WHITEPAPER
HOW TO CREATE MORE VALUE FOR CUSTOMERS: A
SHIFT IN MARKETING IN EUROPE
ABSTRACT
This whitepaper is created together with the University of Twente and EuroDev. It discusses a shift
in marketing: how to create more value by providing service to customers in Europe and Northern
America to become more successful. Further, it contains subjects as the global evolution from goods
to service marketing, customer value definitions, supplier value, service, relationships and value for
customers and service, value in use and suppliers role.
EVOLUTION FROM GOODS TO SERVICE MARKETING
Marketing is shifting from an exchange of tangible goods (manufactured things) toward the
exchange of intangibles, specialized skills and knowledge, and processes (doing things for and with).
It shifts to the integration of goods with services and provides a richer foundation for the
development of marketing thought and practice (Vargo & Lusch, 2004). A traditional goods logic can
be described as a business logic, where resources are provided to a given usage process for the
customer’s use in order to support that particular process in a value creating way (Kotler, 1972;
Gronroos, 2006). This means it remains the responsibility of the customer to make sure that it can
make effective use of the resource so that value can be created out of the resource purchased.
However, this goods centered view of marketing not only may hinder a full appreciation for the role
of services but also may partially block a complete understanding of marketing in general (Gronroos,
1994; Kotler, 1997). For example, Gummesson (1995) states: ‘Customers do not buy goods or
services: They buy offerings which render services which create value… The traditional division
between goods and services is long outdated. It is not a matter of redefining services and seeing
them from a customer perspective; activities render services, things render services. The shift in
focus to services is a shift from the means and the producer perspective to the utilization and the
customer perspective’.
Recent years have seen growing prominence for ‘service-dominant logic’ in marketing (Vargo &
Lusch, 2004; 2008) or ‘service logic’ (Gronroos, 2011) in contrast to traditional ‘goods logic’. Vargo
and Lusch first introduced the concept of service logic. Since this first release the concept and
theories have been further developed, evolved and defended in several articles (Vargo & Lusch,
2004; 2006; 2008; 2011; Vargo et al. 2005; 2010; Lusch 2011; Lusch & Vargo 2006; 2011; Lusch
et al., 2007; Gummesson, 2008). Gronroos (2000) and Vargo and Lusch (2004) define services as
the application of specialized competences (knowledge and skills) through deeds, processes, and
performances for the benefit of another entity or the entity itself.
Service dominant logic has also been criticized. The criticism has concentrated on the fact that the
service dominant logic suggests that there is one best way: a single unitary perspective on
marketing. Instead there is a need for multiple perspectives in marketing, together with the
methodological pluralism that it implies (O’Shaughnessy & O’Shaugnessy, 2007; 2010). Vargo and
Lusch have effectively defended their theories (Vargo & Lusch, 2011; Lusch & Vargo, 2011).
The goods centered and services centered view is based on the perspective on resources. Constantin
and Lusch (1994) define operand resources (goods logic) as resources on which an operation or act
is performed to produce an effect, and they compare operand resources with operant resources,
which are employed to act on operand resources (and other operant resources). Operant resources
(service logic) are resources that produce effects (Constantin & Lusch, 1994). The role of operant
resources began to shift in the late twentieth century as humans began to realize that skills and
knowledge were the most important types of resources. Penrose (1959) was one of the first
economists to recognize this view of resources. The shift in dominance of resources has implications
for how exchange processes, markets, and customers are perceived and approached.
Thus, the service centered logic represents a re-orientated philosophy that is applicable to all
marketing offerings, including those that involve tangible output (goods) in the process of service
provision. Table 6 below presents the goods centered view versus the services centered view. A
traditional goods centered view focuses largely on goods as the unit of exchange. Because firms can
always do better at serving customers and are constantly striving to provide better value than
competitors and financial performance. The service centered view perceives marketing as a
continuous learning process.
GOODS VERSUS SERVICES
GOODS
CENTERED
VIEW
The purpose of economic activity is to make and distribute things that can be sold
To be sold, these things must be embedded with utility and value during the production
and distribution processes and must offer to the consumer superior value in relation to
competitors' offerings
The firm should set all decision variables at a level that enables it to maximize the profit
from the sale of output
For both maximum production control and efficiency, the good should be standardized
and produced away from the market
The good can then be inventoried until is demanded and then delivered to the consumer
at a profit
SERVICES
CENTERED
VIEW
Identify or develop core competences, the fundamental knowledge and skills of an
economic entity that represent potential competitive advantage
Identify other entities (potential customers) that could benefit from these competences
Cultivate relationships that involve the customers in developing customized,
competitively compelling value propositions to meet specific needs
Gauge marketplace feedback by analyzing financial performance from exchange to learn
how to improve the firm's offering to customers and improve firm performance
Table 6. Goods- versus services-centered view based on (Vargo & Lusch, 2004).
According to Vargo, Lusch and Akaka (2010) service dominant logic builds around ten foundational
premises (FP) which are presented in Table 15. Remarkably, these foundational premises have
evolved much since their first release in 2004. Further, Vargo and Lusch (2006) have identified
conceptual transitions when moving as an organization from goods logic towards service logic. These
transitional concepts are illustrated in the table below. Table 7 highlights that the service logic is
rarely a clear simple step.
PREMISE
EXPLANATION
FP1
Service is the fundamental basis
of exchange
FP2
Indirect exchange masks the
fundamental basis of exchange
Goods
are
distribution
mechanisms
for
service
provision
Operant resources are
the
fundamental
source
of
competitive advantage
All
economies
are
service
economies
The application of operant resources (knowledge
and skills), 'service,' is the basis for all exchange.
Service is exchanged for service
Goods, money, and institutions mask the servicefor-service nature of exchange
Goods (both durable and non-durable) derive their
value through use - the service they provide
FP3
FP4
FP5
FP6
The customer is always a cocreator of value
The enterprise cannot deliver
value, but only offer value
propositions
FP7
FP8
A
service-centered
view
is
inherently customer oriented
and relational
All economic and social actors
are resource integrators
Value is always uniquely and
phenomenological
determined
by the beneficiary
FP9
FP10
The comparative ability to cause desired change
drives competition
Service (singular) is only now becoming more
apparent with increased specialization and
outsourcing
Implies value creation is interactional
The firm can offer its applied resources and
collaboratively
(interactively)
create
value
following acceptance, but cannot create/deliver
value alone
Service is customer-determined and co-created;
thus, it is inherently customer oriented and
relational
Implies the context of value creation is in
networks of networks (resource integrators)
Value is idiosyncratic, experiential, contextual, and
meaning laden
Table 15. Foundational premises of service-dominant logic (Vargo, Lusch and Akaka, 2010.
GOODS DOMINANT
LOGIC CONCEPT
TRANSITIONAL CONCEPTS
SERVICE
CONCEPTS
Goods
Products
Feature/attribute
Value-added
Profit maximization
Price
Equilibrium systems
Supply chain
Service
Offerings
Benefits
Co-production
Financial engineering
Value delivery
Dynamic systems
Value-chain
Promotions
Integrated market
communications
Market to
Market orientation
Service
Experiences
Solution
Co-creation of value
Financial feedback/learning
Value propositions
Complex adaptive systems
Value creation/network
constellation
Dialogue
To market
Product orientation
DOMINANT
Market with
Service orientation
Table 7. Conceptual transitions from goods to service dominant logic (Vargo et al., 2006).
LOGIC
In sum, the focus of marketing is shifting away from tangibles to intangibles, such as skills,
information, knowledge, and toward interactivity, connectivity and ongoing relationships. The
orientation has shifted from the producer to the consumer. The appropriate unit of exchange is no
longer the static and discrete tangible good (Vargo & Lusch, 2004; 2010). Hence, service is to
support customers’ practices and business outcomes with a set of resources and interactive
processes (Gronroos, 2008).
CUSTOMER VALUE DEFINITIONS
Zeithaml (1988) defined of customer perceived value as ‘Perceived value is the customer’s overall
assessment of the utility of a product based on perceptions of what is received and what is given …
value represents a tradeoff of the salient give (sacrifice: monetary and non-monetary elements) and
get (benefit) components.’ This tradeoff definition is at the heart of many conceptual and empirical
questions into customer value (Anderson & Narus, 1999; Blois, 2003; Ravald & Gronroos, 1996).
Anderson and Narus (1999) differs from Zeithaml (1988) since price is excluded from the definition
of value. They define customer value as the benefits that the customer receives minus the costs that
the customer incurred other than the purchase price. Former can raise questions of what value is for
customers in a business context? Value creation and co-creation of value can be defined as a
relationship between what one benefits and what one sacrifices (Sanchez-Fernandez & IniestaBonilla, 2007).
Consequently, Gronroos (2008) provides a working definition and describes value in the following
way: ‘Value for customers means that they, after having been assisted by the provision of resources
of interactive processes, are or feel better off than before.’
SUPPLIER VALUE (CUSTOMER LIFETIME VALUE)
Supplier value or customer lifetime value can be seen as the loyalty effect (Reichheld, 1996). The
essence of the loyalty effect is that customers vary considerably in terms of their profitability, that
understanding and managing customer profitability is the key to long-term corporate success, and
that increasing customer loyalty will increase customer profitability (Rust et al., 2000). It must be
clear that ‘supplier value’ is different from the ‘customer value’ discussed previously. The concept of
lifetime customer value measures value to the supplier, not value to the customer.
Currently, with the emerging service dominant logic, the execution of business activities, such as
deliveries, repair and maintenance, customer training, problem recovery, invoicing, can be
incorporated in the marketing process, and when doing so, marketing becomes influential in promise
keeping and loyalty creating (Gronroos, 2011). This is in line with Brown (2005), namely that
marketing has mainly been a promise making process, where the responsibility for keeping promises
and creating loyalty have been in the hands of other functions in a firm.
What does this mean for practice? MacMillan and McGrath (1997) state to differentiate a market
offering a supplier must not concentrate on the core product only, but take into account the
customers’ various practices and a supplier could as itself: How do customers order and purchase
products (goods and service activities)? How are products delivered? What happens when they have
been delivered? How are they installed? How are they paid for? How are products stored? How are
they moved around? What are customers really using products for? What do they need help with
when they use the products? How are products repaired and serviced? What happens when products
are disposed of or no longer used?
VALUE IN USE AND CO CREATION
In current marketing and management literature as well as in the discussion about service logic,
there is a common understanding that value is created in the users’ processes as value in use
(Norman & Ramirez, 1993; Woodruff & Gardial, 1996; Prahalad, 2004; Gronroos, 2006, 2008; Lush,
Vargo & O’Brien, 2007). It contents that value creation is formed by the customer’s value in use. In
addition, ‘the customer is always a co-creator of value’ (Vargo & Lusch, 2004, 2008) and ‘the firm is
not a value creator but a co-creator of value’ (Lusch, Vargo & Wessels, 2008).
The objective of adopting service logic in business is to enable value creation for both the customer
and the supplier. Gummesson (1995) observed that all kinds of resources are used by customers to
render service that create value for them. So, what is the role of service in business? Vargo and
Lusch (2008) state that service is a logic for understanding value creation and marketing. The
ultimate goal is to support value creation for the customer and enable value creation by the
supplier. Gronroos and Ravald (2009) posit based on the emphasis on value in use, the goal of
business is mutual value creation, with service as a mediating factor in this process.
Interaction between suppliers and customers take place as supplier and customer processes are
simultaneously occurring processes. During these interactions co-producing opportunities exist for
customers. As Storbacka and Lehtinen (2001) state, customers produce value for themselves
independently, but suppliers may offer assistance. Gronroos (2008) adds that in addition to value
facilitation, the supplier may become a co-creator of value as well. Co-creation opportunities that
suppliers have are strategic options for creating value (Payne, Storbacka & Frow, 2008). These
interactions involving co-creation are dialogical, where both parties influence each other’s
perceptions and actions (Ballantyne & Varey, 2006).
CONCLUSION SERVICE PROVIDING COMPETENCES
The traditional focus of marketing on tangible goods shifts to services. Services such as skills,
information, knowledge, and toward interaction collaboration in ongoing relationships are the new
focus of marketing. A service perspective on marketing means that a supplier does not only provide
resources for the customer’s use, but instead it provides support to its customers’ business
processes through supporting ways of assisting the customers’ operations relevant to their business.
It is made clear that a firm who adopts service logic focuses on business effectiveness instead of the
traditional goods logic that aims for operational efficiency.
A service providing strategy should be able to understand, create and deliver value to B2B
customers. Customer value means that, after customers have been helped by attaining resources
during interactive processes, they are or feel better off than before. This can create more supplier
value or eventually create the loyalty effect by customers. It means when customer loyalty
increases, it will enlarge customer profitability.
From a service marketing perspective, the ultimate goal is to support value creation for the
customer and enable value creation by the supplier. This includes that value creation is mutual, with
service as a mediating factor in this process. So, suppliers and buyers are becoming co-creators of
value by interacting which takes place during development, design, manufacturing deliveries and
front office processes.
SOURCE
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