Rethinking Value: Understanding Service-Dominant Logic and Its Implications for Modern Business

In today’s increasingly customer-centric business landscape, traditional views of value creation are being challenged. Rather than seeing business as the sale and transfer of goods, modern marketing scholars and practitioners are shifting toward a more dynamic and collaborative view of value: Service-Dominant Logic (S-D Logic). This perspective, introduced by Stephen Vargo and Robert Lusch in 2004, redefines the foundations of marketing and business strategy. It provides a powerful framework for understanding how value is created, exchanged, and experienced in contemporary markets.

What is Service-Dominant Logic?

Service-Dominant Logic proposes that service, rather than goods, is the fundamental basis of economic exchange. According to Vargo and Lusch (2004), all businesses ultimately offer services, even when they appear to be selling physical products. Goods are considered mere appliances or tools for delivering services. For example, a smartphone is not valuable solely because of its hardware, but because of the services it enables—communication, navigation, entertainment, and access to information.

S-D Logic challenges the traditional goods-dominant view that value is embedded in products and exchanged at the point of sale. Instead, it argues that value is co-created by the provider and the customer during use. This shift in thinking has significant implications for how firms design products, deliver experiences, and manage customer relationships.

Core Principles of S-D Logic

Several key premises define S-D Logic:

1. Service is the fundamental basis of exchange – All businesses, regardless of industry, provide services in one form or another.

2. Goods are distribution mechanisms for service provision – Physical products are tools through which services are rendered.

3. Value is co-created through interactions between providers and customers – Customers are active participants, not passive recipients.

4. Value is always uniquely and phenomenologically determined by the beneficiary – The actual value is subjective and realized in use, not in production.

5. All economic actors are resource integrators – Both firms and customers bring resources to the exchange, including knowledge, skills, and networks.

These principles promote a shift from transactional thinking to relational and collaborative thinking in marketing and business.

Real-World Examples of S-D Logic

To better understand how S-D Logic plays out in real-world scenarios, consider the following examples:

Smart Devices: A fitness tracker like a Fitbit provides little value on its own. The real value comes from the service experience it enables—tracking health metrics, providing feedback, and integrating with health apps. The product is simply the medium; the service is the value.

Ride-Hailing Platforms: Companies like Uber do not merely sell transportation; they facilitate a service ecosystem involving drivers, riders, app developers, and payment systems. The value emerges from the co-created experience between all participants.

Software as a Service (SaaS): In the SaaS industry, companies sell access to solutions rather than a static product. The value is ongoing and evolves with customer usage, feedback, and interaction with support teams, updates, and integrations.

These examples illustrate the shift from viewing value as a feature of products to recognizing it as a result of usage, interaction, and ongoing relationships.

Value Co-Creation and Customer Roles

One of the most transformative aspects of S-D Logic is the idea that customers are co-creators of value. Unlike in traditional models where firms produce and customers consume, S-D Logic views value creation as a collaborative process. Firms offer value propositions, but the actual value is determined through customer engagement and usage.

For instance, a mobile banking app provides value not merely through its availability, but through the customer’s ability to use it effectively to manage finances. The customer’s knowledge, context, and behavior influence the realized value. Similarly, in education, the value of a university degree depends not only on the institution but also on the student’s participation, application of knowledge, and engagement with resources.

Strategic Implications of S-D Logic

The adoption of S-D Logic has several strategic implications for businesses:

• Customer Engagement: Businesses must invest in continuous engagement with customers, not just in selling products but in supporting and enhancing their use.

• Innovation and Service Design: Product innovation must account for the user experience and consider the entire value-in-use cycle.

• Relationship Management: Marketing becomes less about messaging and more about facilitating mutually beneficial relationships.

• Ecosystem Thinking: Value is increasingly created through networks and platforms. Businesses need to orchestrate relationships with partners, customers, and other stakeholders to deliver integrated services.

This way of thinking aligns with the rise of the platform economy, customer experience management, and digital transformation strategies that prioritize personalization, interactivity, and flexibility.

Conclusion

Service-Dominant Logic represents a fundamental shift in how we think about value, marketing, and customer relationships. By focusing on service as the basis of exchange and recognizing the active role of customers in co-creating value, S-D Logic provides a more accurate and effective framework for navigating the complexities of today’s service-oriented economy.

Rather than asking “How can we sell more products?” businesses guided by S-D Logic ask, “How can we enable customers to create more value in their lives through our offerings?” This reorientation challenges firms to become more customer-focused, adaptive, and collaborative—principles that are essential for long-term success in an experience-driven world.

References 

• Akaka, M.A., Vargo, S.L. and Lusch, R.F. (2012) ‘An exploration of networks in value co-creation: a service-ecosystems view’, AMS Review, 2, pp. 33–49.

• Lusch, R.F. and Nambisan, S. (2015) ‘Service Innovation: A Service-Dominant Logic Perspective’, MIS Quarterly, 39(1), pp. 155–171.

• Vargo, S.L. and Lusch, R.F. (2004) ‘Evolving to a New Dominant Logic for Marketing’, Journal of Marketing, 68(1), pp. 1–17.

• Vargo, S.L. and Lusch, R.F. (2008) ‘Service-dominant logic: continuing the evolution’, Journal of the Academy of Marketing Science, 36(1), pp. 1–10.

• Vargo, S.L. and Lusch, R.F. (2016) ‘Institutions and axioms: an extension and update of service-dominant logic’, Journal of the Academy of Marketing Science, 44(4), pp. 5–23.