The evolution of marketing
Master Thesis Service-Dominant Logic TheoryPublished July 5, 2011 at 21:59 3 CommentsSome things only become clear if you know a little background or, in this case, history about it. That’s why I want to give a short overview of the evolution of marketing and point out the most important stages leading to “Service-Dominant Logic” (S-D logic), the basis for co-creation.
Photo courtesy of jackhines
The thought on marketing underwent a steady development since the first formal ideas about it in the early 1900s. At first it was focused on the distribution and exchange of goods and the function that needed to be performed to facilitate it (Vargo & Lusch, 2004).
The general idea was about bringing goods and services “to market”. Marketing further developed into the marketing management school after World War II and moved to a “market to” orientation. Now markets and customers were researched and analyzed in order to produce products that meet customer or marketplace needs. However, the customer did not play an active role in this concept either. A goods-dominant (G-D) logic remained with the units of output as the central component of the exchange process (Lusch, Vargo, & O’Brien, 2007).
In the 1960s Marketing was characterized as “a decision-making activity directed at satisfying the customer at a profit by targeting a market and then making optimal decisions on the marketing mix” (Vargo & Lusch, 2004, p. 1). The marketing mix or the famous Four P’s – product, place, price and promotion – from then on served as the main framework of marketing and is still taught to freshmen all over the world as basic knowledge of marketing. In this context competitive advantage was and most often still is seen to be a function of utility maximization through adding value in products by superior management of the Four P’s. Being based on the conceptual foundation of G-D logic, this happens with an assumed passive consumer in mind. Furthermore, the idea of “service” as possible booster of competitive advantage was built on this concept (Lusch et al., 2007).
Figure 1: The Evolution of Marketing
Source: own illustration based on Lusch et. al. (2007)
Service was not only regarded as a type of product, but also something of a fifth “P”, another tool for maximizing the value of other products. But what was neglected in G-D logic was to think of “service” as an independent variable and its central role in the process of exchange. Another downside of this concept was the already mentioned role of the customer as operand resource: He was segmented, targeted, promoted to, distributed to, captured and persuaded to continue buying with the help of heavy promotional programs where transparency was the exception (Lusch et al., 2007).
In contrast to that and mirroring the development of marketing thought of the 21st century Vargo and Lusch (2004) promote the “market with” philosophy of service-dominant (S-D) logic. Here, the customer is an operant resource capable of interacting with and on other resources. He no longer is a passive recipient but a collaborative partner co-creating value with the enterprise.
I hope this was helpful and could give you a first impression of where we are heading to with S-D logic and co-creation. Please let me know what you think or if you need some more information. If you have a great idea, how to redesign this rather boring illustration of the timeline, feel free to do so and send me an email 
.
For those who can’t wait for more can find heaps of material (well, almost everything) about S-D logic on sdlogic.net.
Stay tuned, I will post more interesting background and current development on S-D logic and co-creation in practice during the next week.
References
Lusch, R. F., Vargo, S. L., & O’Brien, M. (2007). Competing through service: Insights from service-dominant logic. Journal of Retailing, 83(1), 5-18. doi:10.1016/j.jretai.2006.10.002
Vargo, S. L., & Lusch, R. F. (2004). Evolving to a New Dominant Logic for Marketing. The Journal of Marketing, 68(1), 1-17. doi:10.2307/30161971
Where the organisation in question is a “service industry” rather than generating a physical product (e.g. Insurance), how does the distinction between S-D and P-D logic help?
thanks
Stewart
Hi Stewart,
thank you for this excellent question. This is exactly the topic I am working on for the hotel industry.
It’s a huge topic we could talk about for hours. However, to give you a shortened answer it comes down to a few points:
- it is about changing the general mindset from a product oriented and firm centric to an experience oriented and customer centric view
- in G-D logic there was a strict separation between companies and their customers. firms produced and customers used. in S-D logic customers are part of the value-creation-process through their input. it is a collaborative process between both.
- customers nowadays want to be part of this process and have a lot of knowledge and skills to bring to the table
This is just a first glance of what is really different in S-D logic. If time allows it, a more explanatory post will follow today with some graphs to illustrate it better.
To give you a direct answer to your question:
I hope this distinction sends a clear message to all companies to open their eyes to see what is happening:
It’s not about the product, it’s the experience behind it. People want to co-create, they offer so much free(!) information through Social Media and are more than willing and eager to share their insights directly with companies (e.g. workshops). Firms with superior collaborative competences will have a big competitive advantage, since they can actually absorb external trends and know how, and are adapt to change – with the help of their partners- brought about by complex and turbulent environments.
To give you a practical example from the insurance industry that goes in direction of co-creation:
State Insureances asked everybody in New Zealand to submit their 3 favourite things. Now they created a policy for exactly those favourite things. Read more here: http://www.state.co.nz/My3Things/
Hope this helped.
Cheers,
Tobias
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