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Abstract

Marketing inherited a model of exchange from economics, which had a dominant logic based on the exchange of “goods,” which usually are manufactured output. The dominant logic focused on tangible resources, embedded value, and transactions. Over the past several decades, new perspectives have emerged that have a revised logic focused on intangible resources, the cocreation of value, and relationships. The authors believe that the new per- spectives are converging to form a new dominant logic for marketing, one in which service provision rather than goods is fundamental to economic exchange. The authors explore this evolving logic and the corresponding shift in perspective for marketing scholars, marketing practitioners, and marketing educators.
A New Dominant Logic / 1
Journal of Marketing
Vol. 68 (January 2004), 1–17
Stephen L. Vargo & Robert F. Lusch
Evolving to a New Dominant Logic
for Marketing
Marketing inherited a model of exchange from economics, which had a dominant logic based on the exchange of
“goods,” which usually are manufactured output. The dominant logic focused on tangible resources, embedded
value, and transactions. Over the past several decades, new perspectives have emerged that have a revised logic
focused on intangible resources, the cocreation of value, and relationships. The authors believe that the new per-
spectives are converging to form a new dominant logic for marketing, one in which service provision rather than
goods is fundamental to economic exchange. The authors explore this evolving logic and the corresponding shift
in perspective for marketing scholars, marketing practitioners, and marketing educators.
Stephen L. Vargo is Visiting Professor of Marketing, Robert H. Smith
School of Business, University of Maryland (e-mail: svargo@rhsmith.umd.
edu). Robert F.Lusch is Dean and Distinguished University Professor, M.J.
Neeley School of Business, Texas Christian University, and Professor of
Marketing (on leave), Eller College of Business and Public Administration,
University of Arizona (e-mail: r.lusch@tcu.edu). The authors contributed
equally to this manuscript. The authors thank the anonymous JM review-
ers and Shelby Hunt, Gene Laczniak, Alan Malter, Fred Morgan, and
Matthew O’Brien for comments on various drafts of this manuscript.
The formal study of marketing focused at first on the
distribution and exchange of commodities and manu-
factured products and featured a foundation in eco-
nomics (Marshall 1927; Shaw 1912; Smith 1904). The first
marketing scholars directed their attention toward com-
modities exchange (Copeland 1920), the marketing institu-
tions that made goods available and arranged for possession
(Nystrom 1915; Weld 1916), and the functions that needed
to be performed to facilitate the exchange of goods through
marketing institutions (Cherington 1920; Weld 1917).
By the early 1950s, the functional school began to
morph into the marketing management school, which was
characterized by a decision-making approach to managing
the marketing functions and an overarching focus on the
customer (Drucker 1954; Levitt 1960; McKitterick 1957).
McCarthy (1960) and Kotler (1967) characterized marketing
as a decision-making activity directed at satisfying the cus-
tomer at a profit by targeting a market and then making opti-
mal decisions on the marketing mix, or the “4 P’s.” The fun-
damental foundation and the tie to the standard economic
model continued to be strong. The leading marketing man-
agement textbook in the 1970s (Kotler 1972, p. 42, empha-
sis in original) stated that “marketing management seeks to
determine the settings of the company’s marketing decision
variables that will maximize the company’s objective(s) in
the light of the expected behavior of noncontrollable
demand variables.”
Beginning in the 1980s, many new frames of reference
that were not based on the 4 P’s and were largely indepen-
dent of the standard microeconomic paradigm began to
emerge. What appeared to be separate lines of thought sur-
faced in relationship marketing, quality management, mar-
ket orientation, supply and value chain management,
resource management, and networks. Perhaps most notable
was the emergence of services marketing as a subdiscipline,
following scholars’ challenges to “break free” (Shostack
1977) from product marketing and recognize the inadequa-
cies of the dominant logic for dealing with services
marketing’s subject matter (Dixon 1990). Many scholars
believed that marketing thought was becoming more frag-
mented. On the surface, this appeared to be a reasonable
characterization.
In the early 1990s, Webster (1992, p. 1) argued, “The
historical marketing management function, based on the
microeconomic maximization paradigm, must be critically
examined for its relevance to marketing theory and prac-
tice.” At the end of the twentieth century, Day and Mont-
gomery (1999, p. 3) suggested that “with growing reserva-
tion about the validity or usefulness of the Four P’s concept
and its lack of recognition of marketing as an innovating or
adaptive force, the Four P’s now are regarded as merely a
handy framework.” At the same time, advocating a network
perspective, Achrol and Kotler (1999, p. 162) stated, “The
very nature of network organization, the kinds of theories
useful to its understanding, and the potential impact on the
organization of consumption all suggest that a paradigm
shift for marketing may not be far over the horizon.” Sheth
and Parvatiyar (2000, p. 140) suggested that “an alternative
paradigm of marketing is needed, a paradigm that can
account for the continuous nature of relationships among
marketing actors.” They went as far as stating (p. 140) that
the marketing discipline “give up the sacred cow of
exchange theory.” Other scholars, such as Rust (1998),
called for convergence among seemingly divergent views.
Fragmented thought, questions about the future of mar-
keting, calls for a paradigm shift, and controversy over ser-
vices marketing being a distinct area of study—are these
calls for alarm? Perhaps marketing thought is not so much
fragmented as it is evolving toward a new dominant logic.
Increasingly, marketing has shifted much of its dominant
logic away from the exchange of tangible goods (manufac-
tured things) and toward the exchange of intangibles, spe-
2/ Journal of Marketing, January 2004
1Typical traditional definitions include those of Lovelock (1991,
p. 13), “services are deeds, processes, and performances”;
Solomon and colleagues (1985, p. 106), “services marketing refers
to the marketing of activities and processes rather than objects”;
and Zeithaml and Bitner (2000), “services are deeds, processes,
and performances.” For a definition consistent with the one we
adopt here, see Gronroos (2000).
cialized skills and knowledge, and processes (doing things
for and with), which we believe points marketing toward a
more comprehensive and inclusive dominant logic, one that
integrates goods with services and provides a richer founda-
tion for the development of marketing thought and practice.
Rust (1998, p. 107) underscores the importance of such
an integrative view of goods and services: “[T]he typical
service research article documented ways in which services
were different from goods.… It is time for a change. Service
research is not a niche field characterized by arcane points
of difference with the dominant goods management field.
The dominant, 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 mar-
keting in general (see, e.g., Gronroos 1994; Kotler 1997;
Normann and Ramirez 1993; Schlesinger and Heskett
1991). For example, Gummesson (1995, pp. 250–51,
emphasis added) states the following:
Customers do not buy goods or services: [T]hey buy offer-
ings which render services which create value.… The tra-
ditional division between goods and services is long out-
dated. It is not a matter of redefining services and seeing
them from a customer perspective; activities render ser-
vices, 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.
The purpose of this article is to illuminate the evolution
of marketing thought toward a new dominant logic. A sum-
mary of this evolution over the past 100 years is provided in
Table 1 and Figure 1. Briefly, marketing has moved from a
goods-dominant view, in which tangible output and discrete
transactions were central, to a service-dominant view, in
which intangibility, exchange processes, and relationships
are central. It is worthwhile to note that the service-centered
view should not be equated with (1) the restricted, tradi-
tional conceptualizations that often treat services as a resid-
ual (that which is not a tangible good; e.g., Rathmell 1966);
(2) something offered to enhance a good (value-added ser-
vices); or (3) what have become classified as services indus-
tries, such as health care, government, and education.
Rather, we 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. Although our definition is compatible
with narrower, more traditional definitions, we argue that it
is more inclusive and that it captures the fundamental func-
tion of all business enterprises.1Thus, the service-centered
dominant logic represents a reoriented philosophy that is
applicable to all marketing offerings, including those that
involve tangible output (goods) in the process of service
provision.
A Fundamental Shift in Worldview
To unravel the changing worldview of marketing or its dom-
inant logic, we must see into, through, and beyond the extant
marketing literature. A worldview or dominant logic is never
clearly stated but more or less seeps into the individual and
collective mind-set of scientists in a discipline. Predictably,
this requires viewing the world at a highly abstract level. We
begin our discussion with the work of Thomas Malthus.
In his analysis of world resources, Thomas Malthus
(1798) concluded that with continued geometric population
growth, society would soon run out of resources. In a
Malthusian world, “resources” means natural resources that
humans draw on for support. Resources are essentially
“stuff” that is static and to be captured for advantage. In
Malthus’s time, much of the political and economic activity
involved individual people, organizations, and nations work-
ing toward and struggling and fighting over acquiring this
stuff. Over the past 50 years, resources have come to be
viewed not only as stuff but also as intangible and dynamic
functions of human ingenuity and appraisal, and thus they
are not static or fixed. Everything is neutral (or perhaps even
a resistance) until humankind learns what to do with it (Zim-
merman 1951). Essentially, resources are not; they become.
As we discuss, this change in perspective on resources helps
provide a framework for viewing the new dominant logic of
marketing.
Constantin and Lusch (1994) define operand resources
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 recourses). During most of civ-
ilization, human activity has been concerned largely with
acting on the land, animal life, plant life, minerals, and other
natural resources. Because these resources are finite,
nations, clans, tribes, or other groups that possessed natural
resources were considered wealthy. A goods-centered dom-
inant logic developed in which the operand resources were
considered primary. A firm (or nation) had factors of pro-
duction (largely operand resources) and a technology (an
operant resource), which had value to the extent that the firm
could convert its operand resources into outputs at a low
cost. Customers, like resources, became something to be
captured or acted on, as English vocabulary would eventu-
ally suggest; we “segment” the market, “penetrate” the mar-
ket, and “promote to” the market all in hope of attracting
customers. Share of operand resources and share of (an
operand) market was the key to success.
Operant resources are resources that produce effects
(Constantin and Lusch 1994). The relative 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. Zimmermann (1951) and
Penrose (1959) were two of the first economists to recognize
the shifting role and view of resources. As Hunt (2000, p.
75) observes, Penrose did not use the popular term “factor of
production” but rather used the term “collection of produc-
tive resources.” Penrose suggested (pp. 24–25; emphasis in
original) that “it is never resources themselves that are the
A New Dominant Logic / 3
TABLE 1
Schools of Thought and Their Influence on Marketing Theory and Practice
Timeline and Stream of Literature Fundamental Ideas or Propositions
1800–1920: Classical and Neoclassical
Economics
Marshall (1890); Say (1821); Shaw (1912);
Smith (1776)
Economics became the first social science to reach the quantita-
tive sophistication of the natural sciences. Value is embedded in
matter through manufacturing (value-added, utility, value in
exchange); goods come to be viewed as standardized output
(commodities). Wealth in society is created by the acquisition of
tangible “stuff.” Marketing as matter in motion.
Early marketing thought was highly descriptive of commodities,
institutions, and marketing functions: commodity school (charac-
teristics of goods), institutional school (role of marketing institutions
in value-embedding process), and functional school (functions that
marketers perform). A major focus was on the transaction or output
and how institutions performing marketing functions added value to
commodities. Marketing primarily provided time and place utility,
and a major goal was possession utility (creating a transfer of title
and/or sale). However, a focus on functions is the beginning of the
recognition of operant resources.
1900–1950: Early/Formative Marketing
•Commodities (Copeland 1923)
•Institutions (Nystrom 1915; Weld 1916)
•Functional (Cherington 1920; Weld 1917)
1950–1980: Marketing Management
•Business should be customer focused (Drucker
1954; McKitterick 1957)
•Value “determined” in marketplace (Levitt 1960)
•Marketing is a decision-making and problem-
solving function (Kotler 1967; McCarthy 1960)
Firms can use analytical techniques (largely from microeconomics)
to try to define marketing mix for optimal firm performance. Value
“determined” in marketplace; “embedded” value must have useful-
ness. Customers do not buy things but need or want fulfillment.
Everyone in the firm must be focused on the customer because the
firm’s only purpose is to create a satisfied customer. Identification
of the functional responses to the changing environment that pro-
vide competitive advantage through differentiation begins to shift
toward value in use.
1980–2000 and Forward: Marketing as a Social
and Economic Process
•Market orientation (Kohli and Jaworski 1990;
Narver and Slater 1990)
•Services marketing (Gronroos 1984; Zeithaml,
Parasuraman, and Berry 1985)
•Relationship marketing (Berry 1983; Duncan and
Moriarty 1998; Gummesson 1994, 2002; Sheth
and Parvatiyar 2000)
•Quality management (Hauser and Clausing 1988;
Parasuraman, Zeithaml, and Berry 1988)
•Value and supply chain management (Normann
and Ramirez 1993; Srivastava, Shervani, and
Fahey 1999)
•Resource management (Constantin and Lusch
1994; Day 1994; Dickson 1992; Hunt 2000; Hunt
and Morgan 1995)
•Network analysis (Achrol 1991; Achrol and Kotler
1999; Webster 1992)
Adominant logic begins to emerge that largely views marketing as
a continuous social and economic process in which operant
resources are paramount. This logic views financial results not as
an end result but as a test of a market hypothesis about a value
proposition. The marketplace can falsify market hypotheses, which
enables entities to learn about their actions and find ways to better
serve their customers and to improve financial performance.
This paradigm begins to unify disparate literature streams in major
areas such as customer and market orientation, services market-
ing, relationship marketing, quality management, value and supply
chain management, resource management, and network analysis.
The foundational premises of the emerging paradigm are (1) skills
and knowledge are the fundamental unit of exchange, (2) indirect
exchange masks the fundamental unit of exchange, (3) goods are
distribution mechanisms for service provision, (4) knowledge is the
fundamental source of competitive advantage, (5) all economies
are services economies, (6) the customer is always a coproducer,
(7) the enterprise can only make value propositions, and (8) a ser-
vice-centered view is inherently customer oriented and relational.
‘inputs’ to the production process, but only the services that
the resources can render.
Operant resources are often invisible and intangible;
often they are core competences or organizational processes.
They are likely to be dynamic and infinite and not static and
finite, as is usually the case with operand resources. Because
operant resources produce effects, they enable humans both
to multiply the value of natural resources and to create addi-
tional operant resources. A well-known illustration of oper-
ant resources is the microprocessor: Human ingenuity and
skills took one of the most plentiful natural resources on
Earth (silica) and embedded it with knowledge. As
Copeland (qtd. in Gilder 1984) has observed, in the end the
microprocessor is pure idea. As we noted previously,
resources are not; they become (Zimmermann 1951). The
service-centered dominant logic perceives operant resources
as primary, because they are the producers of effects. This
shift in the primacy of resources has implications for how
exchange processes, markets, and customers are perceived
and approached.
4/ Journal of Marketing, January 2004
FIGURE 1
Evolving to a New Dominant Logic for Marketing
Pre-1900 Twenty-first Century
Goods-Centered Model of Exchange Service-Centered Model of Exchange
(Concepts: tangibles, statics, (Concepts: intangibles, competences,
discrete transactions, and operand dynamics, exchange processes and
resources) relationships, and operant resources)
Classical and Neoclassical Economics (1800–1920)
Formative Marketing Thought (Descriptive: 1900–1950)
•Commodities
•Marketing institutions
•Marketing functions
Marketing Management School of Thought (1950–2000)
•Customer orientation and marketing concept
•Value determined in marketplace
•Manage marketing functions to achieve optimal output
•Marketing science emerges and emphasizes use of optimization techniques
Marketing as a Social and Economic Process (Emerging Paradigm: 1980–2000 and forward)
•Market orientation processes
•Services marketing processes
•Relationship marketing processes
•Quality management processes
•Value and supply management processes
•Resource management and competitive processes
•Network mana
g
ement
p
rocesses
Thought leaders in marketing continually move away from
tangible output with embedded value in which the focus was on
activities directed at discrete or static transactions. In turn, they
move toward dynamic exchange relationships that involve
performing processes and exchanging skills and/or services in
which value is cocreated with the consumer. The worldview
changes from a focus on resources on which an operation or
act is performed (operand resources) to resources that produce
effects (operant resources).
A New Dominant Logic / 5
Goods Versus Services: Rethinking
the Orientation
Viewed in its traditional sense, marketing focuses largely on
operand resources, primarily goods, as the unit of exchange.
In its most rudimentary form, the goods-centered view pos-
tulates the following:
1. The purpose of economic activity is to make and distribute
things that can be sold.
2. 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.
3. The firm should set all decision variables at a level that
enables it to maximize the profit from the sale of output.
4. For both maximum production control and efficiency, the
good should be standardized and produced away from the
market.
5. The good can then be inventoried until it is demanded and
then delivered to the consumer at a profit.
Because early marketing thought was concerned with
agricultural products and then with other physical goods, it
was compatible with this rudimentary view. Before 1960,
marketing was viewed as a transfer of ownership of goods
and their physical distribution (Savitt 1990); it was viewed
as the “application of motion to matter” (Shaw 1912, p.
764). The marketing literature rarely mentioned “immaterial
products” or “services,” and when it did, it mentioned them
only as “aids to the production and marketing of goods”
(Converse 1921, p. vi; see Fisk, Brown, and Bitner 1993).
An early fragmentation in the marketing literature occurred
when Shostack (1977, p. 73) noted, “The classical ‘market-
ing mix,’ the seminal literature, and the language of market-
ing all derive from the manufacture of physical-goods.
Marketing inherited the view that value (utility) was
embedded in a product from economics. One of the first
debates in the fledgling discipline of marketing centered on
the question, If value was something added to goods, did
marketing contribute to value? Shaw (1912, p. 12; see also
Shaw 1994) argued that “Industry is concerned with the
application of motion to matter to change its form and place.
The change in form we term production; the change in
place, distribution.” Weld (1916) more formally defined
marketing’s role in production as the creation of the time,
place, and possession utilities, which is the classification
found in current marketing literature.
The general concept of utility has been broadly accepted
in marketing, but its meaning has been interpreted differ-
ently. For example, discussing Beckman’s (1957) and Alder-
son’s (1957) treatments of utility, Dixon (1990, pp. 337–38,
emphasis in original) argues that “each writer uses a differ-
ent concept of value. Beckman is arguing in terms of value-
in-exchange, basing his calculation on value-added, upon
‘the selling value’ of products.... Alderson is reasoning in
terms of value-in-use.” Drawing on Cox (1965), Dixon
(1990, p. 342) believes the following:
The “conventional view” of marketing as adding proper-
ties to matter caused a problem for Alderson and “makes
more difficult a disinterested evaluation of what marketing
is and does” (Cox 1965). This view also underlies the dis-
satisfaction with marketing theory that led to the services
marketing literature. If marketing is the process that adds
properties to matter, then it can not contribute to the pro-
duction of “immaterial goods.”
Alderson (1957, p. 69) advised, “What is needed is not
an interpretation of the utility created by marketing, but a
marketing interpretation of the whole process of creating
utility.” Dixon (1990, p. 342) suggests that “the task of
responding to Alderson’s challenge remains.
The service-centered view of marketing implies that
marketing is a continuous series of social and economic
processes that is largely focused on operant resources with
which the firm is constantly striving to make better value
propositions than its competitors. In a free enterprise sys-
tem, the firm primarily knows whether it is making better
value propositions from the feedback it receives from the
marketplace in terms of firm financial performance.
Because firms can always do better at serving customers and
improving financial performance, the service-centered view
of marketing perceives marketing as a continuous learning
process (directed at improving operant resources). The
service-centered view can be stated as follows:
1. Identify or develop core competences, the fundamental
knowledge and skills of an economic entity that represent
potential competitive advantage.
2. Identify other entities (potential customers) that could bene-
fit from these competences.
3. Cultivate relationships that involve the customers in devel-
oping customized, competitively compelling value proposi-
tions to meet specific needs.
4. Gauge marketplace feedback by analyzing financial perfor-
mance from exchange to learn how to improve the firm’s
offering to customers and improve firm performance.
This view is grounded in and largely consistent with
resource advantage theory (Conner and Prahalad 1996; Hunt
2000; Srivastava, Fahey, and Christensen 2001) and core
competency theory (Day 1994; Prahalad and Hamel 1990).
Core competences are not physical assets but intangible
processes; they are “bundles of skills and technologies”
(Hamel and Prahalad 1994, p. 202) and are often routines,
actions, or operations that are tacit, causally ambiguous, and
idiosyncratic (Nelson and Winter 1982; Polanyi 1966). Hunt
(2000, p. 24) refers to core competences as higher-order
resources because they are bundles of basic resources. Teece
and Pisano (1994, p. 537) suggest that “the competitive
advantage of firms stems from dynamic capabilities rooted
in high performance routines operating inside the firm,
embedded in the firm’s processes, and conditioned by its
history.” Hamel and Prahalad (pp. 202, 204) discuss “com-
petition for competence,” or competitive advantage resulting
from competence making a “disproportionate contribution
to customer-perceived value.”
The focus of marketing on core competences inherently
places marketing at the center of the integration of business
functions and disciplines. As Prahalad and Hamel (1990, p.
82) suggest, “core competence is communication, involve-
ment, and a deep commitment to working across organiza-
tional boundaries.” In addition, they state (p. 82) that core
competences are “collective learning in the organization,
especially [about] how to coordinate diverse production
skills.” This cross-functional, intraorganizational boundary-
6/ Journal of Marketing, January 2004
spanning also applies to the interorganizational boundaries
of vertical marketing systems or networks. Channel inter-
mediaries and network partners represent core competences
that are organized to gain competitive advantage by per-
forming specialized marketing functions. The firms can
have long-term viability only if they learn in conjunction
with and are coordinated with other channel and network
partners.
The service-centered view of marketing is customer-
centric (Sheth, Sisodia, and Sharma 2000) and market dri-
ven (Day 1999). This means more than simply being con-
sumer oriented; it means collaborating with and learning
from customers and being adaptive to their individual and
dynamic needs. A service-centered dominant logic implies
that value is defined by and cocreated with the consumer
rather than embedded in output. Haeckel (1999) observes
successful firms moving from practicing a “make-and-sell”
strategy to a “sense-and-respond” strategy. Day (1999, p.
70) argues for thinking in terms of self-reinforcing “value
cycles” rather than linear value chains. In the service-
centered view of marketing, firms are in a process of con-
tinual hypothesis generation and testing. Outcomes (e.g.,
financial) are not something to be maximized but something
to learn from as firms try to serve customers better and
improve their performance. Thus, a market-oriented and
learning organization (Slater and Narver 1995) is compati-
ble with, if not implied by, the service-centered model.
Because of its central focus on dynamic and learned core
competences, the emerging service-centered dominant logic
is also compatible with emerging theories of the firm. For
example, Teece and Pisano (1994, p. 540) emphasize that
competences and capabilities are “ways of organizing and
getting things done, which cannot be accomplished by using
the price system to coordinate activity.”
Having described the goods- and service-centered views
of marketing, we turn to ways that the views are different.
Six differences between the goods- and service-centered
dominant logic, all centered on the distinction between
operand and operant resources, are presented in Table 2. The
six attributes and our eight foundational premises (FPs) help
present the patchwork of the emerging dominant logic.
FP1:The Application of Specialized
Skills and Knowledge Is the
Fundamental Unit of Exchange
People have two basic operant resources: physical and men-
tal skills. Both types of skills are distributed unequally in a
population. Each person’s skills are not necessarily optimal
for his or her survival and well-being; therefore, specializa-
tion is more efficient for society and for individual members
of society. Largely because they specialize in particular
skills, people (or other entities) achieve scale effects. This
specialization requires exchange (Macneil 1980; Smith
1904). Studying exchange in ancient societies, Mauss
(1990) shows how division of labor within and between
clans and tribes results in the tendering of “total services” by
gift giving among clans and tribes. Not only do people con-
tract for services from one another by giving and receiving
gifts, but, as Mauss (p. 6) observes, “there is total service in
the sense that it is indeed the whole clan that contracts on
behalf of all, for all that it possesses and for all that it does.”
This exchange of specializations leads to two views
about what is exchanged. The first view involves the output
from the performance of the specialized activities; the sec-
ond involves the performance of the specialized activities.
That is, if two parties jointly provide for each other’s carbo-
hydrate and protein needs by having one party specialize in
fishing knowledge and skills and the other specialize in
farming knowledge and skills, the exchange is one of fish
for wheat or of the application of fishing knowledge or com-
petence (fishing services) for the application of farming
knowledge or competence (farming services).
The relationships between specialized skills and
exchange have been recognized as far back as Plato’s time,
and the concept of the division of labor served as the foun-
dation for Smith’s (1904) seminal work in economics. How-
ever, Smith focused on only a subclass of human skills: the
skills that resulted in surplus tangible output (in general, tan-
gible goods and especially manufactured goods) that could
be exported and thus contributed to national wealth. Smith
recognized that the foundation of exchange was human
skills as well as the necessity and usefulness of skills that
did not result in tangible goods (i.e., services); they were
simply not “productive” in terms of his national wealth stan-
dard. More than anything else, Smith was a moral philoso-
pher who had the normative purpose of explaining how the
division of labor and exchange should contribute to social
well-being. In the sociopolitical milieu of his time, social
well-being was defined as national wealth, and national
wealth was defined in terms of exportable things (operand
resources). Thus, for Smith, “productive” activity was lim-
ited to the creation of tangible goods, or output that has
exchange value.
At that time, Smith’s focus on exchange value repre-
sented a departure from the more accepted focus on value in
use, and it had critical implications for how economists, and
later marketers, would view exchange. Smith was aware of
the schoolmen’s and early economic scholars’ view that
“The Value of all Wares arises from their use” (Barbon 1903,
p. 21) and that “nothing has a price among men except plea-
sure, and only satisfactions are purchased” (Galiani qtd. in
Dixon 1990, p. 304). But this use–value interpretation was
not consistent with Smith’s national wealth standard. For
Smith, “wealth consisted of tangible goods, not the use
made of them” (Dixon 1990, p. 340). Although most early
economists (e.g., Mill 1929; Say 1821) took exception to
this singular focus on tangible output, they nonetheless
acquiesced to Smith’s view that the proper subject matter for
economic philosophy was the output of “productive” skills
or services, that is, tangible goods that have embedded
value.
Frederic Bastiat was an early economic scholar who did
not acquiesce to the dominant view. Bastiat criticized the
political economists’ view that value was tied only to tangi-
ble objects. For Bastiat (1860, p. 40), the foundations of eco-
nomics were people who have “wants” and who seek “satis-
factions.” Although a want and its satisfaction are specific to
each person, the effort required is often provided by others.
For Bastiat (1964, pp. 161–62), “the great economic law is
A New Dominant Logic / 7
TABLE 2
Operand and Operant Resources Help Distinguish the Logic of the Goods- and Service-Centered Views
Traditional Emerging
Goods-Centered Service-Centered
Dominant Logic Dominant Logic
Primary unit of exchange People exchange for goods. These
goods serve primarily as operand
resources.
People exchange to acquire the
benefits of specialized competences
(knowledge and skills), or services.
Knowledge and skills are operant
resources.
Role of goods Goods are operand resources and end
products. Marketers take matter and
change its form, place, time, and
possession.
Goods are transmitters of operant
resources (embedded knowledge);
they are intermediate “products” that
are used by other operant resources
(customers) as appliances in value-
creation processes.
Role of customer The customer is the recipient of
goods. Marketers do things to
customers; they segment them,
penetrate them, distribute to them, and
promote to them. The customer is an
operand resource.
The customer is a coproducer of
service. Marketing is a process of
doing things in interaction with the
customer. The customer is primarily an
operant resource,only functioning
occasionally as an operand resource.
Determination and meaning of value Value is determined by the producer. It
is embedded in the operand resource
(goods) and is defined in terms of
“exchange-value.”
Value is perceived and determined by
the consumer on the basis of “value in
use.” Value results from the beneficial
application of operant resources
sometimes transmitted through
operand resources. Firms can only
make value propositions.
Firm–customer interaction The customer is an operand resource.
Customers are acted on to create
transactions with resources.
The customer is primarily an operant
resource. Customers are active
participants in relational exchanges
and coproduction.
Source of economic growth Wealth is obtained from surplus
tangible resources and goods. Wealth
consists of owning, controlling, and
producing operand resources.
Wealth is obtained through the
application and exchange of
specialized knowledge and skills. It
represents the right to the future use
of operant resources.
this: Services are exchanged for services…. It is trivial, very
commonplace; it is, nonetheless, the beginning, the middle,
and the end of economic science.” He argued (1860, p. 43)
the following: “[I]t is in fact to this faculty … to work the
one for the other; it is this transmission of efforts,this
exchange of services [this emphasis added], with all the infi-
nite and involved combinations to which it gives rise …
which constitutes Economic Science, points out its origin,
and determines its limits.”
Therefore, value was considered the comparative appre-
ciation of reciprocal skills or services that are exchanged to
obtain utility; value meant “value in use.” As Mill (1929)
did, Bastiat recognized that by using their skills (operant
resources), humans could only transform matter (operand
resources) into a state from which they could satisfy their
desires.
However, the narrower focus on the tangible output with
exchange value had several advantages for the early econo-
mists’ quest of turning economic philosophy into an eco-
nomic science, not the least of which was economics’ simi-
larity to the subject matter of the archetypical science of the
day: Newtonian mechanics. The treatment of value as
embedded utility, or value added (exchange value), enabled
economists (e.g., Marshall 1927; Walras 1954) to ignore
both the application of mental and physical skills (services)
that transformed matter into a potentially useful state and
the actual usefulness as perceived by the consumer (value in
use). Thus, economics evolved into the science of matter
(tangible goods) that is embedded with utility, as a result of
manufacturing, and has value in exchange.
It was from this manufacturing-based view of econom-
ics that marketing emerged 100 years later. Throughout the
period that marketing was primarily concerned with the dis-
tribution of physical goods, the goods-centered model was
probably adequate. However, as the focus of marketing
moved away from distribution and toward the process of
exchange, economists began to perceive the accepted idea of
marketing adding time, place, and possession utility (Weld
8/ Journal of Marketing, January 2004
1916) as inadequate. As we noted previously, Alderson
(1957, p. 69) advised, “What is needed is not an interpreta-
tion of the utility created by marketing, but a marketing
interpretation of the whole process of creating utility.
Shostack (1977, p. 74) issued a much more encompassing
challenge than to “break [services marketing] free from
product marketing”; she argued for a “new conceptual
framework” and suggested the following:
One unorthodox possibility can be drawn from direct
observation of the nature of market “satisfiers” available to
it.… How should the automobile be defined? Is General
Motors marketing a service, a service that happens to
include a by-product called a car? Levitt’s classic “Mar-
keting Myopia” exhorts businessmen to think exactly this
generic way about what they market. Are automobiles
“tangible services”?
Shostack concluded (p. 74) that “if ‘either–or’ terms (prod-
uct [versus] service) do not adequately describe the true
nature of marketed entities, it makes sense to explore the
usefulness of a new structural definition.” We believe that
the emerging service-centered model meets Shostack’s chal-
lenge, addresses Alderson’s argument, and elaborates on
Levitt’s (1960) exhortation.
FP2:Indirect Exchange Masks the
Fundamental Unit of Exchange
Over time, exchange moved from the one-to-one trading of
specialized skills to the indirect exchange of skills in verti-
cal marketing systems and increasingly large, bureaucratic,
hierarchical organizations. During the same time, the
exchange process became increasingly monetized. Conse-
quently, the inherent focus on the customer as a direct trad-
ing partner largely disappeared. Because of industrial soci-
ety’s increasing division of labor, its growth of vertical
marketing systems, and its large bureaucratic and hierarchi-
cal organizations, most marketing personnel (and employees
in general) stopped interacting with customers (Webster
1992). In addition, because of the confluence of these
forces, the skills-for-skills (services-for-services) nature of
exchange became masked.
The Industrial Revolution had a tremendous impact on
efficiency, but this came at a price, at least in terms of the
visibility of the true nature of exchange. Skills (at least
“manufacturing” skills, such as making sharp sticks) that
had been tailored to specific needs were taken out of cottage
industry and mechanized, standardized, and broken down
into skills that had increasingly narrow purposes (e.g.,
sharpening one side of sticks). Workers’ specialization
increasingly became microspecialization (i.e., the perfor-
mance of increasingly narrow-skilled proficiencies). Orga-
nizations acquired and organized microspecializations to
produce what people wanted, and thus it became easier for
people to engage in exchange by providing their microspe-
cializations to organizations. However, the microspecialists
seldom completed a product or interacted with a customer.
They were compensated indirectly with money paid by the
organization and exchangeable in the market for the skills
the microspecialists needed rather than with direct, recipro-
cal skill-provision by the customer. Thus, organizations fur-
ther masked the skills-for-skills (services-for-services)
nature of exchange. Organizations themselves specialized
(e.g., by making sticks but relying on other organizations
such as wholesalers and retailers to distribute them), thus
further masking the nature of exchange.
As organizations continued to increase in size, they
began to realize that virtually all their workers had lost sense
of both the customer (Hauser and Clausing 1988) and the
purpose of their own service provision. The workers, who
performed microspecialized functions deep within the orga-
nization, had internal customers, or other workers. One
worker would perform a microspecialized task and then pass
the work product on to another worker, who would perform
an activity; this process continued throughout a service
chain. Because the workers along the chain did not pay one
another (reciprocally exchange with one another) and did
not typically deal directly with external customers, they
could ignore quality and both internal and external cus-
tomers. To correct for this problem, various management
techniques were developed under the rubric of total quality
management (Cole and Mogab 1995). The techniques were
intended to reestablish the focus of workers and the organi-
zation on both internal and external customers and quality.
The problem of organizations and their workers not pay-
ing attention to the customer is not unique to manufacturing
organizations. If an organization simply provides intangi-
bles, has some microspecialists who interact with cus-
tomers, and is in an industry categorized as a “service”
industry, it is not necessarily more customer focused. Many
non-goods-producing organizations, especially large
bureaucracies, are just as subject as goods-producing insti-
tutions to the masking effect of indirect exchange; they also
provide services through organized microspecializations
that are focused on minute and isolated aspects of service
provision.
Regardless of the type of organization, the fundamental
process does not change; people still exchange their often
collective and distributed specialized skills for the individ-
ual and collective skills of others in monetization and mar-
keting systems. People still exchange their services for other
services. Money, goods, organizations, and vertical market-
ing systems are only the exchange vehicles.
FP3:Goods Are Distribution
Mechanisms for Service Provision
The view of tangible products as the fundamental com-
ponents of economic exchange served reasonably well
as Western societies entered the Industrial Revolution, and
the primary interest of the developing science of economics
was manufacturing. Given its early concerns with the
distribution of manufactured and agricultural goods, the
view also worked relatively well when it was adopted by
marketing. However, marketing has moved well beyond
distribution and is now concerned with more than the
exchange of goods. Goods are not the common denominator
of exchange; the common denominator is the application of
specialized knowledge, mental skills, and, to a lesser extent,
physical labor (physical skills).
A New Dominant Logic / 9
Knowledge and skills can be transferred (1) directly, (2)
through education or training, or (3) indirectly by embed-
ding them in objects. Thus, tangible products can be viewed
as embodied knowledge or activities (Normann and Ramirez
1993). Wheels, pulleys, internal combustion engines, and
integrated chips are all examples of encapsulated knowl-
edge, which informs matter and in turn becomes the distrib-
ution channel for skill application (i.e., services).
The matter, embodied with knowledge, is an “appliance”
for the performance of services; it replaces direct service.
Norris (1941, p. 136) was one of the first scholars to recog-
nize that people want goods because they provide services.
Prahalad and Hamel (1990, p. 85) refer to products (goods)
as “the physical embodiments of one or more competen-
cies.” The wheel and pulley reduce the need for physical
strength. A pharmaceutical provides medical services. A
well-designed and easy-to-use razor replaces barbering ser-
vices, and vacuum cleaners and other household appliances
make household chores less labor intensive. Computers and
applications software can substitute for the direct services of
accountants, attorneys, physicians, and teachers. Kotler
(1977, p. 8) notes that the “importance of physical products
lies not so much in owning them as in obtaining the services
they render.” Gummesson (1995, p. 251) argues that “activ-
ities render services, things render services.” Hollander
(1979, p. 43) suggests that “services may be replaced by
products” and compares barber shaves to safety razors and
laundry services to washing machines.
In addition to their direct service provision, the appli-
ances serve as platforms for meeting higher-order needs
(Rifkin 2000). Prahalad and Ramaswamy (2000, p. 84) refer
to the appliances as “artifacts, around which customers have
experiences” (see also Pine and Gilmore 1999). Gutman
(1982, p. 60) has pointed out that products are “means” for
reaching “end-states,” or “valued states of being, such as
happiness, security, and accomplishment.” That is, people
often purchase goods because owning them, displaying
them, and experiencing them (e.g., enjoying knowing that
they have a sports car parked in the garage, showing it off to
others, and experiencing its handling ability) provide satis-
factions beyond those associated with the basic functions of
the product (e.g., transportation). As humans have become
more specialized as a species, use of the market and goods
to achieve higher-order benefits, such as satisfaction, self-
fulfillment, and esteem, has increased. Goods are platforms
or appliances that assist in providing benefits; therefore,
consistent with Gutman, goods are best viewed as distribu-
tion mechanisms for services, or the provision of satisfac-
tion for higher-order needs.
FP4:Knowledge Is the Fundamental
Source of Competitive Advantage
Knowledge is an operant resource. It is the foundation of
competitive advantage and economic growth and the key
source of wealth. Knowledge is composed of propositional
knowledge, which is often referred to as abstract and gener-
alized, and prescriptive knowledge, which is often referred
to as techniques (Mokyr 2002). The techniques are the skills
and competences that entities use to gain competitive advan-
tage. This view is consistent with current economic thought
that the change in a firm’s productivity is primarily depen-
dent on knowledge or technology (Capon and Glazer 1987;
Nelson, Peck, and Kalachek 1967). Capon and Glazer
(1987) broadly define technology as know-how, and they
identify three components of technology: (1) product tech-
nology (i.e., ideas embodied in the product), (2) process
technology (i.e., ideas involved in the manufacturing
process), and (3) management technology (i.e., management
procedures associated with business administration and
sales). Mokyr (2002) reviews historical developments in
science and technology to demonstrate that the Industrial
Revolution was essentially about the creation and dissemi-
nation of propositional and prescriptive knowledge.
In the neoclassical model of economic growth, the
development of knowledge in society is exogenous to the
competitive system. However, in Hunt’s (2000) general the-
ory of competition, knowledge is endogenous. The process
of competition and the information provided by profits
result in competition being a knowledge-discovery process
(Hayek 1945; Hunt 2000). Therefore, not only are mental
skills the fundamental source of competitive advantage, but
competition also enhances mental skills and learning in
society. Dickson (1992) suggests that the firms that do the
best are the firms that learn most quickly in a dynamic and
evolving competitive market.
Quinn, Doorley, and Paquette (1990, p. 60) state that
“physical facilities—including a seemingly superior prod-
uct—seldom provide a sustainable competitive edge.
Quinn, Doorley, and Paquette’s suggestion that “a maintain-
able advantage usually derives from outstanding depth in
selected human skills, logistics capabilities, knowledge
bases, or other service strengths that competitors cannot
reproduce and that lead to greater demonstrable value for the
customer” is consistent with our own views. Normann and
Ramirez (1993, p. 69) state, “the only true source of com-
petitive advantage is the ability to conceive the entire value-
creating system and make it work.” Day (1994) discusses
competitive advantage in terms of capabilities or skills,
especially those related to market-sensing, customer-
linking, and channel-bonding. Barabba (1996, p. 48) argues
that marketing-based knowledge and decision making pro-
vide the core competence that “gives the enterprise its com-
petitive edge.” These views imply that operant resources,
specifically the use of knowledge and mental competences,
are at the heart of competitive advantage and performance.
The use of knowledge as the basis for competitive
advantage can be extended to the entire “supply” chain, or
service-provision chain. The goods-centered model neces-
sarily assumes that the primary flow in the chain is a physi-
cal flow, but it acknowledges the existence of information
flows. We argue that the primary flow is information; ser-
vice is the provision of the information to (or use of the
information for) a consumer who desires it, with or without
an accompanying appliance. Evans and Wurster (1997, p.
72) state this idea as follows: “[T]he value chain also
includes all the information that flows within a company and
between a company and its suppliers, its distributors, and its
existing or potential customers. Supplier relationships,
brand identity, process coordination, customer loyalty,
10 / Journal of Marketing, January 2004
employee loyalty, and switching costs all depend on various
kinds of information.” Evans and Wurster suggest that every
business is an information business. It is through the differ-
ential use of information, or knowledge, applied in concert
with the knowledge of other members of the service chain
that the firm is able to make value propositions to the con-
sumer and gain competitive advantage. Normann and
Ramirez (1993, pp. 65–66) argue that value creation should
not be considered in terms of the “outdated” value-added
notion, “grounded in the assumptions and models of an
industrial economy,” but in terms of the value created
through “coproduction with suppliers, business partners,
allies, and customers.”
The move toward a service-dominant logic is grounded
in an increased focus on operant resources and specifically
on process management. Webster (1992) and Day (1994)
emphasize the importance of marketing being central to
cross-functional business processes. To better manage the
processes, Moorman and Rust (1999) suggest that firms are
shifting away from a functional marketing organization and
toward a marketing process organization. Taking this even
further, Srivastava, Shervani, and Fahey (1999, p. 168) con-
tend that the enterprise consists of three core business
processes: (1) product development management, (2) supply
chain management, and (3) customer relationship manage-
ment. They also contend that marketing must be a critical
part of all these core business processes “that create and sus-
tain customer and shareholder value.” Similarly, Barabba
(1996) argues that marketing is an organizational “state of
mind.”
FP5:All Economies Are Services
Economies
As we have argued, the fundamental economic exchange
process pertains to the application of mental and physical
skills (service provision), and manufactured goods are
mechanisms for service provision. However, economic sci-
ence, as well as most classifications of economic exchange
that are based on it, is grounded on Smith’s narrowed con-
cern with manufactured output. Consequently, services have
traditionally been defined as anything that does not result in
manufactured (or agricultural) output (e.g., Rathmell 1966).
In addition, as we have suggested, specialization breeds
microspecialization; people are constantly moving toward
more specific specialties. Over time, activities and processes
that were once routinely performed internally by a single
economic entity (e.g., a manufacturing firm) become sepa-
rate specializations, which are then often outsourced
(Shugan 1994). Giarini (1985, p. 134) refers to this increas-
ing specialization as “complification.” The complification
process causes distortions in national economic accounting
systems, such as the one used in the United States, that are
based on types of output (e.g., agricultural, manufacturing,
intangible). The U.S. government is aware of these distor-
tions, as is evidenced in the Economic Classification Policy
Committee of the Bureau of Economic Analysis’s (1994, pp.
3–4) citation of Hill (1977, p. 320) on the issue:
[O]ne in the same activity, such as painting, may be clas-
sified as goods or service production depending purely on
the organization of the overall process of production... If
the painting is done by employees within the producer unit
[that] makes the good, it will be treated as [part of] the
goods production, whereas if it is done by an outside paint-
ing company, it will be classified as an intermediate input
of services. Thus, when a service previously performed in
a manufacturing establishment is contracted out, to a spe-
cialized services firm, data will show an increase in ser-
vices production in the economy even though the total
activity of “painting,” may be unchanged.
It is because of the differentiation of specialized skills (ser-
vices) in an output-based classification model rather than a
fundamental economic shift that scholars definitionally,
rather than functionally, have only recently considered that
a shift is occurring toward a “services economy” (see
Shugan 1994).
Similarly, economists have taught marketing scholars to
think about economic development in terms of “eras” or
“economies,” such as hunter-gatherer, agricultural, and
industrial. Formal economic thought developed during one
of these eras, the industrial economy, and it has tended to
describe economies in terms of the types of output, or
operand resources (game, agricultural products, and manu-
factured products), associated with markets that were
expanding rapidly at the time. However, the “economies”
might be better viewed as macrospecializations, each char-
acterized by the expansion and refinement of some particu-
lar type of competence (operant resource) that could be
exchanged. The hunter-gatherer macrospecialization was
characterized by the refinement and application of foraging
and hunting knowledge and skills; the agricultural
macrospecialization by the cultivation of knowledge and
skills; the industrial economy by the refinement of knowl-
edge and skills for large-scale mass production and organi-
zational management; and the services and information
economies by the refinement and use of knowledge and
skills about information and the exchange of pure, unem-
bedded knowledge.
In both the classification of economic activity and the
economic eras, the common denominator is the increased
refinement and exchange of knowledge and skills, or oper-
ant resources. Virtually all the activities performed today
have always been performed in some manner; however, they
have become increasingly separated into specialties and
exchanged in the market.
All this may seem to be an argument that traditional
classificatory systems underestimate the historical role and
rise of services. In a sense, it is. Services are not just now
becoming important, but just now they are becoming more
apparent in the economy as specialization increases and as
less of what is exchanged fits the dominant manufactured-
output classification system of economic activity. Services
and the operant resources they represent have always char-
acterized the essence of economic activity.
FP6:The Customer Is Always a
Coproducer
From the traditional, goods-based, manufacturing perspec-
tive, the producer and consumer are usually viewed as ide-
A New Dominant Logic / 11
ally separated in order to enable maximum manufacturing
efficiency. However, if the normative goal of marketing is
customer responsiveness, this manufacturing efficiency
comes at the expense of marketing efficiency and effective-
ness. From a service-centered view of marketing with a
heavy focus on continuous processes, the consumer is
always involved in the production of value. Even with tan-
gible goods, production does not end with the manufactur-
ing process; production is an intermediary process. As we
have noted, goods are appliances that provide services for
and in conjunction with the consumer. However, for these
services to be delivered, the customer still must learn to use,
maintain, repair, and adapt the appliance to his or her unique
needs, usage situation, and behaviors. In summary, in using
a product, the customer is continuing the marketing, con-
sumption, and value-creation and delivery processes.
Increasingly, both marketing practitioners and acade-
mics are shifting toward a continuous-process perspective,
in which separation of production and consumption is not a
normative goal, and toward a recognition of the advantages,
if not the necessity, of viewing the consumer as a copro-
ducer. Among academics, Normann and Ramirez (1993, p.
69) state that “the key to creating value is to coproduce
offerings that mobilize customers.” Lusch, Brown, and
Brunswick (1992) provide a general model to explain how
much of the coproduction or service provision the customer
will perform. Oliver, Rust, and Varki (1998) echo and extend
the idea of coproduction in their suggestion that marketing
is headed toward a paradigm of “real-time” marketing,
which integrates mass customization and relationship mar-
keting by interactively designing evolving offerings that
meet customers’ unique, changing needs. Prahalad and
Ramaswamy (2000) note that the market has become a
venue for proactive customer involvement, and they argue
for co-opting customer involvement in the value-creation
process. In summary, the customer becomes primarily an
operant resource (coproducer) rather than an operand
resource (“target”) and can be involved in the entire value
and service chain in acting on operand resources.
FP7:The Enterprise Can Only Make
Value Propositions
As we noted previously, marketing inherited a view that
value was something embedded in goods during the manu-
facturing process, and early marketing scholars debated the
issue of the types and extent of the utilities, or value-added,
that were created by marketing processes. This value-added
view functioned reasonably well as long as the focus of mar-
keting remained the tangible good. However, arguably, it
was the inadequacy of the value-added concept that necessi-
tated the delineation of the consumer orientation—essen-
tially, the admonition that the consumer ultimately needed to
find embedded value (value in exchange) useful (value in
use). As Dixon (1990, p. 342) notes, the “conventional view
of marketing adding properties to marketing … underlies
the dissatisfaction with marketing theory that led to the ser-
vices marketing literature” (see also Shaw 1994).
Services marketing scholars have been forced both to
reevaluate the idea of value being embedded in tangible
goods and to redefine the value-creation process. As with
much of the reexamination and redefinition that has origi-
nated in the services marketing literature, the implications
can be extended to all of marketing. For example, Gummes-
son (1998, p. 247) has argued that “if the consumer is the
focal point of marketing, value creation is only possible
when a good or service is consumed. An unsold good has no
value, and a service provider without customers cannot pro-
duce anything.” Likewise, Gronroos (2000, pp. 24–25;
emphasis in original) states,
Value for customers is created throughout the relationship
by the customer, partly in interactions between the cus-
tomer and the supplier or service provider. The focus is
not on products but on the customers’ value-creating
processes where value emerges for customers and is per-
ceived by them,… the focus of marketing is value creation
rather than value distribution, and facilitation and support
of a value-creating process rather than simply distributing
ready-made value to customers.
We agree with both Gummesson and Gronroos, and we
extend their logic by noting that the enterprise can only offer
value propositions; the consumer must determine value and
participate in creating it through the process of coproduction.
If a tangible good is part of the offering, it is embedded
with knowledge that has value potential for the intended
consumer, but it is not embedded with value (utility). The
consumer must understand that the value potential is trans-
latable to specific needs through coproduction.The enter-
prise can only make value propositions that strive to be bet-
ter or more compelling than those of competitors.
FP8:A Service-Centered View Is
Customer Oriented and Relational
Interactivity, integration, customization, and coproduction
are the hallmarks of a service-centered view and its inherent
focus on the customer and the relationship. Davis and Man-
rodt (1996, p. 6) approach a service-centered view in their
discussion of the customer-interaction process:
[It] begins with the interactive definition of the individual
customers’ problem, the development of a customized
solution, and delivery of that customized solution to the
customer. The solution may consist of a tangible product,
an intangible service, or some combination of both. It is
not the mix of the solution (be it product or service) that is
important, but that the organization interacts with each
customer to define the specific need and then develops a
solution to meet the need.
It is in this sense of doing things, not just for the customer
but also in concert with the customer, that the service-
centered view emerges. It is a model of inseparability of the
one who offers (and the offer) and the consumer. Barabba
(1995, p. 14) extends the customer-centric idea to the “inte-
gration of the voice of the market with the voice of the enter-
prise,” and Gummesson (2002) suggests the term “balanced
centricity,” concepts that may be particularly compatible
with a services-for-services exchange perspective. We also
suggest that the interactive and integrative view of exchange
is more compatible with the other normative elements of the
marketing concept, the idea that all activities of the firm be
12 / Journal of Marketing, January 2004
integrated in their market responsiveness and the idea that
profits come from customer satisfaction (rather than units of
goods sold) (Kohli and Jaworski 1990; Narver and Slater
1990). Notably, this view harks back to pre–Industrial
Revolution days, when providers were close to their
customers and involved in relationships that offered cus-
tomized services. Hauser and Clausing (1988, p. 64) observe
the following:
Marketing, engineering, and manufacturing were inte-
grated—in the same individual. If a knight wanted armor,
he talked directly to the armorer, who translated the
knight’s desires into a product, the two might discuss the
material—plate rather than chain armor—and details like
fluted surface for greater bending strength. Then the
armorer would design the production process.
Consistent with this view, Gummesson (1998, p. 243)
suggests that services marketing research, and its emphasis
on relationships and interaction, is one of the two “most cru-
cial contributions” to relationship marketing; the other is the
network approach to industrial marketing. Similarly, Glynn
and Lehtinen (1995) note that services scholars’ recognition
of characteristics of intangibility, inseparability, and hetero-
geneity has forced a focus on interaction and relationships.
At least in the U.S. marketing literature (Berry 1983), the
term “relationship marketing” originated in the services lit-
erature (Gronroos 1994).
Although the output-based, goods-centered paradigm is
compatible with deterministic models of moving things
through spatial dimensions (e.g., distribution of goods), it is
considerably less compatible with models of relationship. In
their role as distribution mechanisms for service provision
(FP3), goods may be instrumental in relationships, but they
are not parties to the relationship; inanimate items of
exchange cannot have relationships. Over the past 50 years,
marketing has been transitioning from a product and pro-
duction focus to a consumer focus and, more recently, from
a transaction focus to a relationship focus. The common
denominator of this customer-centric, relational focus is a
view of exchange that is driven by the individual consumer’s
perceived benefits from potential exchange partners’ offer-
ings. In general, consumers do not need goods. They need to
perform mental and physical activities for their own benefit,
to have others perform mental and physical activities for
them (Gummesson 1995; Kotler 1977), or to have goods that
assist them with these activities. In summary, they need ser-
vices that satisfy their needs.
It might be argued that at least some firms and customers
seek single transactions rather than relationships. If “rela-
tionship” is understood in the limited sense of multiple
transactions over an extended period, the argument might be
persuasive. However, even in the cases when the firm does
not want extended interaction or repeat patronage, it is not
freed from the normative goal of viewing the customer rela-
tionally. Even relatively discrete transactions come with
social, if not legal, contracts (often relatively extended) and
implied, if not expressed, warranties. They are promises and
assurances that the exchange relationship will yield valuable
service provision, often for extended periods. The contracts
are at least partially represented by the offering firm’s brand.
Part of the compensation for the service provision is the cre-
ation and accumulation of brand equity (an off-balance-
sheet resource).
Customers also might not desire multiple discrete trans-
actions; however, a customer is similarly not freed of rela-
tional participation. Regardless of whether the service is
provided interactively or indirectly by a tangible good, we
argue that value is coproduced (FP6), and in the case of all
tangible goods, the customer must interact with them over
some period that extends beyond the transaction. Service
provision and the cocreation of value imply that exchange is
relational.
In a service-centered model, humans both are at the cen-
ter and are active participants in the exchange process. What
precedes and what follows the transaction as the firm
engages in a relationship (short- or long-term) with cus-
tomers is more important than the transaction itself. Because
a service-centered view is participatory and dynamic, ser-
vice provision is maximized through an iterative learning
process on the part of both the enterprise and the consumer.
The view necessarily assumes the existence of emergent
relationships and evolving structure (e.g., relational norms
of exchange learned through reinforcement over time; see
Heide and John 1992). The service-centered view is inher-
ently both consumer-centric and relational.
Discussion
Perhaps the central implication of a service-centered domi-
nant logic is the general change in perspective. The goods-
centered view implies that the qualities of manufactured
goods (e.g., tangibility), the separation of production and
consumption, standardization, and nonperishability are nor-
mative qualities (Zeithaml, Parasuraman, and Berry 1985).
Thus, even many services marketers have taken up the
implied challenge of trying to make services more like
goods. These qualities are primarily only true of goods when
they are viewed from the manufacturer’s perspective (e.g.,
Beaven and Scotti 1990). From what we argue the market-
ing perspective should be, the qualities are often neither
valid nor desirable. That is, standardized goods, produced
without consumer involvement and requiring physical dis-
tribution and inventory, not only add to marketing costs but
also are often extremely perishable and nonresponsive to
changing consumer needs.
A service-centered view of exchange points in an oppos-
ing normative direction. It implies that the goal is to cus-
tomize offerings, to recognize that the consumer is always a
coproducer, and to strive to maximize consumer involve-
ment in the customization to better fit his or her needs. It
suggests that for many offerings, tangibility may be a limit-
ing factor, one that increases costs and that may hinder mar-
ketability. A service-centered perspective disposes of the
limitations of thinking of marketing in terms of goods taken
to the market, and it points to opportunities for expanding
the market by assisting the consumer in the process of spe-
cialization and value creation.
A service-centered view identifies operant resources,
especially higher-order, core competences, as the key to
obtaining competitive advantage. It also implies that the
resources must be developed and coordinated to provide (to
A New Dominant Logic / 13
serve) desired benefits for customers, either directly or indi-
rectly. It challenges marketing to become more than a func-
tional area and to represent one of the firm’s core compe-
tences; it challenges marketing to become the predominant
organizational philosophy and to take the lead in initiating
and coordinating a market-driven perspective for all core
competences. As Srivastava, Shervani, and Fahey (1999)
suggest, marketing must play a critical role in ensuring that
product development management, supply chain manage-
ment, and customer relationship management processes are
all customer-centric and market driven. If firms focus on
their core competences, they must establish resource net-
works and outsource necessary knowledge and skills to the
network. This means that firms must learn to be simultane-
ously competitive and collaborative (Day 1994), and they
must learn to manage their network relationships.
Ultimately, the most successful organizations might be
those whose core competence is marketing and all its related
market-sensing processes (Day 1999; Haeckel 1999). In a
service-centered view of marketing, in which the purpose of
the firm is not to make and sell (Haeckel 1999) units of out-
put but to provide customized services to customers and
other organizations, the role of manufacturing changes.
Investment in manufacturing technologies constrains market
responsiveness. Together with many goods becoming com-
modities, as evidenced by the rise in globalized, contract
manufacturing services, firms will increasingly become
more competitive by outsourcing the manufacturing func-
tion. Achrol (1991, pp. 88, 91) identifies “transorganiza-
tional firms,” which he refers to as “marketing exchange”
and “marketing coalition” companies, both of which have
“one primary function—all aspects of marketing.” Achrol
suggests that “the true marketing era may be just over the
horizon.” Achrol and Kotler (1999) envision marketing as
largely performing the role of a network integrator that
develops skills in research, forecasting, pricing, distribution,
advertising, and promotion, and they envision other network
members as bringing other necessary skills to the network.
In a service-centered view, tangible goods serve as appli-
ances for service provision rather than ends in themselves.
In this perspective, firms may find opportunities to retain
ownership of goods and simply charge a user fee (Hawken,
Lovins, and Lovins 1999; Rifkin 2000), thus finding a com-
petitive advantage by focusing on the total process of con-
sumption and use. For example, chauffagistes in France
have realized that buyers do not want to buy furnaces and air
conditioners and units of energy, but comfort, so they now
contract to keep floor space at an agreed temperature range
and an agreed cost. They are paid for “warmth service,” and
they profit by finding innovative and efficient ways to pro-
vide these services rather than sell more products. Similar
examples are found in the United States, where Carrier is
testing “comfort leasing” and Dow Chemical is providing
“dissolving services” while maintaining the responsibility
for disposing and recycling toxic chemicals. Hawken,
Lovins, and Lovins (1999, pp. 125–27) cite these and other
examples as indicative of the way firms benefit themselves,
their customers, and society by increasing this “service
flow,” or the “continuous flow of value” as “defined by the
customer.” The observation of the market in terms of
processes and service flows rather than units of output opens
many strategic marketing opportunities.
From a service-provision perspective, economic
exchange in the marketplace has a competitor: the potential
customer (individual or organization) (Lusch, Brown, and
Brunswick 1992; Prahalad and Ramaswamy 2000). The
potential customer has a choice: engage in self-service (e.g.,
do-it-yourself activity) or go to the marketplace. However, to
be successful at self-service, the entity must have sufficient
physical and mental skills and/or the appliances (embedded
with knowledge) to make self-service possible. Organiza-
tions that recognize this can find opportunities in developing
offerings that enable the entity’s increasing self-service.
As individual people continue to progress toward finer
degrees of specialization, they will find themselves increas-
ingly dependent on the market, both for service provision
and for the ability to self-serve. Consequently, consumers
will seek to domesticate or tame the market by adopting and
developing a relationship with a limited number of organi-
zations. This domestication process increases the con-
sumer’s efficiency in dealing with the marketplace and
decreases the impact of opportunistic behavior by potential
service providers. Consumers will develop relationships
with organizations that can provide them with an entire host
of related services over an extended period (Rifkin 2000).
For example, in the providing for individual transportation,
the automobile has associated needs for car insurance, main-
tenance, repair, and fuel. There will be opportunities for
organizations that can offer all these services bundled into
periodic user fees. The success of organizations in capitaliz-
ing on this need for domesticated market relationships does
not come from finding ways to provide efficient, standard-
ized solutions but from making it easier for consumers to
acquire customized service solutions efficiently through
involvement in the value-creation process.
Achrol and Kotler (1999) extend this service perspective
by suggesting that the marketing function may become a
customer-consulting function. The marketer would become
the buying agent on a long-term, relational basis to source,
evaluate, and purchase the skills (either as intangibles or
embedded in tangible matter) that the customer needs,
wants, or desires. This could be extended to marketers who
also serve as selling agents, enabling a customer to
exchange his or her skills in the marketplace. This position
would enable the marketer not only to evaluate the skills
(services) the customer needs but also to advise the cus-
tomer about which skills (services) he or she can best spe-
cialize and exchange in the marketplace and the services
(intangible or provided through goods) that might be
acquired to leverage his or her own service provision and
exchange processes.
Historically, most communication with the market can
be characterized as one-way, mass communication that
flows from the offering firm to the market or to segments of
markets. A service-centered view of exchange suggests that
individual customers increasingly specialize and turn to
their domesticated market relationships for services outside
of their own competences. Therefore, promotion will need
to become a communication process characterized by dia-
logue, asking and answering questions. Prahalad and
14 / Journal of Marketing, January 2004
Ramaswamy (2000) argue that consumers rather than cor-
porations are increasingly initiating and controlling this dia-
logue. Duncan and Moriarty (1998, p. 3) believe that mar-
keting theory and communications theory are at an
intersection; “[They are] in the midst of fundamental
changes that are similar in origin, impact, and direction.
Parallel paradigm shifts move both fields from a functional,
mechanistic, production-oriented model to a more humanis-
tic, relationship-based model.” They point out (p. 2) that
“many marketing roles, particularly in services, are funda-
mentally communications positions that take communica-
tion deeper into the core of marketing activities,… which
involves the process of listening, aligning, and matching.
The normative goal should not be communication to the
market but developing ongoing communication processes,
or dialogues, with micromarkets and ideally markets of one.
Shostack (1977) and others (e.g., Beaven and Scotti
1990; Schlesinger and Heskett 1991) have indicated that the
basic lexicon of marketing is derived from a goods-based,
manufacturing exchange perspective. As we believe, if con-
temporary marketing thought is evolving from an operand-
resource-based, good-centered dominant logic to an
operant-resource-based, service-centered dominant logic,
academic marketing may need to rethink and revise some of
the lexicon. The seemingly diverse literature that we cite as
converging on this new dominant logic provides the founda-
tion for the revised lexicon. Notably, the need and its exis-
tence do not necessarily require discarding the goods-
centered counterpart. Its function should be to refocus
perspective through reorientation rather than reinvention.
For example, the treatment of quality in the services litera-
ture has resulted in the distinction between manufactured
quality and perceived quality; the former arguably has
become a necessary but not sufficient component of the lat-
ter. The concept of transaction becoming subordinated to the
concept of relationship is another example. Similarly, Rust,
Zeithaml, and Lemon (2000) have suggested that the
customer-focused term “customer equity” be superordinated
to the more traditional, product-focused term “brand
equity,” which is a component of the former (along with
“value equity” and “retention equity”).
Marketing educators and scholars should be proactive in
leading industry toward a service-centered exchange model.
As with the lexicon, this implies reorientation rather than
reinvention. This reorientation would not necessitate aban-
donment of most of the traditional core concepts, such as the
marketing mix, target marketing, and market segmentation,
but rather it would complement these with a framework
based on the eight FPs we have discussed.
A service-centered college curriculum would be
grounded by a course in principles of marketing, which
would subordinate goods to service provision, emphasizing
the former as distribution mechanisms for the latter. The
marketing strategy course might be centered on resource
advantage theory, building on the role of competences and
capabilities in the coproduction of value and competitive
advantage. The course could be followed by a new course,
one focused on the management of cross-functional busi-
nesses processes that support the development of the capa-
bilities and competences needed in a market-driven organi-
zation. Integrated marketing communication would continue
to replace limited-focus, promotional courses such as adver-
tising. In addition, the course would emphasize both the
means and the mechanisms for initiating and maintaining a
continuing dialogue with the customer and for enhancing
the relationship by using tools such as branding. Likewise,
the consumer behavior course might evolve to increased
emphasis on relational phenomena such as brand identifica-
tion, value perception, and the role of social and relational
norms in coproduction and repeat patronage. Similarly,
courses in pricing would evolve to focus on strategies for
building and maintaining value propositions, including the
management of long-term customer equity. The marketing
channels course would become a course that addressed
coordinating marketing networks and systems. Supply chain
management concepts would become subordinated to the
management of value constellations and service flows.
Complementing this college curriculum could be the
emergence of executive education offerings with similar
perspectives and frames of references. It is perhaps in the
executive education classroom where the rapid dissemina-
tion of the service-centered model of exchange is most
likely.
If adopted and diffused throughout industry, what does
the service-centered model mean for the role of marketing in
the firm? It positions service, the application of compe-
tences for the benefit of the consumer, as the core of the
firm’s mission. Marketing’s role as the facilitator of
exchange becomes one of identifying and developing the
core competences and positioning them as value proposi-
tions that offer potential competitive advantage. To do this,
marketing should lead the effort of designing and building
cross-functional business processes. Therefore, marketing
should be positioned at the core of the firm’s strategic plan-
ning. Relationship building with customers becomes intrin-
sic not only to marketing but also to the enterprise as a
whole. All employees are identified as service providers,
with the ultimate goal of satisfying the customer. Everyone
in the organization is encouraged to reflect on the firm’s
value proposition. Indeed, from a service-centered dominant
logic, a firm’s mission statement should communicate the
firm’s overall value proposition.
Finally, in the service-centered model, marketplace
feedback not only is obtained directly from the customer but
also is gauged by analyzing financial performance from
exchange relationships to learn how to improve both firms’
offering to customers and firm performance. Marketing
practice accepts responsibility for firm financial perfor-
mance by taking responsibility for increasing the market
value rather than the book value of the organization as it
builds off-balance-sheet assets such as customer, brand, and
network equity.
Conclusion
The models on which much of the understanding of eco-
nomics and marketing are based were largely developed
during the nineteenth century, a time when the focus was on
efficiencies in the production of tangible output, which was
fundamental to the Industrial Revolution. Given that focus,
A New Dominant Logic / 15
perhaps appropriately, the unit of analysis was the unit of
output, or the product (good). The central role of the good
also fits well with the political goals of exporting manufac-
tured products to the developing and often colonized regions
of the world in exchange for raw materials for the purpose
of increasing national wealth. In addition, making the good,
characterized as “stuff” with embedded properties, the unit
of analysis fits well with the academic goals of turning eco-
nomics into a deterministic science such as Newtonian
mechanics. The goods-oriented, output-based model has
enabled advances in the common understanding, and it has
reached paradigm status.
However, times have changed. The focus is shifting
away from tangibles and toward intangibles, such as skills,
information, and knowledge, and toward interactivity and
connectivity and ongoing relationships. The orientation has
shifted from the producer to the consumer. The academic
focus is shifting from the thing exchanged to one on the
process of exchange. Science has moved from a focus on
mechanics to one on dynamics, evolutionary development,
and the emergence of complex adaptive systems. The appro-
priate unit of exchange is no longer the static and discrete
tangible good.
As more marketing scholars seem to be implying, the
appropriate model for understanding marketing may not be
one developed to understand the role of manufacturing in an
economy, the microeconomic model, with its focus on the
good that is only occasionally involved in exchange. A more
appropriate unit of exchange is perhaps the application of
competences, or specialized human knowledge and skills,
for and to the benefit of the receiver. These operant
resources are intangible, continuous, and dynamic. We
anticipate that the emerging service-centered dominant logic
of marketing will have a substantial role in marketing
thought. It has the potential to replace the traditional goods-
centered paradigm.
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