When most people think “marketing,” they think goods. After all, marketing has its roots in exchange economics, which is based on the exchange of goods. By that view, the logic of marketing has long-centered on the tangibles—manufactured output, end products—in short, “stuff.” But that’s the old school of marketing, at least according to researchers Stephen L. Vargo, University of Maryland, and Robert F. Lusch, University of Arizona. In their ground-breaking paper in the January 2004 issue of the Journal of Marketing, “Evolving to a New Dominant Logic for Marketing,” they argue that the old dominant logic for marketing doesn’t describe the real world of business nor does it reflect current thought leadership among marketing scholars.
Over the past few decades, marketing has undergone several shifts, and, some argue, a divergence and fragmentation of thought. Those changes led to the development of relationship marketing, services marketing, and even to paradigms beyond marketing’s formerly sacred cow, the 4 P’s. But Vargo and Lusch argue this is no divergence. Rather, these trends are foretelling a convergence around an entirely new dominant logic for the field. And that new dominant logic about “stuff” itself. It is about using “stuff” as at tool for the co-production of value. This brave new world revolves around service.
The new dominant logic of marketing, according to the authors, puts intangibles, specialized knowledge, and processes at the heart of marketing. And it makes services (represented by the application of knowledge and skill), not goods, the fundamental unit of economic exchange.
Here are some of the fundamental premises of Vargo and Lusch’s new marketing paradigm, and what they can mean for your business:
- GM Doesn’t Sell Cars
If the application of knowledge and skills and knowledge (i.e. service) are the fundamental units of exchange, then you may not be in the business you thought you were. If you’re GM, it means you don’t sell cars anymore, but transportation services. The byproducts of these transportation services are cars, but that’s peripheral to the need they fill. Suddenly, everything is a service—including the products any company sells, be it light bulbs (illumination services) to carrots (nutritional services).
- Stuff. def.: Another word for service
The transfer of knowledge and skills can happen directly, through training, or indirectly by embedding them in products. Within this context, goods are valuable because they are a distribution mechanism for services. Back to GM example, all GM’s experience and knowledge about transportation is embedded in the cars they sell. Stuff is not an end but a means because it is an opportunity to transmit a service.
- Knowledge Is Power
According to Vargo and Lusch, knowledge and information are also the fundamental sources of competitive advantage. It is knowledge, not physical goods, that flows through the supply chain, and it is knowledge that gives successful companies their inimitable edge. Knowledge is the root of productivity and growth, and in a world where it is the fundamental unit of exchange, knowledge becomes even more important. The role of marketing, therefore, is the management of this process of information transmittal, not just the transmittal of the final product. As a consequence, marketing is critical to all business functions in order to integrate product development, supply chain and customer relationship management across the organization.
- All Economies are Service Economies
Forget for a second that you are in the canned food business. Or in the laptop trade. From now on, you are in a service business, and that business is part of a service economy. The manufacturing framework is losing its centrality: as specialization increases, more parts of the supply chain are outsourced due to their complexity. The line between goods and services is blurred; this distinction only grows as the cultivation of knowledge becomes the single differentiator. What will this look like in your organization?
- The Customer is a Co-Producer
It used to be that production ended with the manufacturing process. But now the show isn’t over when the assembly line stops. Under the new paradigm proposed by Vargo and Lusch, the customer picks up where the manufacturer left off. In their consumption and use of the product, customers become co-producers, continuing the marketing and value-creating process. Your story isn’t over when your client walks out the door with the package—for them, the experience has just begun. For service businesses, the customer can be involved even earlier on—helping to shape the service and influencing the process from the beginning. The relationship you build and your customers’ experiences are more important than the transaction, and that’s true no matter what you sell.
The new paradigm of marketing is service-centered, but it is also customer-oriented, relationship-focused and knowledge-based. The implication of Vargo and Lusch’s new paradigm is that marketing, once viewed as a support function, is central to strategy. As Peter Drucker once said, marketing is a philosophy and set of strategic practices that views the entire organization from the point of view of the customer. And any organization looking to succeed in an economy driven by this new dominant logic should look to marketing to develop cross-functional relationships, innovate and plan strategically from a process management perspective. Throw out your old textbooks, there’s a new school of marketing in the house—and it is centered on service and customer relationships.