Evolving to a new dominant logic for marketing|江阴雨辰互联

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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.

he 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

variablesthat 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-

Stephen is Visiting Professor of Marketing, Robert

School of Business, University of Maryland (e-mail:svargo@.

edu).Robert 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:@).The authors contributed

equally to this authors thank the anonymous JMreview-

ers and Shelby Hunt, Gene Laczniak, Alan Malter, Fred Morgan, and

Matthew O’Brien for comments on various drafts of this manuscript.

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-

Journal of Marketing

Vol.68 (January 2004),1–17

A New Dominant Logic / 1

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 1and 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.

Thus, 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.

Typical 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).

2/ Journal of Marketing,January 2004

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 resourcesthemselves that are the

TABLE 1

Schools of Thought and Their Influence on Marketing Theory and Practice

Timeline and Stream of Literature

1800–1920:Classical and Neoclassical

Economics

Marshall (1890); Say (1821); Shaw (1912);

Smith (1776)

Fundamental Ideas or Propositions

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). Amajor 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.

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.

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.

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)

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)

‘inputs’to the production process, but only the servicesthat

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.

A New Dominant Logic / 3

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4/ Journal of Marketing,January 2004

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Goods Versus Services:

the Orientation

Rethinking

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’ 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-

A New Dominant Logic / 5

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.

Fundamental Unit of Exchange

Skills and Knowledge Is the

The Application of Specialized

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

6/ Journal of Marketing,January 2004

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

TABLE 2

Operand and Operant Resources Help Distinguish the Logic of the Goods- and Service-Centered Views

Traditional

Goods-Centered

Dominant Logic

Primary unit of exchangePeople exchange for goods. These

goods serve primarily as operand

resources.

Emerging

Service-Centered

Dominant Logic

People exchange to acquire the

benefits of specialized competences

(knowledge and skills), or services.

Knowledge and skills are operant

resources.

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.

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.

Value is perceived and determined by

the consumer on the basis of “value in

use.” Value results from the beneficial

application of operant resources

sometimestransmitted through

operand resources. Firms can only

make value propositions.

The customer is primarily an operant

resource. Customers are active

participants in relational exchanges

and coproduction.

Wealth is obtained through the

application and exchange of

specialized knowledge and skills. It

represents the right to the future use

of operant resources.

Role of goodsGoods are operand resourcesand end

products. Marketers take matter and

change its form, place, time, and

possession.

Role of customerThe 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.

Value is determined by the producer. It

is embedded in the operand resource

(goods) and is defined in terms of

“exchange-value.”

Determination and meaning of value

Firm–customer interactionThe customer is an operand resource.

Customers are acted on to create

transactions with resources.

Wealth is obtained from surplus

tangible resources and goods. Wealth

consists of owning, controlling, and

producing operand resources.

Source of economic growth

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

A New Dominant Logic / 7

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.

Fundamental Unit of Exchange

:Indirect Exchange Masks the

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-

8/ Journal of Marketing,January 2004

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.

Mechanisms for Service Provision

:Goods Are Distribution

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).

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.

Source of Competitive Advantage

:Knowledge Is the Fundamental

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,

A New Dominant Logic / 9

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.”

: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

10/ Journal of Marketing,January 2004

the organization of the overall process 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.

:The Customer Is Always a

Coproducer

From the traditional, goods-based, manufacturing perspec-

tive, the producer and consumer are usually viewed as ide-

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.

: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

processeswhere 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 enter-

prise can only make value propositions that strive to be bet-

ter or more compelling than those of competitors.

Customer Oriented and Relational

:A Service-Centered View Is

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

A New Dominant Logic / 11

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

(FP

are not parties to the relationship; inanimate items of

), goods may be instrumental in relationships, but they

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-

12/ Journal of Marketing,January 2004

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 (FP

tangible goods, the customer must interact with them over

), and in the case of all

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

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, chauffagistesin 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.

Fromaservice-provisionperspective,economic

exchangeinthemarketplacehasacompetitor:thepotential

customer(individualororganization)(Lusch,Brown,and

Brunswick1992;PrahaladandRamaswamy2000).The

potentialcustomerhasachoice:,

do-it-yourselfactivity)r,to

besuccessfulatself-service,theentitymusthavesufficient

physicalandmentalskillsand/ortheappliances(embedded

withknowledge)za-

tionsthatrecognizethiscanfindopportunitiesindeveloping

offeringsthatenabletheentity’sincreasingself-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

A New Dominant Logic / 13

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-

14/ Journal of Marketing,January 2004

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,

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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