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From Goods to Service(s): Divergences and Convergences of Logics

Article in Industrial Marketing Management · May 2008

DOI: 10.1016/j.indmarman.2007.07.004

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Industrial Marketing Management xx (2008) xxx – xxx

From goods to service(s): Divergences and convergences of logics

Stephen L. Vargo a,⁎, Robert F. Lusch b,1
a
Shidler Distinguished Professor of Marketing, University of Hawaii at Manoa, 2404 Maile Way, Honolulu, HI 96822, United States
b
Lisle & Roslyn Payne Professor of Marketing, University of Arizona, 1130 E. Helen Street, Tucson, Arizona 85721, United States

Received 22 November 2006; received in revised form 21 June 2007; accepted 12 July 2007

Abstract

There are two logics or mindsets from which to consider and motivate a transition from goods to service(s). The first, “goods-dominant (G-D)
logic”, views services in terms of a type of (e.g., intangible) good and implies that goods production and distribution practices should be modified
to deal with the differences between tangible goods and services. The second logic, “service-dominant (S-D) logic”, considers service – a process
of using ones resources for the benefit of and in conjunction with another party – as the fundamental purpose of economic exchange and implies
the need for a revised, service-driven framework for all of marketing. This transition to a service-centered logic is consistent with and partially
derived from a similar transition found in the business-marketing literature — for example, its shift to understanding exchange in terms value
rather than products and networks rather than dyads. It also parallels transitions in other sub-disciplines, such as service marketing. These parallels
and the implications for marketing theory and practice of a full transition to a service-logic are explored.
© 2008 Elsevier Inc. All rights reserved.

Over the last several decades, leading-edge firms, as well as This logic of the need for a shift in the activities of the
many business scholars and consultants, have advocated the need enterprise and/or industry to match the analogous shift in the
for refocusing substantial firm activity or transforming the entire economy is so intuitively compelling that it is an apparent truism.
firm orientation from producing output, primarily manufactured It is a logic that follows naturally from marketing's traditional
goods, to a concern with service(s) (see, e.g., Davies, Brady, & foundational thought. But is it the only logic; is it the correct logic?
Hobday, 2007; Gebauer & Fleisch, 2007). These initiatives can be Does it move business-to-business (B2B) firms and/or academic
found in both business-to-business (e.g., IBM, GE) and business- marketing thought in a desirable and enhanced direction?
to-consumer enterprises (e.g. Lowe's, Kodak, Apple) and in some While we agree that a shift to a service focus is desirable, if not
cases entire industries (e.g., software-as-a-service). essential to a firm's well being and the advancement of academic
The common justification is that these initiatives are analogous thought, we question the conventional, underlying rationale and
with the shift from a manufacturing to a service economy in the associated, implied approach. The purpose of this commentary
developed countries, if not globally. That is, it is based on the idea is to explore this traditional logical foundation with its roots in the
that virtually all economies are producing and exchanging more manufacturing and provision of tangible output and to propose an
services than they are goods; thus, services require increased alternative logic, one grounded in a revised understanding of the
attention. This perception suggests that firms need to redirect the meaning of service as a process and its central role in economic
production and marketing strategy that they have adopted for exchange. It is a logic that represents the convergence and ex-
manufactured goods by adjusting them for the distinguishing tension of divergent marketing thought by sub-disciplines and
characteristics of services. other research initiatives. We argue that this more service-centric
logic not only amplifies the necessity for the development of a
⁎ Corresponding author. Tel.: +1 808 956 8167; fax: +1 808 956 9886.
service focus but it also provides a stronger foundation for theory
E-mail addresses: [email protected] (S.L. Vargo),
development and, consequently, application. It is a logic that
[email protected] (R.F. Lusch). provides a framework for elevating knowledge discovery in
1
Tel.: +1 520 621 7480. business marketing (as well as other “sub-disciplines”) beyond the
0019-8501/$ - see front matter © 2008 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2007.07.004

Please cite this article as: Vargo, S. L., & Lusch, R. F., From goods to service(s): Divergences and convergences of logics, Industrial Marketing Management
(2008), doi:10.1016/j.indmarman.2007.07.004
 ARTICLE IN PRESS
2 S.L. Vargo, R.F. Lusch / Industrial Marketing Management xx (2008) xxx–xxx

identification and explanation of B2B marketing differences from ample, in the mid 20th Century, it caused Alderson (1957, p. 69)
other forms of marketing to a level capable of informing not only to declare: “What is needed is not an interpretation of the utility
the business-marketing firm but “mainstream” marketing in created by marketing, but a marketing interpretation of the whole
general. Thus, we argue a service-centered focus is enriching process of creating utility”. But the G-D-logic-based econom-
and unifying. ic theory, with its co-supportive concepts of embedded value
(production) and value destruction (consumption) was itself
1. Alternative logics deeply embedded in marketing thought. It was not long after this
period, we believe for related reasons, that academic marketing
Broadly speaking, there are two perspectives for the started becoming fragmented, with various marketing con-
consideration of service(s). One views goods (tangible output cerns taking on an increasingly separate, or sub-disciplinarian,
embedded with value) as the primary focus of economic identity.
exchange and “services” (usually plural) as either (1) a restricted
type of (intangible) good (i.e., as units of output) or (2) an add-on 3. Subdividing and breaking free from G-D logic
that enhances the value of a good. We (Vargo & Lusch, 2004a;
Lusch & Vargo, 2006a) call this logic goods-dominant (G-D) Arguably, the establishment of many of the sub-disciplines of
logic. Others have referred to it as the “neoclassical economics marketing, such as business-to-business marketing, services
research tradition” (e.g., Hunt, 2000), “manufacturing logic” marketing, and international marketing, is a response to the
(e.g., Normann, 2001), “old enterprise logic” (Zuboff & limitations and lack of robustness of G-D logic as a foundation
Maxmin, 2002), and “marketing management” (Webster, for understanding value creation and exchange. That is, while G-
1992). Regardless of the label, G-D logic points toward using D logic might have been reasonably adequate as a foundation
principles developed to manage goods production to manage when marketing was primarily concerned with the distribution
services “production” and “delivery”. of commodities, the foundation was severely restricted as mar-
The second logic considers “service” (singular) – a process keting expanded its scope to the more general issues of value
of doing something for another party – in its own right, without creation and exchange.
reference to goods and identifies service as the primary focus of
exchange activity. We (Vargo & Lusch, 2004a, 2006) call this 3.1. Business-to-business marketing
logic service-dominant (S-D) logic. In S-D logic, goods continue
to play an important, service-delivery role, at least in a subset of Initial sub-disciplinary approaches have typically involved
economic exchange. In contrast to implying the modification trying to fit the models of mainstream marketing to the particular
of goods-based models of exchange to fit a transition to service, phenomena of concern. For example, as marketers (both aca-
S-D logic provides a service-based foundation centered on demic and applied) began to address issues of industrial mar-
service-driven principles. We show that this transition is highly keting and found that many mainstream marketing models did not
consistent with many contemporary business-marketing models. seem to apply, the natural course of action was not to question the
paradigmatic foundation but rather first to identify how B2B
2. Goods-dominant logic marketing was different from mainstream, consumer marketing
and then to identify the ways that business marketers needed to
As the label implies, G-D logic is centered on the good – or adjust. Thus, early attempts led to the identification of
more recently, the “product”, to include both tangible (goods) prototypical characteristics of business marketing — derived
and intangible (services) units of output – as archetypical units demand, fluctuating demand, professional buyers, etc. (see Fern
of exchange. The essence of G-D logic is that economic ex- & Brown, 1984). But we suggest that the creation of business-to-
change is fundamentally concerned with units of output (prod- business marketing as a sub-discipline was more because of the
ucts) that are embedded with value during the manufacturing (or inability of the G-D-logic-grounded mainstream marketing to
farming, or extraction) process. For efficiency, this production provide a suitable foundation for understanding inter-enterprise
ideally takes place in isolation from the customer and results in exchange phenomena than it was because of any real and essential
standardized, inventoriable goods. difference compared to enterprise-to-individual exchange.
The roots of G-D logic are found in the work of Smith (1776) Support for this contention can be found in the fact that
and took firmer, paradigmatic grasp in the context of the In- business-marketing academics soon began moving beyond
dustrial Revolution during the quest for a science of economics, characteristic differences and explored structures and relation-
at a time when “science” meant Newtonian mechanics, a para- ships that were needed to understand the phenomena but missing
digm for which the idea of goods embedded with value was from G-D-logic-driven, mainstream marketing thought. In
particularly amenable. Management and mainstream academic business marketing the network perspective (e.g., Hakansson
marketing, as well as society in general, inherited this logic from & Snehota, 1995) began to replace the dyadic perspective; in-
economics (see Vargo, Lusch, & Morgan, 2006; Vargo & teractivity (e.g., Gummesson, 2006) began to supersede the one-
Morgan, 2005). way-flow models, and relationship developed as a superordinate
However, since formal marketing thought emerged over concept to a model of one entity acting on the other (Ulaga &
100 years ago, G-D logic and its associated concept of embedded Eggert, 2006). Perhaps most important to this transition was an
value (or utility) have caused problems for marketers. For ex- implicit, though not fully developed, emergence of economic-

Please cite this article as: Vargo, S. L., & Lusch, R. F., From goods to service(s): Divergences and convergences of logics, Industrial Marketing Management
(2008), doi:10.1016/j.indmarman.2007.07.004
 ARTICLE IN PRESS
S.L. Vargo, R.F. Lusch / Industrial Marketing Management xx (2008) xxx–xxx 3

actor-to-economic-actor perspective (e.g., Hakansson & Pre- G-D Logic) approaches to understanding exchange phenom-
nkert, 2004), replacing (at least partially) the producer–con- ena, they begin to provide the foundation for a revised,
sumer perspective of goods logic. Business-marketing scholars alternative logic for understanding exchange. In effect, what
have also been at the forefront of the shift from understanding has been taking place is a series of stealthy concept, model, and
exchange in terms of products to concepts of value (e.g., Moller, tool-building projects in the skunkworks of the sub-disciplines.
2006; Lingreen & Wynstra, 2005; Ulaga, 2003) and extending The critical and common theme is rethinking the meaning
the sources of value-creation to relationships and networks (e.g., and process of value creation rather than thinking about how to
Moller & Torronen, 2003; Kothandaraman & Wilson, 2001), market to a different type of customer or how to make a
albeit sometimes while retaining a somewhat product-centered different type of good.
orientation. Yet, it is difficult to break free from the constraints of dominant
Furthermore, it was B2B marketing that first recognized the paradigms, as evidenced by the continual reference to the sub-
need to develop collaborations and partnerships with customers discipline's archetypical differentiators, despite protests (e.g.,
(e.g., Bucklin, 1970; McCammon, 1970). It was also early in Fern & Brown, 1984; Lovelock & Gummesson, 2004; Vargo &
recognizing that customers are not buying output, but rather the Lusch, 2004b). Likewise, in spite of this sub-disciplinary based
service capabilities of that output (Phillips, Ochs, & Schrock, reconceptualization of marketing phenomena, academic market-
1999), and in recognizing the primacy of value-in-use in relation ing continues to point firms toward producing services instead of
to value-in-exchange and assessing this use value in the context producing goods, rather than providing service. It continues to
of the total cost of ownership (e.g., Mohan, 1991; see Lusch & suggest that all that is needed is a change in the unit of output from
Vargo, 1998). Well before lifetime-value assessments became the tangible to the intangible. As we have stated elsewhere (Vargo
important in “consumer” marketing, B2B marketing was devel- & Lusch, 2004a,b), this is a logic that not only misleads “goods”
oping metrics to analyze long-term value of customers (Canning, firms, but one that has misled what are traditionally thought of as
1982). Many of these transitions and insights are now migrating service industries (e.g., airlines, banks, healthcare, education,
to mainstream marketing, often superseding their consumer government) toward trying to refine the production of units of
marketing counterparts, though, much of the G-D foundational services and away from providing service.
logic remains intact. As noted, we believe that this stealthy theory building in the
sub-disciplines points toward an emerging logic that transcends
3.2. Service(s) marketing the sub-disciplines. We believe that logic is captured in S-D logic.

These responses and later contribution to the conventional 4. Service-dominant logic

logic of marketing are almost identical in process, and in some
instances substance, to those of the sub-discipline of service The most critical distinction between G-D logic and S-D logic
marketing, arguably for similar reasons. That is, early service is found in the conceptualization of service. In S-D logic, service
marketing scholars first identified the ubiquitous four character- is defined as the application of competences (knowledge and
istic differences between goods and service (Zeithaml, Parasura- skills) for the benefit of another party. The use of the singular
man, & Berry, 1985) — inseparability of production and “service” as opposed to the plural “services”, as traditionally
consumption, heterogeneity, inventoriability, and perishability employed in G-D logic, is intentional and non-trivial. It rep-
(“IHIP” characteristics, as called by Lovelock and Gummesson resents a shift from thinking about value in terms of operand
(2004)) — and then focused on how service marketers must resources — usually tangible, static resources that require some
adjust their approach to overcome these “inadequacies”. action to make them valuable – to operant resources – usually
As with business marketing, in addition to, or perhaps in spite intangible, dynamic resources that are capable of creating value.
of, this initial approach of identification of characteristic That is, whereas G-D logic sees services as (somewhat inferior to
differences, service scholars soon began to identify alternatives goods) units of output, S-D logic sees service as a process —
to the concepts and models of mainstream marketing — for doing something for another party. The locus of value creation,
example, exchange conceptualized as relationships rather than then, moves from the “producer” to a collaborative process of
transactions (Berry, 1983), quality conceptualized in terms of co-creation between parties (see Fig. 1 for an S-D Logic
customer perceptions rather than engineering standards (e.g., representation of value creation).
Gronroos, 1983), the equity of the firm residing with its customers In S-D logic, this process of providing service for (and in
rather than in its brands (Rust, Zeithaml, & Lemon, 2000), etc. conjunction with) another party in order to obtain reciprocal
Also, as with business marketing, over time, these service-mar- service, is the purpose of economic exchange — that is, service
keting reconceptualizations are increasingly becoming established is exchanged for service. Goods are sometimes involved in this
as superordinate to the goods-marketing concepts for which they process in their role as appliances for service provision; they
had originally been considered comparable, if not subordinate. are conveyors of competences. In either case – service provided
directly or through a good – it is the knowledge and skills
3.3. Stealthy theory building at the intersection (competences) of the providers that represent the essential
source of value creation, not the goods, which are only
As these reconceptualizations are reconciled and integrated sometimes used to convey them. Thus, in S-D logic, goods are
with similar, business-to-business and other divergent (from still important; however, service is superordinate.

Please cite this article as: Vargo, S. L., & Lusch, R. F., From goods to service(s): Divergences and convergences of logics, Industrial Marketing Management
(2008), doi:10.1016/j.indmarman.2007.07.004
 ARTICLE IN PRESS
4 S.L. Vargo, R.F. Lusch / Industrial Marketing Management xx (2008) xxx–xxx

also be treated as a “duality” (e.g., see Dittrich, Jaspers, van der

Walk, & Wynstra, 2006) and, thus, potentially transcended
through reframing (Lewis, 2002). That is, efficiency and ef-
fectiveness can be seen as complementary — effectiveness is
necessary before efficiency has relevance but efficiency is often
both a component (buyer's perspective) of effectiveness and also
necessary for long-term effectiveness (seller's perspective). Thus,
effectiveness can be seen as a path to efficiency. Industrial mar-
keters have been at the forefront of the exploration of these
dualities (e.g., Dittrich et al., 2006; Hakansson & Ford, 2002); S-D
logic provides a potential foundation for transcendence.
A second step is the elimination of the producer–consumer
distinction. Clearly, in a collaborative model of value creation, the
distinction is incoherent. One party does not produce value while
Fig. 1. Value creation and service-dominant logic. the other consumes (or destroys) value. They reciprocally co-
create value, with each party bringing their own unique resource
accessibility and integrability into that process. Business market-
Importantly, S-D logic represents a shift in logic of exchange, ing has made strides in this understanding, especially in the work
not just a shift in type of product that is under investigation. of the IMP group (e.g., Hakanasson & Prenkert, 2004), which
Arguably, this shift to a process-driven, service-centric logic seems to have embraced the term “actors”, though neither
provides a more solid foundation for a true transition from a mainstream marketing nor service marketing has adequately
manufacturing model to a service-provider model than a logic followed. Of course, once the notion of a consumer of value is
that considers services to be inferior goods. This shift to a eliminated, so too is much of the distinction between B2B and
process of mutual service provision has implications for ad- B2C marketing — that is, all economic exchange represents both
ditional foundational shifts in marketing theory as well as for collaborative value creation and partially derived demand. This of
applied marketing as they continue this transition. course implies the possibility of revised, general models of
However, S-D logic is a mindset and an organizing frame- exchange. Particularly noteworthy in this regard is the actor,
work, rather than a theory. If academic marketing is to inform resource, activity (ARA) model (e.g., Hakanssson & Snehota,
marketing practice adequately in the transition from a goods to 1995), which is relatively effortlessly isomorphic with the
service focus, what is needed is foundational theory building resource integrator/resource/service model of S-D logic, which
developed from a service perspective. This can be accomplished itself creates an interesting intersection.
by leveraging and elaborating the development of thought at the Business marketing has also been at the forefront of
intersections of business and service marketing, as well as other development of network theory, a third critical step in a theory
divergent marketing research streams and approaches. of markets and marketing. But this network theory has been
largely focused on the industrial “sellers” and “buyers” and,
5. Developing the intersections for better marketing theory almost by definition, given the B2B context, not what has
traditionally been considered the “consumer”.
One major step in building this foundational theory for Likewise, though business-marketing scholars have
marketing requires shifting the unit of analysis from products to embraced the idea that suppliers are networks or constellations,
value creation and understanding that the essential drivers for they do not appear to have yet fully embraced the idea that so are
all value creation are operant resources — resources that are “consumers”. As we have suggested elsewhere (e.g., Lusch &
capable of “purposefully” acting on other resources. It is this Vargo, 2006b; Vargo & Lusch, 2008), a more isomorphic model
application of resources for the benefit of another entity – that is one of all actors as resource integrators. This integration
is, service – with the anticipation of reciprocity – service for happens at both a macro and micro level and includes not just
service – that motivates exchange. But service is not something private resources but also public resources (see Lusch, Vargo, &
that happens to another party. The associated experience and its O'Brien, 2007). For example, in a B2B setting, local, state or
value are uniquely determined by the beneficial entity in the federal governments provide public infrastructure (highways,
context of its other resources. bridges, airports, university and/or vo-tech training, etc.) that are
Closely related to the product/value-creation distinction is the part of an integrated set of resources to attract and/or retain
issue of efficiency versus effectiveness. The goods model points businesses. Similarly, the household and the individual are
toward the primacy of efficiency. This is, perhaps ironically, integrators of public and private resources.
particularly evident in the early distinctions between “goods and Some marketing scholars already embrace a model some-
“services” in the service-marketing literature — essentially, the thing like networks creating value through interaction with
identification of those characteristics (“IHIP”) of services that other networks. Perhaps not surprising, this seems most
contribute to non-efficient “production” (Vargo & Lusch, 2004b). common among scholars who work at the frontier of service
The issue of effectiveness/efficiency (like the issue of services and business marketing (e.g., Gummesson, 2006 — “many-to-
versus goods itself) has often been treated as either–or, but it can many marketing”).

Please cite this article as: Vargo, S. L., & Lusch, R. F., From goods to service(s): Divergences and convergences of logics, Industrial Marketing Management
(2008), doi:10.1016/j.indmarman.2007.07.004
 ARTICLE IN PRESS
S.L. Vargo, R.F. Lusch / Industrial Marketing Management xx (2008) xxx–xxx 5

Table 1 function with the potential to coalesce and simplify marketing

Transition for practitioners thought by unifying not only consumer and business and in-
Goods logic Service logic dustrial marketing but also other sub-disciplines such as domestic
Making something Assisting customers in their and international marketing. We believe that S-D logic can serve
(goods or services) own value-creation processes as a foundation for a sounder theory of markets and marketing that
Value as produced Value as co-created can, in turn, reduce the divide between academic and applied
Customers as isolated entities Customers in context of their own networks
marketing and thus inform marketing practitioners in their desire
Firm resources primarily Firm resources primarily as operant
as operand to develop a true service focus.
Customers as targets Customers as resources
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Please cite this article as: Vargo, S. L., & Lusch, R. F., From goods to service(s): Divergences and convergences of logics, Industrial Marketing Management
(2008), doi:10.1016/j.indmarman.2007.07.004
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