Three Ways To Move The Industry From Goods-Dominant To Service-Dominant

Have you ever wondered where marketing came from, or where it’s going? To understand something we must always understand first where it came from. Then we might have a better chance at predicting where it is going.

Marketing evolved from the early work in economics. Economists needed a way to define value, and they finally settled upon physical goods as a way of defining the value that they were trying to capture in activities and exchanges. Because of this initial trend, early marketers tended to focus on studying the sales and marketing of goods. Economists measured things like gross domestic product by the number of goods sold. Marketing was built around a goods-dominant logic (GDL) approach in sales, marketing and management.

Almost every supplier in the promotional products industry produces or prints on something, which they ship out to a customer. The distributor in turn pays for it, creating a value in exchange. This model is what marketing has always been built around. We measure our GDL orientation in terms of dollar sales each fiscal period.

Now there’s a different model that is helping transform the marketing landscape. It began in 2004 when two marketing researchers, Robert Lusch and Stephen Vargo, presented their first work “Evolving to a New Dominant Logic for Marketing” in the Journal of Marketing. Their theory was that all companies engage in service before, during and after the movement of physical goods, and therefore we should be managing our business from a service-dominant logic (SDL) viewpoint.

In their work, they proposed a theory that identifies and clarifies the service and interaction between individuals and organizations. Their concept is that as we have moved to a consumer-to-consumer (C2C) economy in which everyone is identified as “actors” in the exchange, we must be cognizant of the value that all actors in the transaction bring to the relationship. This means that everyone within the exchange creates value by using and receiving resources throughout the transaction and the relationship.

One of the critical components of SDL is a service-center view of marketing as a continuous series of social and economic interactions and processes where a firm (or an individual, in my case) works to create better value for customers. Lusch and Vargo contend that service-centered views have four foundation components: 1) they identify core competencies that give organizations (and individuals) a competitive advantage; 2) they identify potential customers that could benefit from this identification and realization of the core competencies; 3) they contend that organizations cultivate relationships with customers to meet their specific needs; and 4) organizations get market feedback as part of a continuous process loop.

This service-centered logic uses service value as the unit that is desired and co-created with the customer rather than looking at physical output as value. One more key component they added later in the evolution of their work is that value is uniquely and phenomenologically determined by the beneficiary. This was an important distinction because it involved the consumer in the creation of the service. In our business, how many times do suppliers involve the distributors in the services they provide? How many distributors involve their customers in their processes?

Later the researchers added the concept of knowledge transfer to SDL, stating that the social and economic interactions required a transfer of knowledge. In other words, as part of creating a relationship with our customers, we have to impart knowledge about the goods and services that we provide. I’ve often wondered how many suppliers actually provide formal training for company employees and for their key distributors. The same process to impart knowledge can be also expected of distributors as they try to create relationships with their customers.

Here are three ways of rethinking our industry to incorporate service as the value on which we build our relationships to create a SDL goal of increasing repeat business through building relationships.

The first approach applies to suppliers. I think training and knowledge transfer may be underutilized in our business, because we are all just too busy getting product out the door. With a few exceptions, most suppliers hire customer service people within entry-level positions in their companies. I have always contended that customer service is the most important contact point with a distributor (if you do not have a live receptionist) and, therefore, this should be the position that people aspire to in a company, not the starting point. Qualified and well-trained customer service people are in the best position to create relationships with distributors, and to facilitate knowledge transfer.

If distributors take the time to call the factory, they need information. It is the responsibility of the customer service pros to take the time to educate those distributors and ask questions that move towards a service-oriented solution. For example, if a distributor calls up to check inventory, and the customer service person just responds with an available count, the distributor may hang up and call another supplier. However, the distributor’s call is an opportunity to ask questions and build a relationship. Here’s another approach: While the customer service person is waiting for the inventory screen to come up, he or she could ask the distributor when the order is needed and if a partial shipment could work if there is not enough inventory on hand right now. Another example is what happens in the field. I have an industry friend who has told me many times that she does not agree to visit with many multi-line and supplier reps because they don’t teach her anything, and thus she sees them as a waste of time. So she has learned not to schedule appointments with reps when there is no transfer of knowledge.

The second approach on transforming our industry from goods-dominant to service-dominant is for distributors. Many distributors have e-commerce sites that make product readily available at a very competitive price. The problem with these sites is that they cannot offer service like a traditional distributor can. They cannot build relationships with customers and they cannot transform the transaction into a service-based transaction rather than a goods-based transaction where the value is defined in dollars and cents. I get calls from distributors who say their customer found an item on a website, and one of my companies has something similar for a higher price, so would I lower my price? My answer is no, because I am complicit in creating a goods-dominant exchange based on price. An e-commerce website cannot build a relationship on anything other than price. If you need to sell against an e-commerce platform, you need to create value in your relationships so your customers won’t surf the web looking for a better price. I’d jettison the customers who want a price reduction on a regular basis, because they are not interested in relationships, just a cheaper price.

Third, we need to create a service-dominant culture in our industry with buy-in from distributors and suppliers. I hear many suppliers (and reps) refer to distributors as “my customer.” I contend this model is wrong. If we were to create a service-dominant logic model within our industry, suppliers would identify distributors as their sales force—and treat them as such when it came to knowledge transfer and support—and identify the buyer as the customer. An extended SDL model would include the entire supplier-distributor-buyer chain to create value. Many times this extended model organically develops when suppliers and distributors make buyer sales calls or work end-user shows together, but it doesn’t happen enough in a formalized, structured way in our industry.

So how do we measure a service orientation? It’s explained above that GDL is measured by dollar sales. In contrast, a SDL orientation should be measured by new customers’ sales and by repeat business (orders and dollars). This shows how many relationships we are building, and the return on investment on how we transfer knowledge through our distribution chain. And this information needs to be examined every month.

Since their initial studies 13 years ago, Vargo and Lusch have said that they are not trying to replace the goods theory that has dominated marketing for so long, but rather they are proposing an alternate theory to be studied and implemented. They believe that a service-based marketing system could take the perspective of value beyond the traditional marketing theory by re-examining the role of SDL within the marketing system. All businesses are service business, they believe, and that belief is what started the shift in thinking about how businesses market to, and are perceived by, their customers.

Their actor-to-actor theory for individuals and organizations creates a new concept in the supplier-distributor relationship chain, causing businesses to rethink how they interact in the marketplace. Based on the number of articles and conferences since their original work was published, it is clear that the authors’ work has attracted the attention of scholars and business people alike who are interested in creating value through service, and not just in the goods pushed out the door.

Alan Christopher, MAS, is a multi-line rep in the Southwest. He is a PhD candidate in marketing and social media marketing at Northcentral University. A 30-year industry veteran, he has served on the PPAI Board of Directors and as chair of the PPEF Board of Trustees. Reach him at dacaustin@aol.com.

Moving From GDL To SDL: A Case Study

Last year researchers Per Skǎlén and Bo Edvardsson followed up on the Vargo and Lusch work with a paper showing how a bank successfully made the transformation from a goods-dominant logic market orientation to service-dominant logic.

While every organization is going to handle the process differently, the work of Skǎlén and Edvardsson identified seven key points in moving an organization toward service quality, relationship marketing and market orientation using the guiding principles behind creating value with customers.

  1. The bank’s first principle involved identifying employees who were capable of making a cultural shift from their old way of thinking (as order takers) to creating value (order makers) with their customers.
  2. Once these employees were identified, managers worked with them to create a training program that addressed their market and their customers. The training was then taught to all employees in an ongoing training program that included monthly training sessions and weekly group discussions. The sum purpose of the training was to make all employees more proactive in their work with customers.
  3. Employees were taught to reach out to prospects and customers before, during and after transactions (such as handling financial loans, mortgages and insurance). Employees were also empowered to make decisions that previously had been handled only by managers (such as negotiating interest rates, terms and conditions). Employees were also taught how to ask questions to learn customers’ needs now and in the future.
  4. All of this information was input into a customer relationship management (CRM) program.
  5. Employees were continually trained and monitored, and encouraged to train and monitor other employees, even those who had not been identified as prime candidates for the transformation.
  6. By training all employees in all bank departments, there was a buy-in to the change as far as how the bank would go about creating value with their customers. These collective skills and the employees’ knowledge became more important for creating value with customers as time went on, particularly when they could share that information with other employees.
  7. Empowered employees more easily adjusted to new leadership roles in working directly with customers, rather than just acting as conduits to management. This reduced the amount of time needed to service accounts, and helped employees build better relationships with bank customers.