Research Paper on "Service -- Dominant Logic the Key Success"

Research Paper 13 pages (3560 words) Sources: 20

[EXCERPT] . . . .

Service -- Dominant Logic

The Key Success Factors to Building a Brand

In the Context of Service-Dominant Logic:

A Perspective on Co-Creation

The balance of power is changing

The evolution of marketing

The logic of marketing

Customer experience is the brand and co-creation is the process

The purpose of this paper is to explore brand building in the context of service-dominant logic. Brands are the sum of experiences a customer has with a firm, the firm's products and the firm's service. The firm wants the brand to reflect the core values of the company and they work hard to communicate this to the marketplace. This creates a fundamental conflict between the customer who ultimately decides what the brand stands for and firms who spend enormous resources (money, manpower and creative skills) to persuade the consumer to think their brand in a very specific way. This conflict is embedded in how the firm views the market, resources, the role of the consumer and the role of the firm; more simply put what is the firms belief system about the market and their role in it.

This paper will first examine how technology is empowering consumers and the impact it has on both the market and the firm. Specifically, we will look at the changes in the relationship between the consumer and the firm. This will be followed by an explanation of logic, its' role in a firm and how the changing technologies is creating a need for a new logic -- a service dominant logic. A firm's ability to adopt, adapt and execute this new logic will determine whether or not the firm can gain a competitive advantage. From there, we will explore value creation within the context of service dominant logic. The paper then shifts from the theoretical realm to a real world example. Of building a brand with co-creation of value. Marriott International is a pioneer in co-creation. In the early 1980s, Marriott began co-creating without the advantage of today's technologies. Now, almost thirty years later, co-creation is in their organizational DNA.

2. The balance of power is changing

Traditionally, firms designed products, manufactured them, priced them and took them to market. The firm made money at the point of exchange. In a goods-dominant environment, the firm makes all the decisions about goods and services they bring to make. The consumer can only accept, reject or settle for their goods and services. C.K. Prahalad and Venkat Ramaswamy observed: "Consumers today have more choices of products and services than ever before, but they seem dissatisfied. Firms invest in greater product variety but are less able to differentiate themselves."

When a product becomes a commodity the only levers a marketer can pull is lowering costs and lowering the price which results in consumers become price shoppers. While production costs may decrease and prices fall, consumer's needs remain only partially met and unheard. To avoid becoming a commodity, a marketer must find new ways of adding-value.

Now let's consider the digital revolution. New, ubiquitous technologies have reduced the challenges of time and distance. A person can reach their colleague in Asia as quickly as they can reach their next-door neighbor. Using Facebook and Twitter, a person can quickly establish a network with thousands of people from all over the world. Now at a click of a mouse, the consumer can now share both the positive and the negative experiences they've had with a firm, its products and services…almost instantaneously.

" Informed, connected, empowered and active consumers are increasingly learning that they too can extract value at the traditional point of exchange. Consumers are now subjecting the industry's value creation process to scrutiny, analysis and evaluation. Consumer -- to-consumer communication and dialogue provides consumers an alternative source of information and perspective. They are not totally dependent on communication from the firm. Consumers can choose the firms they want to have a relationship with based on their own views of how value should be created for them (Prahalad et al., 2004).

To fight for uniqueness in the market, firms need to befriend these consumers and take advantage of the emerging technology. Firms need to engage in dialogues with customers and prospects; they need to create two-way dialogues to build products and brands that meet the unique needs of their customers. The dialogue becomes part of the product; the product moves from a good to become an experience. Experiences are very difficult to replicate and can therefore be a sustainable competitive advantage.

3. The evolution of marketing

Prior to the 1980s, marketers ran the marketplace and product managers were the kings. Firms viewed markets as an aggregation of consumers and a place for exchange of goods. Firms were the creators of value and customers consumed the value through the purchase and use of the goods and services. "Value exchange and extraction are the primary function s performed by the market, which is separated from the value creation process (Prahalad, et al., 2004). For example, packaged goods companies (PGC) made all the decisions for the consumer. Specifically, PGCs chose what products would be put on the shelf, what flavors the product would come in, and the color, taste and texture of the item.

In the last decade, much has been made about customer involvement in making and delivering product. These actions include self-service, customization of color and other features, and having a choice of distribution and transportation options. This does not really engage the customer in product design; it engages the customer to select from a predetermined set of features. It is like a Chinese restaurant, you can order anything you want, in any combination, and at any level of spiciness -- however -- the item must be on the menu. Personalization of a product is limited by the parameters set by the manufacturers. The firm maintains complete control of the offering and the consumer is still left with the same choices -- buy, reject or settle. The firm continues to see the market as the buyers who consume the added value of their goods

If firms are serious about creating differentiation, engaging the customer and moving from a good to an experience, firms will need to get into their psyche and evaluate their underlying logic. The firm's marketers need to lead the way and redefine themselves from a goods-dominant logic to a service-dominant logic.

4. The logic of marketing

This section will examine a firm with the traditional logic of goods-dominance and compare it to a firm with the emerging philosophy of service-dominant logic. According to Dictionary.com logic is a noun meaning the system or principles of reasoning applicable to any branch of knowledge or study. Therefore, a goods-dominant firm has a producer perspective and focuses on the manipulation of raw materials into a good for sale. A service-dominant firm focuses on the utility created and used by its customers. Good-dominant firms are internally oriented and service-dominant firms are consumer oriented (Cova et al., 2007). Table 1 exhibits the fundamental philosophies embedded in a goods-dominant firm and a service-dominant firm

Table 1

Factor

Goods-dominant

Service-dominant

Market Definition

An aggregation of consumers

The locus of exchange where a firm trades goods and services with the consumer

Separate from the firm

A forum for co-creation experiences

Resources

Operand resources

Resources on which an operation or act is performed to produce an effect

Success measured by share of operand resources and share of market

Example- minerals

Operant resources

Produce effects

Resources employed to act on operand resources

Specialized competences

Role of the consumer

Consumption

Consumers are outside the firm

Value exchange and extraction

They are not a part of value creation

Consumers are informed, connected, empowered and active

Consumers chooses the firms to from which they buy

If dissatisfied, they scrutinizes the firm

Use auctions to have prices reflect utility rather than production costs

They are co-creators of value

Role of the firm

Producers

Value creators

Target and manage consumers of their goods

Control all decisions

Co-creators of value

Responsible for creating high quality interactions

Responsible for the consumer experience

Flow of communications

Firm to the consumer

Persuades consumer to buy their goods and services

Consumer is not dependent on the firm for all its information

Communications are two-way between the consumer and the firm.

Sources: (Cova et al., 2007; Vargo et al., 2004; Vargo et al., 2007; Prahalad et al., 2004)

A firm that maintains the traditional, goods-dominant logic will find themselves becoming a producer of commodities and having to competing on price. To maintain profits margins, the firm will continually need to reduce the cost of production - quite possible to a point that their goods are degraded. By staying focus on the production of goods, the firm will continue to how customer at a distance. The consumer's will never be a sufficient part of value creation; the firm will not able to innovate and will supply the market with goods and services which they may not value.

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