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INTERNATIONAL JOURNAL OF MODERN MANAGEMENT RESEARCH REVIEW (IJMMRR)
APPLYING S-D LOGIC TO FINANCIAL SERVICES SECTOR Dr.Joefrelin C. Ines Head of Section and Marketing Lecturer, Shinas College of Technology Email:
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KEY WORDS
Service dominant logic, SD Logic axioms, cocreation, service ecosystem, financial services .
ABSTRACT Marketing thought needs to reformulate from thinking in terms of exchanging and marketing goods known as the GD Logic or Goods Dominant Logic, hence, marketers had refocused and shifted the paradigm towards Service Dominant Logic (S-D Logic). The redirection of thinking had paved way and created a notion that marketing needs to be restructured more in terms of an exchange of mutually beneficial service, or reciprocal use of competencies, which was proposed by Vargo and Lusch. The S-D Logic proposed a new and deeper understanding on how business organization will operate in a fast changing and dynamic market. This article dissects the contention of SD Logic based on its axioms or foundational premises (FP) by explaining its applicability in the financial sector. The focus of this article is mainly on the foundational premises based on value co-creation of services and service offering. The service ecosystem is profoundly discussed as a basis of the value proposition where it discusses the key elements of value creation. . The co-creation of value in the financial sector is service driven and resource driven exchanges which created a value in social context; making up the service ecosystem. SD Logic is fundamentally for service co-creation that persuade customers to get involve in the market offering towards market creation. The Service Dominant (SD) Logic asserts that co-creation will open possibilities of opportunities based on the notion of co-creation of value within the service ecosystem.
INTRODUCTION Service-Dominant Logic (SD Logic) is a breakthrough and been a centerpiece of many researches where a new marketing theory might emerge; it is a remarkable evolution of thought in the field of marketing which is translated as 'marketing-to' approach to a 'marketing-with' perspective (Lusch, 2007). The 'marketing-with' framework occurs in a situation where firms learn to cater on the needs of the customers and markets, and significantly establish relationship with the customers and other stakeholders in creating and sustaining value for the organization and the society. The concept of 'marketing-with' perspective is similar to other framework that deals on change process (Bryant et al, 2009).
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The premise is that it is a general evolution of society and technology affecting the way of doing business not the evolution of marketing per se. It is a unified mindset that explores the purpose of organization, market and society. The foundational proposition of SD logic is that organization, market and society are fundamentally concerned with the exchange of service; the application of competency such as knowledge and skills for the benefit of a party. The SD Logic expounds on the idea that the service elements of a product offering are far greater and more profitable than goods or product element. Hence, it drew the line of comparison of goods dominant (G-D) logic and SD Logic. The SD Logic looks beyond goods as the basis of economic and social exchange-it emphasizes on service where it shows the application of resources for the benefit of others. The idea behind the exchange process is the integration of knowledge and skills that pave ways for value co-creation. In effect, on 2006, Vargo and Lusch had refined FP6 stating that customer is always a co creator of value. In SD Logic, value can be created with and determined by the user in the consumption process which is referred as value in use. (Vargo and Lusch, 2009)
Goods-oriented firms became services organizations and services suddenly were everywhere: Service systems, service marketing, software-as-a-service, services science etc. However, this transition only appeared to be about service and was still built on G-D logic (Vargo, 2009). GD Logic is output oriented which emphasizes exchange of output units from various actors (Vargo and Lusch, 2004a; 2008). To further establish the contention of SD Logic in explaining its applicability in the financial sector the Axioms of SD Logic will be give emphasis.
DISCUSSION Axioms of S-D logic FP1 (Foundational Premises 1), which says that service, defined as the use of one’s competences (knowledge and skills) for the benefit of another, is the basis of exchange, is the heart of S-D logic. The FP implies that in economic exchange, as well as social exchange in general, fundamentally, service is exchanged for service; when goods are involved, they are best understood as servicedelivery mechanisms. It is important to emphasize that this “service” (singular), a process, should not
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be confused with “services,” (usually plural), usually intended to denote a unit of (intangible) output, which Vargo and Lusch associate with the traditional goods dominant (G-D) logic.
FP6 establishes that value is always co-created. The original scope for this axiom was the micro level, typically involving a firm and a customer and was intended to shift the primary locus of value creation to the later – that is, from the primacy of value-in-exchange, toward the primacy of value-in-use. More recently, Vargo and Lusch have used to term value-in-context to capture the notion that value must be understood in the context of the beneficiary’s world. However, it has become increasingly clear that, viewed from a meso and macro level, the collaborative nature of value creation becomes even more apparent. That is, value co-creation through service-for-service exchange is at the very heart of society.One other comment on value co-creation is important here. Vargo and Lusch distinguish between co-production and the co-creation of value. Co-production refers to the customer’s participation in the creation of the value-proposition (the firms offering), such as through co-design, customer-assembly, self-service, etc. Co-production is thus relatively optional and its advisability depends on a host of firm and customer conditions. This is different from co-creation of value, which is intended to capture the essential nature of value creation: it always involves the beneficiary’s participation (through use, integration with other resources, etc,) in some manner.
FP9, identifies the other core activity (besides service provision) of economic (and social) actors: resource integration. It sets the stage for thinking about the mechanics and the networked nature of value co-creation, as well as the process through which the resources for service provision are created, the integration of resources, resources from various market-facing, public, and private sources. Importantly, this resource-integration does not just apply to the actor typically referred to as a “producer” (e.g., the firm) in G-D logic, but also, and even more importantly, to the actor, usually referred to as the “consumer” or the “customer”.
FP9 thus also sets the stage for the explication of the contextual and unique nature of value realization and value determination and, thus, for FP10, the last axiom, which states that value is always uniquely
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and phenomenologically determined by the beneficiary. Here “phenomenological” is intended to capture the experiential nature of value. That is, value must be understood in terms of the holistic combination of resources that lead to it, in the context of other (potential) resources. It is thus always unique to a single actor and, it follows, can only be determined by that actor, or at least with the actor as the central referent.
The Service Ecosystem A service-centered approach to social and economic exchange broadens the process of value creation beyond a firm’s operation activities to include the active participation of customers and other stakeholders, through co-creation (FP6). This collaborative view points “away from the fallacy of the conceptualization of the linear, sequential creation, flow and destruction of value and toward the existence of a much more complex and dynamic system of actors that relationally co-create value and, at the same time, jointly provide the context through which “value” gains its collective and individual assessment (FP10)”. That is, the unit of analysis moves from the firm, customer, or even the firm customer dyad, to the service ecosystem(s) of which they are a part. More specifically, Vargo and Lusch define service ecosystems as “relatively self-contained, self-adjusting system[s] of resource-integrating actors connected by shared institutional logics and mutual value creation through service exchange.”
Value Proposition Drives Value Co-creation SD logic is essentially a value co-creation model that sees all actors as resource integrators, tied together in shared systems of exchange-service ecosystems or markets. In this way, markets are characterized by mutual value propositions and service proposition, governed by socially constructed institutions. The value proposition is viewed as value creation within a value network which is best understood within the context of identifying the key stakeholders and the co-creating value propositions in a marketing system. (Vargo, 2011). The proposition is a five-step process which includes the following: 1. Identify stakeholders 2. Determine core value 3. Facilitate dialogue and knowledge sharing
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4. Identify value co-creation opportunities 5. Co-create stakeholders value propositions.
The above premises helps explaining applicability of SD Logic in the financial sector primarily on banking services as viewed by the author. The following are the propositions of applications on the financial services sector based on contextualization and value in context, where the market is viewed as a simultaneous continuous exchange where markets are created when actors, dyads, triads, complex networks and service ecosystems evolve through unique service proposition efforts which as been studied as co-creation of markets. (Vargo and Chandler, 2011).
The central idea for value creation is the interactions between the firm and the customers (Pralahad et. Al. 2004). SD Logic as framed on FP6, customer is a co-creator of value which can be described during the interaction of the actors in the financial services sector.
The elements would be the following: a. Dialogue- Dialogue means interactivity, deep engagement and involve action on both sides (Pralahad et. Al. 2004;23). Co creation occurs when customers are getting involved and knowledgeable when it comes to financial decisions which foster dialogue. Both parties are equal and involve issues that all parties are interested. Take the case of internet banking where banks can further dialogue with existing customers through electronic pension checks where an email is sent to the customer if there has been change lately that affects their pension status. The positive answer might mean need for new advising or more coverage. This dialogue elicit further talks and make them engage that would set for face to face meeting where pension advisor can show and demonstrate. (Stubberup. 2010)
b. Access- Loyalty programs will evolve into co-creation where bank customers with activity with the bank would have an access to personal advisor. The customers can be provided 24-7 access to financial services through online banking. Access is not only about the accessibility of personal interaction but also with the knowledge and competencies during the process of service encounter that is translated to value co-creation. Banks or financial services firms can provide skill seminars both for customers and non-customers where they can develop
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competencies regarding investment portfolio offered by the banks thus a resource will create a service to create a service and eventually that service will create resources to the firm such as financial resources. This will validate the contention of SD Logic that both parties are cocreator of value, creating a service ecosystem.
c. Risk Assessment-the probability of harming the customer is there during interactions but giving them assurance during the service process which is done during the dialogue, the customers are able to ask questions to firms, which in turn can help creating a more trusting relationship which is the precursor of value co-creation. Banks create blogs on their website revolving different issues and concern. People are encouraged to comment and ask questions. Banks assigned customer ambassadors who were trained to help customers who have a bad experience or facing problems which in turn providing customers with a sense of security that they get fair treatment. The establishment of call centers had proliferated over the years but a call back options with a quick response time or real time service solution will work to generate positive response which will generate a co-creation of value. Translate the service process as precise, reliable and accurate as possible. Generating trust will lead to value co-creation as both party will explore new benefits and solution which in turn create resources generation such as competency (knowledge and skills) and more profit. These will create value to all parties in the service ecosystem. d. Transparency- the high information level available for today’s customers firms are becoming transparent which contribute to sense of safety and security on the part of customers. The straight forward and easily understandable processes involve in financial services where customers are very much particular on prices or cost and that no hidden fees are exhorted from them will jumpstart an honest communication. Financial advisor are conduits for providing solutions to customers. It can be viewed that provision of service solutions will create value proposition to both parties. The value proposition based on the context and processes will initiate a co-creation of value.
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The SD Logic applicability will further dissect the following areas:
a. Issues- customer connection is establish through personal advisor that will create sense of relation which can be augmented by accessibility in different ways like periodic personal financial advising, interconnectivity through 24-7 customer ambassador or call center aside from the web blogs assign for the said purpose or any electronic portal and mobile portals (Ecommerce and M-commerce). The current wave on the market is interconnectivity of all stakeholders using social networking sites and mobile applications primarily to assure personal attachment on service solutions. Customers will be updated with the current trend, prices, loyalty programs and other relevant information. The customization of service solution will give rise to co-creation of value due competence provision as a resource.
b. Tasks- The possession of relevant resources to make financial sound financial decision and the perception on the resources of banks or financial institution is the building block of knowledge resource. Customers are interested on financial knowledge based on various reasons, but generally, the activity level of customers depends of their financial knowledge. In this regards, financial advising will increase knowledge level. The competency on financial issues will again create value, and that value creation will now be done by both parties in as much as there is a clear and transparent exchange of services thereby creating a service solution. The customer will be provided with financial solution and the firm will have clear control in terms of financial transactions with lesser loan payment default or non payment of obligations.
c. Knowledge- the exchange of knowledge is a service to service process; a financial analyst, financial advisor, customer officer are institutional resources where they could create service through dialogue with customer to create solution or to resolve issues or problems. A customer may need personal advising from a banker who knows her personally and her risk profile. Being not connected will frustrate the customer which in turn ceased any activity. On the other hand bringing the customer into the process will create an atmosphere of trust due to the contentment on the competence level of the bank.
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CONCLUSION The center of all the above discussion is that there are economic and social exchanges. Many actors interplay in value creation as value is always co-created in different aspect. Resources are used to create resources. A party will get resource from other resource. Take the case of the bank; a knowledgeable financial advisor is the firm’s resource due to its competency- the knowledge on the risk profile of the customer and the risk aversion knowledge on the financial market, and the knowledge on the risk exposure of the customer in the like of intended investment portfolio decisions. The resources are integrated to create resources then to create and co-create value. The value creation to the customer is central to the value co-creation. Value created will be the deeper understanding on the needs of the customer, determining the risk profile as this could used as information for creating another resource of the organization. The customer then will be availing other service as the exchanges become a service driven exchanges. The co-creation of value will surface to create another value and create resource thereafter.
The facility, competence, and offering of the financial services sector are resources that were created from various resources as human resources, government policies; the financial industry sector or the meso level had been created from the resources and value created on the social level or the society which is the macro level. In other words, the input of co-creation of brand meaning or identity such a known bank is not only on the micro level but it is created within the service ecosystem. Everyone is part of co-creation. Electronic bank transaction is a co- creation of the machine, the computer software application, network security, knowledge of bankers, which were created by different actors. Thousands of people are part of the creation. Availing the services of the bank was a co-creation of the customer’s attachment, access, information, knowledge, transparency, risk assessment, dialogue, and the bankers through financial advisor, personal advisor, customer ambassador in providing and determining solution to issues of the customer. The co-creation of value created a service driven and resource driven exchanges that created a value in social context that made up the service ecosystem. SD Logic is fundamentally for service co-creation. “You do something for me and I will do something for you”.
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REFERENCES 1. Frow, P. & Payne, A. (2011). A stakeholder perspective of the value proposition concept. European Journal of Marketing; 45: 223 -240. 2. Lusch, R. F., & Vargo, S. L. (2009). Service-dominant logic — a guiding framework for inbound marketing. Marketing Review St. Gallen, 26(6), 6-10. 3. Lusch, R. F., Vargo, S. L., & O’Brien, M. (2007). Competing through service: Insights from service-dominant logic. Journal of Retailing, 83(1), 5-18. doi:10.1016/j.jretai.2006.10.002 4. Vargo, S. L. (2009, October 6). Service-Dominant Logic: An Introduction. Presented at the Symposium on Service-Dominant Logic, University of Bayreuth, Germany. Retrieved from http://www.sdlogic.net/Introduction_Germany_2009.pdf 5. Vargo, S.L. (2009). Market Systems, Stakeholders and Value Propositions: Toward a service dominat logic based theory of the market. European Journal of Marketing, 217-222 6. Vargo, S. L., & Lusch, R. F. (2004). Evolving to a New Dominant Logic for Marketing. The Journal of Marketing, 68(1), 1-17. 7. Vargo, S. L., & Lusch, R. F. (2006). Service-Dominant Logic: What It Is, What It Is Not, What It Might Be. The Service Dominant Logic of Marketing: Dialog, Debate and Directions. Armonk, NY: M.E. Sharpe. 8. Vargo, S. L., & Lusch, R. F. (2008a). Service-dominant logic: continuing the evolution. Journal of the Academy of Marketing Science, 36(1), 1-10. 9. Vargo, S. L., & Lusch, R. F. (2008b). Why “service”? Journal of the Academy of Marketing Science,36(1), 25-38.
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