Focusing on Selling Experiences versus Products in the New Economy

Service dominated logic or S-D Logic may be a better viewpoint to train managers and teach college students about the nature of modern business. Considering how much society has changed over the past few decades the movement from tangible goods to service offerings creates a fundamental shift in the economic system. This fundamental shift should be incorporated into training and education so that decision-makers can master new economic conditions.

A total of 75% of all business revenue is currently service oriented while 80% of the GNP is service related (Ford & Bowen, 2008). That is a huge number! With this fundamental change from agricultural, products, and commodities to service oriented offerings it is necessary to train managers on the new S-D vantage point of seeing and perceiving their operations in a new light. Such an approach will help decision makers view organizations and problems from a perspective that actually reflects current economic activities.

The differences in technique are significant. According to Vargo and Lusch (2004), a shift from products to intangibles, specialized skills, knowledge and processes requires companies to focus more on marketing and integrate of operational processes. If an organization is selling experiences (i.e. service) then their approach to management would be completely different and decisions would focus closely on enhancing that perceived value.

The selling of experiences occurs whenever a company uses services as the stage and products as the prop (Pine & Gilmore, 1999). Where companies once showcased their products and earned revenue they are now making the majority of their revenue from the services attached to those products. There is a fundamental shift in thinking that focuses on the intangible but extremely important psychological experiences of services while less on the give market value of products.

Let us put this to an example. An organization sells an electric toothbrush and earns a few dollars of revenue. Under traditional economic models the sale is made when the transaction is completed. Yet in a service economy it is possible to sell the experience of being beautiful with white teeth. The selling of the toothbrush may be part of a beauty makeover service that transforms a person’s image and comes with teeth whitening, cosmetics, hair products and other related offerings. The products are secondary to the service.

Changing the perspective creates greater opportunities to maximize revenue generation streams. The economic approach adjusts to better reflect modern economic conditions. Operations become more of a support and enhancer to experiences than a logistical path of selling products. The very way people are trained, the type of systems used, and the marketing mix adjust to enhance the experiences and positive feelings of customers.

Tips:

-View experiences as service.

-Sell products that enhance that experience.

-Adjust management styles, organizational structure, and operations to enhance experiences of customers.

-Focus on the total customer experience.

-Raise the perceived value of products with service.

-Integrate operations into the marketing strategy.

Ford, R. & Bowen, D. (2008). A service-dominant logic for management education: its time. Academy of Management Learning and Education, 7 (2).

Pine, B. & Gilmore, J. (1999). The experience economy. Boston, MA: HBS Press.

Vargo, S.  & Lusch, R.(2004). Evolving to a new dominant logic for marketing. Journal of Marketing, 68 (1)

 

Organizational Configuration and Operational Efficiency

Organizations seek to create market advantages and higher levels performance. While executives try and make a market impact it is the investors who desire to obtain stock value increases. Spending fewer resources while creating efficiencies raises the value of both the organization and its stock price. Improvements in organizational efficiency can be found through the proper implementation of strategy and the alignment of all the parts. Synergy is created through both management and employee participation.  

Configuration theory posits that each company has certain characteristics based upon their strategic objectives and that through configuration of these characteristic elements a higher yield of performance can be found (Van de Ven and Drazin, 1985). Efficiency is found through aligning various departments, specialties and resources in order to create less transactional waste and additional focus on objectives. Unfortunately, organizations often fail to create this synergy because they cannot adequately implement their strategies and ensure all departments and people follow suit.

Efficiency is often difficult for people to materialize for concrete conceptual understandings or the ability to effectively utilize such understandings for higher levels of performance. Effectiveness can be seen as a ratio of the amount of organizational resource used to achieve outcomes (Bonama and Clark, 1988). In essence, organizations that can impact their environment using fewer resources than their competitors are more efficient. They spend less money and used fewer resources not only in their daily operations but also in their strategic successes.

Not all organizations are the same when it comes to their ability to produce positive results. For effectiveness, the configuration of structural processes and individual tasks must be aligned to develop effective implementation of business strategy that leads to superior marketing effectiveness (Day, 1997). In other words, each individual activity either contributes to or takes away for market competitiveness. 

Strong executives should understand all the pieces to that are parts of the strategic implementation. Analyzing each of these parts for their contributory impact is beneficial. Parts that are either too expensive or do not contribute effectively should be removed or adjusted when appropriate. A total cost analysis can be completed to determine the overall efficiency of the operation. 

Workers can also be part of the solution. Even though they may not have a great understanding of the strategic outlay they have higher levels of in-depth knowledge with their individual jobs. This means that they can perceive small adjustments to create innovation and efficiency. Management must only be able to listen, encourage, and analyze the suggestions. Many small adjustments can add up to compounded savings over time. 

The end result is a stronger organization that efficiently meets the needs of customers and thereby creates higher levels of customer loyalty. According to Srivastava, Fahey, & Christenson (2011), “these relational assets are based on factors such as trust and reputation, the potential exists for any organization to develop intimate relations with customers to the point that they may be relatively rare and difficult for rivals to replicate” (p. 779). It is through this alignment that unique business practices can contribute to organization successes. 

Author: Murad Abel

Bonoma, T., & Clark, B. (1988). Marketing Performance Assessment.Cambridge. MA: Harvard Business School Press.

Day. (1997). Aligning the Organization to the Market. In Reflections on the Futures Marketing, R. Donald, L. Lehmann, & E. Katherine, (Eds.), Massachusetts: Marketing Science Institute.

Srivastava, R., Fahey, L., & Christensen, H.K. (2001). The resource based view and marketing: The role of Market based assets in gaining competitive advantage. Journal of Management, 27, (6).

Van de Ven, A. & Drazin, R. (1985). The Concept of Fit in Contingency Theory: Research in Organizational Behavior, 7(1).