Companies today are interested in gaining the lifetime value of the consumer. In this dynamic world of information technology, organizational strategies are focusing on customer service as a competitive advantage. Where lean manufacturing, low price, and cost cutting logic was once a primary approach of operation managers, these same firms have determined that by utilizing a Service Dominated Logic approach or (SDL), they are gaining competitive advantages that prove to have a longer lasting effect on the consumer, and maintaining a lifetime loyalty from these customers. These loyal customers then provide the number one form of marketing which is “word of mouth”. Brand awareness is also heightened and return on investment (ROI) is gained by shareholders.
This paper will first discuss an overview of SDL, describing the overall theory and components, while providing a brief historical background of SDL. Next, it will identify critical foundational literature in the development of service theory. This document will then compose a timeline analyzing changes in service theory linking these changes to important developments in service industries. Finally, it will identify critical components of service theory.
Service Dominated Logic Theory and Historical Background
Adam Smith (1776/1904) who is commonly known as “the father of economic thought” developed modern day economics not by his intention.
According to Vargo, Lusch, & Morgan, 2004 Chapter 2:
Smith’s purpose was to integrate and explore the preceding views into a model of the normative economics of national wealth creation. In so accomplishing this objective, he created bifurcations in the treatment of the concepts of ‘productive’ services and ‘value’ that that would influence economies and its descendent disciplines for the next several hundred years. (pg.30)
Smith’s economic views were based on the division of labor which resulted in the necessity of exchange. This exchange was the beginning of the service industry as we know it today. Services were tangible goods, and the individual who was to perform these services should then receive some form of compensation from the person who was to gain from the use of another individual’s provision, whatever that may be. “Thus labor, the application of mental and physical skills (parties doing things for other parties-what both Smith and we call service), served as the foundation for exchange. (Vargo, Lusch, & Morgan, 2004)
Vargo, Lusch, & Morgan, 2004 chapter 2 states:
Smith went a step further to explain how some services (types of labor) could contribute to national well-being through production of surplus commodities that could be exported for trade. In effect, Smith, a moral philosopher, drew upon Aristotle’s theme of virtuous services and the physiocrats’ focus on agriculture and added the tangible products of the increasingly developing industry to derive a formula for productivity in terms of its...