A fundamental shift from
good-demand logic to service-demand logic is occurring within the service
management field. Service-demand logic looks at the economic value of the
services associated with the product versus the actual cost of the product
itself. Changing this scope of understanding helps decision-makers to view the
value of the product as one of many types of possible revenue generating
sources. These others sources may include servicing, insurance, technical
support, upgrades, etc…
One of the reasons why a company
would desire to move from a good-demand mentality to a service-demand mentality
is because the latter affords many more opportunities to gain wealth. A
secondary reason is because in today’s world of low price Asian manufacturers
it is hard for American companies to compete on product price alone. Selling a
total package raises the overall value of the product to the consumer.
It is important to understand the
differences between products and services to understand how the mental shift
impacts business operations. According to Vargo and Lusch (2004) there are four
fundamental differences:
1.)
Intangibility:
Services are intangible and products are tangible.
2.)
Heterogeneity:
Goods are standardized while services are not.
3.)
Inseparability:
The services are inseparable from the customer while goods are produced
separate from the customer.
4.)
Perishability:
Services are perishable while most good are not.
Through these four concepts it is
possible to understand that services are connected deeply to the needs of the
customer. They create a relationship and expectation on the customer through
which long-term relationships and additional purchases can be sought. Thinking
of a product with services raises the overall market value of the entire
package allowing for higher levels of customer satisfaction and sales.
Service-demand logic is based on
the culmination of many different marketing , organizational, and service
theories. Lusch and Vargo (2006) reviewed 50 top marketing scholars from around
the world and found much support and some criticism of service-demand logic.
Eventually the field was integrated by Gummesson (2008) with marketing and
customer relationship management to create multi-party networks through mass
marketing.
Even though this is an emerging
concept it stands to logic and reason that the service economy requires a new
way of thinking about products. The product is sold into a relationship with
the customer. It is this relationship that can either foster over many years or
be a simple one-time sale. Through the proper management and development of
appropriate service offerings organizations can create higher revenue streams
that further their sustainability interests.
Gummesson, E. (2008), Total
Relationship Marketing, revised 3rd ed., Butterworth-Heinemann, Oxford.
Vargo, S. and Lusch, R. (2004b), The
four service marketing myths: remnants of a goods-based, manufacturing model. Journal
of Service Research, 6 (4).
Vargo, S.. and Lusch, R. (2006), Service-dominant
logic: what it is, what it is not, what it might be, in Lusch, R.F. and Vargo,
S.L. (Eds), The Service-dominant Logic of Marketing: Dialog, Debate, and
Directions, M.E. Sharpe, Armonk, NY, pp. 43-56.
