiency,
ignore effectiveness for the beneficiary
(customer).
The truth is that value is always
co-created by the customer along with
many other actors. This co-creation of value
can be very proactive where the customer
performs part of the traditional functions of
the firm. Think of this as co-productionfor
example, when the customer assembles Ikea
furniture. Co-creation, however, is much
broader and extends to all that the individual does in the use of the Ikea furniture and
the integration of the Ikea-furnished room
or home with other resources and people.
Another truth is that people dont
purchase things (means), but seek desired
states (ends). For example, airlines dont
need jet engines; they need thrust, as Rolls
Royce and General Electric recognize in
their shift from selling jet engines to selling
thrust service. Or consider EMCOR Group,
a traditional construction firm that has
transformed itself into designing, building
and operating buildings, and providing the
continual service needed for a building to
function well, such as heating and cooling,
energy, information security, maintenance,
etc. Likewise, Salesforce.com does not sell
software packages to load on a computer,
but rather sells a host of solutions that can
be accessed, as needed, via cloud computing. Finally, consider P&G, with its longestablished Tide detergent brand and its
recent launch and development of a franchise network of Tide Dry Cleaners, and
Mr. Clean, another iconic P&G brand, and
the development of the Mr. Clean Car Wash
franchise network. These are more than

Another truth is that collaboration with

customers and suppliers is more important
than trying to get them to adopt the firms
agenda. This can be viewed as a shift to
marketing with customers and suppliers rather than a marketing to philosophy. This strategy can be seen with P&G in
its connect and develop strategy, which
opens up innovation to provide more access
to external intellectual property, but also to
catalyze customers and suppliers and others
to be innovation partners. In addition, P&G,
through its social media efforts, seeks better
ways to engage customers in dialogue and
participation in the firms marketing efforts.
In short, P&G is a collaborative, co-creative,
marketing-with enterprise.
Finally, S-D logic argues for viewing
buyers and sellers as generic actors, rather
than producers and consumers, who
similarly continually create new resources,
to enhance their own system viability,
through the integration of other resources,
accessible through market-facing, public
and private sources. Think about your daily
life and all of the resources that you draw
upon to perform a variety of practices
and co-create value. With this emerging
lens, the firm develops an understanding
and empathy with people, and tries to
understand their lives and how the firm
is a relatively small but hopefully important part of their lives. Unless the firm
understands how people are part of a larger
service ecosystem, it will not be able to
fully understand its customers, markets
and opportunities for driving markets
versus being merely market-driven. m

mArKeting news | may 15, 2012

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4/19/12 5:07 PM

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