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A customer-dominant logicof service
Kristina Heinonen, Tore Strandvik and Karl-Jacob MickelssonHanken School of Economics, CERS, Helsinki, Finland
Bo Edvardsson and Erik SundstromCTF, Karlstad University, Karlstad, Sweden, and
Per AnderssonStockholm School of Economics, CIC, Stockholm, Sweden
Abstract
Purpose – The paper seeks to introduce to a new perspective on the roles of customers andcompanies in creating value by outlining a customer-based approach to service. The customer’s logicis examined in-depth as being the foundation of a customer-dominant (CD) marketing and businesslogic.
Design/methodology/approach – The authors argue that both the goods- and service-dominantlogic are provider-dominant. Contrasting the provider-dominant logic with CD logic, the paperexamines the creation of service value from the perspectives of value-in-use, the customer’s owncontext, and the customer’s experience of service.
Findings – Moving from a provider-dominant logic to a CD logic uncovered five major challenges toservice marketers: company involvement, company control in co-creation, visibility of value creation,scope of customer experience, and character of customer experience.
Research limitations/implications – The paper is exploratory. It presents and discusses a newperspective and suggests implications for research and practice.
Practical implications – Awareness of the mechanisms of customer logic will provide businesseswith new perspectives on the role of the company in their customers’ lives. It is proposed thatunderstanding the customer’s logic should represent the starting-point for the company’s marketingand business logic.
Originality/value – The paper increases the understanding of how the customer’s logic underpinsthe CD business logic. By exploring consequences of applying a CD logic, further directions fortheoretical and empirical research are suggested.
Keywords Services, Customers, Customer relations, Consumer behaviour, Logic
Paper type Conceptual paper
1. IntroductionThe mental models guiding not only managers but also researchers in service settingshave lately been eagerly discussed in terms of underlying “logics” (Edvardsson et al.,2005; Gronroos, 2006; Holbrook, 2006; Gummesson, 2007; Vargo and Lusch, 2004,2008b; Vargo et al., 2008). A goods-dominant (GD) logic has been contrasted with aservice-dominant (SD) logic. This debate has its roots in earlier contributions to the
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This work was conducted within the international research project ESCAPE – embeddingservice in customer contexts, activities, practices, and experiences. The project was supported byTekes, the Finnish Funding Agency for Technology and Innovation (www.tekes.fi).
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Received 9 November 2009Revised 9 February 2010
Accepted 19 February 2010
Journal of Service ManagementVol. 21 No. 4, 2010
pp. 531-548q Emerald Group Publishing Limited
1757-5818DOI 10.1108/09564231011066088
marketing literature (Gronroos, 1982; Normann, 1984; Normann and Ramirez, 1993),but has been rephrased and repackaged in several papers by Vargo and Lusch (2004,2006, 2008a, b) with additional comments and suggestions from other researchers inthe field of service research (Gronroos, 2006, 2008a, b; Gummesson, 2007). The debatehas largely stayed on a general conceptual level, with few elaborations on thesuggested key concepts. It has been characterized by a rather limited positioning ofthe body of earlier research in service managements well as a narrow view on theimplications for management. Thus, the discussion has primarily been based onphilosophical reasoning without substantial empirical data. The main focus has beenon distinguishing service in terms of process (SD logic) from goods and services interms of outcome (GD logic).
Over time marketing thinking has developed from goods-focused approaches to theservice- and interaction-focused approaches of SD logic (Vargo and Lusch, 2004,2008a, b). We argue that, even though the SD logic has widened the scope ofunderstanding the function of marketing, the view on SD logic is still very production-and interaction-focused, i.e. service provider-dominant (provider-dominant logic), notcustomer-dominant (CD). For example, approaches in service research are eitherfocused on analyzing an individual service system from the company’s point of view(service blueprinting, see for example Bitner et al., 2008) or on customer-providerinteractions over time (Payne et al., 2009). In both cases, service is viewed as co-creationdominated by and from the perspective of the service provider. However, when otherresearchers argue that the ultimate goal for service should be to facilitate value for thecustomer (Gronroos, 2008a, b), the aforementioned approaches will inevitably lead toan incomplete understanding of what the customer does with the service. Additionally,in contrast to the perspective on consumption practices (Holt, 1995; Korkman, 2006)and activity chains (Sawhney et al., 2004) which gives an in-depth view of concrete usesof a service we envision value as also emerging from mental and emotionalexperiences, for example, when reflecting on a potential or already realized service.This insight uncovers a gap in our understanding, and results in the need to explorewhat a CD logic would entail in contrast to a provider-dominant logic.
The notion of putting customers at the center is not new as such. In his classic paper,Levitt (1960) argued that companies are too focused on their own production processesand not sufficiently oriented towards customer satisfaction. Instead managementshould identify how the organization can deliver customer satisfaction, then createprocesses that enable the achievement of satisfaction, and only then identify neededresources. Drucker (1974, p. 61) argued that the business purpose is to create a customer:“It is the customer who determines what a business is.” He saw marketing as thebusiness as perceived by a customer: “It is the whole business seen from the point ofview of its final result, that is, from the customer’s point of view” (p. 63). Drucker arguedthat “business starts out with the needs, the realities, the values of the customer. Itdemands that business define its goal as the satisfaction of customer needs” (p. 64).Drucker’s and Levitt’s classic studies represent important corner stones in currentmanagement thinking, especially when considering the importance of the customer.However, we argue that these studies have assigned customers a passive role, expectingthem to do little beyond buying and consuming offerings. Interest in the customer’s lifebeyond direct service use has, until now, mainly been the domain of sociology-basedapproaches, such as consumer culture theory (Arnould and Thompson, 2005;
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Sherry and Fischer, 2009). From a service management perspective these approaches aredifficult to apply to practice, as they almost exclusively focus on consumption asmeaning-creation and ignore the structural fit between a service and a customer’s life.
In the recent discussions in the service literature the emphasis has been on an activecustomer who co-creates value. However, we argue that current ideas in the debateconcerning a SD logic (Vargo and Lusch, 2004, 2008a, b) are not still sufficientlycustomer-focused, but rather represent a more advanced company-based view, wherethe consumer/customer is seen as employed by the company or as a partner inco-creation. SD logic has been criticized for idolizing customer centricity, yet a truly CDlogic has been neglected (Brown, 2007). Even if there are recent indications towards astronger customer focus (Gronroos, 2006, 2008b; Vargo, 2008), the studies tend toemphasize only co-creation and interaction. For example, Vargo (2008, p. 214) proposesthat a:
[. . .] firm’s activity is best understood in terms of input for the customer’s resource-integration,value-creation activities rather than it is in terms of its own integration of customer resourcesfor the “production” of valuable output.
However, what needs to be addressed is how value emerges for customers and howthrough a sense-making process customers construct their experience of value of aservice provider’s participation in their activities and tasks. This is in line with forexample Gronroos (2008b), Holbrook (2006), Penaloza and Venkatesh (2006), andSchembri (2006) who emphasize the customer’s perspective. In this paper, we take a steptowards a more holistic understanding of the customer’s life, practices and experiences,in which service is naturally and inevitably embedded. From a customer perspectivemany of the arguments in the current debate can be seen in a different light, and this hasconcrete implications for managerial action as well as for further academic research.
In contrast to a service provider focus the purpose of this paper is to apply a customerfocus to service and to explore the implications of applying such a CD logic. Thecustomer’s logic is proposed as the foundation of a CD marketing and business logic.Consequently, the centers of interest are not exchange and service as such, but how acompany’s service is and becomes embedded in the customer’s contexts, activities,practices, and experiences, and what implications this has for service companies. Weargue that the process-outcome and provider-customer dimensions denote differentbusiness logics. Both the GD and SD logics represent a provider-dominant logic,whereas a CD logic is separate from these perspectives. By business logic we mean astrategic mindset or mental model. The term marketing logic has been used in previousresearch (Gronroos, 2006) but with the currently multiple understandings of the termmarketing (currently still denoting a function in companies) and the attempts toreposition marketing as a strategic issue in companies, we emphasize that CD logic is astrategic issue, and not only a concern for marketers in the traditional sense. In thispaper, we contribute to the discussion on mental models or logics guiding servicemanagement by conducting a conceptual analysis of what follows from applying a CDlogic in contrast to a provider-dominant logic. The paper contributes to theunderstanding of the mechanisms related to value-in-use in the customer’s owncontext and the customer experience of service. We also point to issues that we considerto be challenges for both practitioners and researchers when applying this logic.The derived issues are seen to apply both to consumer and to business markets.
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The paper is structured in the following way. First, we propose a conceptual modelof a CD logic as an alternative to a provider-dominant logic, including traditionalservice management and the current SD logic. Next, we examine three issues(co-creation, value-in-use, and customer experience) that are cornerstones in the currentdiscussions on a SD logic. We propose that it is not these issues as such that determinea marketing logic, but rather one’s specific standpoint and interpretation of them thatlead to suggesting a provider-customer continuum and consequently to our proposedCD logic. Finally, we discuss implications and managerial challenges that follow froma CD logic.
2. Customer-dominant logicMany of the current debates concerning marketing logic have implicitly suggested aneed to revise the thinking on the roles of the seller and the buyer, and what the sellerneeds to do and manage in order to succeed in business. In this paper, we propose thatthere are unexploited opportunities in applying a CD marketing logic rather than a SDlogic. A CD marketing logic here refers to a view that positions the customer in thecenter, rather than the service, the service provider/producer or the interaction or thesystem. It is thus not a subset of a SD logic but rather a different perspective.This approach differs from traditional notions of customer orientation by shifting theviewpoint: instead of focusing on what companies are doing to create services thatcustomers will prefer, we suggest that the focus should be on what customers are doingwith services and service to accomplish their own goals. The difference is subtle butimportant. An approach that is grounded in customer agency (Marsden and Littler,1996) will allow companies to build a business on an in-depth insight into customers’activities, practices, experiences, and context. Such insights are then converted intoconcrete ways for companies to participate in and support the customer’s processes(Gronroos, 2008a, b) in terms of service offerings. The primary issue is not the offeringas such, whether it is seen as an outcome (physical good, service, solution) or a process(service interaction), or both, but rather the customer’s life and tasks that the offering isrelated to. Hence, the customer’s logic should be the foundation of a CD marketinglogic.
To illustrate, in Figure 1 the perspectives within the traditional service managementliterature and the current SD logic discussions (which we consider provider-dominant)are contrasted with the proposed CD view. The proposed T-model (T referring to theshape of the model) indicates that the customer’s perspective does not only comprisethe producer’s service but also the customer’s other activities and life as a whole.
Figure 1 shows schematically the service company’s world in relation to thecustomer’s world. The figure shows the respective time frames and analytical foci ofservice management (GD logic), SD logic, and the proposed CD logic view. At the top isa timeline that extends service X (any service) in both directions from the time frame ofservice management. This reflects how a service, from the customer’s perspective, isnot only consumed or used, but potentially integrated into the customer’s ongoingexperience and activity structures beyond the service process. This is illustrated by theboxes: history, pre-service X, service X, post-service X, and future. What happensduring the service process is only a part of all related and relevant activities andexperiences in a customer’s life. Traditional service management literature onlyaddresses the service X, focusing on the design of service blueprints (Bitner et al., 2008;
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Patrıcio et al., 2008), identifying and developing service encounters (Shostack, 1985)and measuring perceived service quality (Gronroos, 1982; Parasuraman et al., 1985,1988, 1991), and perceived service value (Zeithaml, 1988). This is also the case withinrelationship marketing, which considers the accumulated service encounters with aservice provider (Payne et al., 2009). As well as extending the time frame of servicemanagement and SD logic, Figure 1 also extends the scope of service use. In the currentSD logic discussions the act of service is put forward as marketing’s central unit ofexchange (Vargo and Lusch, 2004, 2008b). Consequently, the service situation becomesthe key focus. From the service company’s perspective the customer’s participation inits activities and the utilization of its resources represent the use of service X. Whenused, it generates a service experience and consequently an experience of value. In SDlogic, this view has been extended to include customer-company interaction and theco-creation of service (Vargo and Lusch, 2004, 2008b). However, we argue that thecustomer never uses a service in a vacuum, and that the customer’s understanding ofservice use is different from the service provider’s, as indicated by the shaded area inFigure 1. In addition to the customer’s core activities and experiences (i.e. those directlyrelated to using a service), the figure also includes related activities and experiences, aswell as other activities and experiences that influence how value emerges. We arguethat the perspective of a CD logic is totally different from the other two perspectives, asthey only consider activities and experiences that are directly related to the service.Therefore, we suggest that it is not the act of service alone, but customers’ intentions aswell as the resultant activities and experiences that should be the focus of marketersand service companies. In other words, they should find out what the customer is doingor trying to do, and how a specific service fits into this. Thus, the challenge of theservice company becomes to manage onstage and backstage actions so that theysupport the network of customers’ independently orchestrated activities.
So how to approach this problem? The notion that the value of service arises withinthe customer’s domain is not new. The early studies by Levitt (1960) and Drucker (1974)
Figure 1.CD logic of service
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include a customer centric perspective on value. Levitt (1960) suggested that customersare not buying movies or gasoline but entertainment or the ability to drive their cars.In essence, Levitt’s thought-provoking arguments were ahead of their time. However,with the roots in goods-marketing, Levitt (1960, p. 50) focused on the consumption ofproducts and suggested that marketing is “the idea of satisfying the needs of the productand the whole cluster of things associated with creating, delivering, and finallyconsuming it.” Although he considered an augmented product including service-relatedactivities, such as availability to the customer, and conditions of exchange asdetermined by the buyer, the focal point was the consumption of the offering. In contrast,the focus of this paper is on customers’ all activities and experiences. Drucker (1974,p. 61) argued that the goal of marketing is to create a customer who is ready to buy, andthe focus was on the utility of the offering: “what the customer buys and considers valueis never a product. It is always utility, that is, what a product or service does for him.”
Traditionally, one of the key challenges in service management has been the notionthat customers are the ultimate judges of the service company’s performance. A servicecompany’s activities represent the service that is perceived and interpreted by thecustomer. Services are seen as designed and delivered to the customer by the company.Central concepts such as perceived service quality, perceived service value andcustomer satisfaction have thus dominated the service management literature(Gronroos, 1982; Parasuraman et al., 1988; Zeithaml, 1988). Perceived service valuerefers to customers’ experience of the service company’s total offering, including goods,activities, and over time the relationship between the company and the customer. From amanagerial perspective, the key has been to integrate the customer in the servicecompany’s production process and allocate some tasks to the customer. Even ifinteractivity in general has been considered essential, it has implicitly been interactivitydominated by the service company and based on exchange value. Traditional servicemanagement has in fact applied a GD logic which represents one type of what we denoteas provider-dominant logic, by focusing on customer’s perceptions of their offering, andassuming that the service provider’s process is primary and the customer is fulfillingscripts defined by them.
It has been argued that in contrast a SD logic would focus on the co-creation of valuein a process where value is realized by the customer when she uses the servicecompany’s resources. Value-in-use and value-in-context have been proposed as acompletely different views compared to traditional exchange value thinking. Vargoand Lusch (2004), who initiated the current discussion on GD vs SD logic, introducedten propositions that they believe capture important aspects of a SD logic. Theirnumerous papers have inspired many other researchers to discuss the propositions andarguments (Ballantyne and Vary, 2006; Gronroos, 2006; Penaloza and Venkatesh, 2006)and they demonstrate that there are many different approaches and foci that can beapplied. In this paper, we propose that the explicit and implicit focus on the serviceprovider needs to be shifted in order to focus instead on the customer. Is SD logic a typeof CD logic? We think not, but rather that it is a type of provider-dominant logic, andthis paper presents arguments to support our view. The discussion is highly topicalbecause of the recent power shift in favor of the consumer/customer, increasedvolatility in the market place, and tougher, often global, competition.
In contrast to the SD logic, the alternative view represented by the CD marketinglogic places the focus on the customer and not on service (interaction process and
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interaction system). In this vein, Holbrook (2006, p. 212) defines customer value as an“interactive relativistic preference experience.” Within this experience the customeruses all input, current and remembered, to form an impression of value influenced byboth cognitive and emotional perceptions. These impressions serve to create anemotionally charged marker in the customers’ memory, which the customer uses as aguide for future behavior (Damasio, 1996; Ravald, 2008). We argue that value emergeswhen the service provided by service company X and used by the customer becomesembedded in the customer’s context, activities, practices and experiences together withthe service company’s activities. This value may include both service X and allfacilitating and supporting services before and after service X, as well as other onlymarginally related services. When combined these factors shed new light on what theprocess of co-creation may imply, how service experience should be defined, and howvalue emerges and is realized for the customer.
However, the proposed approach does not mean that the service company’s role iseliminated. On the contrary, it in fact builds on the idea originally introduced byGronroos (2006, 2008b), and accepted by Vargo (2008) and others, namely that theservice company’s task is to support the customer’s creation of value and that thepotential value of a service company’s activities can be larger than traditionallyconsidered.
3. Conceptual analysis of key issues of the customer-dominant logicAmong the numerous concepts discussed in the recent literature, three issues:co-creation, value-in-use, and customer experience are present in most studies (Grewalet al., 2009; Gronroos, 2008a, b; Holbrook, 2006; Payne et al., 2008; Vargo et al., 2008;Sandstrom et al., 2008; Vargo and Lusch, 2004, 2008a, b). They are employed in thispaper because of their ability to demonstrate the significance of the proposed CD logicin relation to other logics. These issues are inter-related and have a commondenominator: the question of the customer’s role. The concepts are used to distinguishbetween a provider-dominant logic (including both service management and SD logics)and the proposed CD logic. We argue that the customer’s value-in-use evaluation isbased on the customer’s service experience which is embedded in the customer’scontext. From the customer’s point of view, service contains three types of elements:outcomes of the service providers’ internal activities, co-creation processes and theiroutcome elements, and process and outcome elements of the customer’s own activities.Co-creation is seen here as an element of service by creating a part of the customerexperience.
3.1 Nature of co-creation of serviceCo-creation of service has been strongly advocated by the proponents of a SD logic inorder to emphasize the difference compared with a GD logic. However, the co-creationapproach has raised many questions, and therefore a critical discussion of the nature ofco-creation and the validity of emphasizing co-creation is needed.
Co-creation can be interpreted in many ways. A fundamental premise of the SDlogic is that the customer is always a co-creator of value together with the company(Vargo and Lusch, 2008a, b). It is argued that the company cannot unilaterally createvalue, but can only offer value propositions and thus potentially co-create service andthe resulting customer value:
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In S-D logic, the roles of producers and consumers are not distinct, meaning that value isalways co-created, jointly and reciprocally, in interactions among providers and beneficiariesthrough the integration of resources and application of competences (Vargo et al., 2008, p. 146).
Gronroos (2008a, p. 4), however, argues that value creation and co-creation of service aredistinct: “it is important to keep apart service production, in which customers take partas co-creators, and value creation”. In other words, co-creation does not necessarily resultin value emergence. In practice customers might not be interested in the company’soffering; they can often perform all activities themselves, or wish to reduce the role of thecompany. If the particular service plays a minor role in their life, they might not beinterested in active participation in the service or in co-operation with the servicecompany. Next, two particular issues concerning co-creation are discussed, involvementand control.
3.1.1 Involvement. A CD logic includes understanding the role of different activities,practices, experiences, and contexts in the customer’s business or life. The terms“co-production” and “co-creation” indicate a service-provider oriented view in thesense that it focuses on the particular offering or service rather than on the role thisoffering plays for the customer. Hence, there is a need to contrast the establishedcompany-oriented view of involving the customer in service co-creation with a moreradical customer-oriented view of involving the service provider in the customer’s life.The question is who is involving whom as an indication of initiative and scope ofinvolvement. To understand the use and value of a service, we first need to understandcustomers’ lives, including context, activities and experiences performing differenttasks and how the service supports customers’ life. This shift in focus is crucial and isapplicable both to business-to-business and business-to-consumer situations.
3.1.2 Control. When seen from a CD logic perspective, we argue that co-creation isnot always a straightforward activity orchestrated by the company. In contrast,traditional GD marketing management literature has focused on the service provider’sprocesses and delivery, where the offering with its different characteristics is managedwith the aim of inspiring customers to buy. The company is seen as the active partyand the customer reacts to the company’s activities. Although the customers’ role asco-producers of services has been accepted in the literature, the interaction has largelybeen seen from the company’s perspective in the sense that the company controls theinteraction (Eiglier and Langeard, 1976; Gronroos, 1982). The relationship marketingliterature has applied the same perspective on company-customer relationships.Increasingly, however, customers’ memory and experiences from one interaction, useoccasion, or even relationship have been acknowledged as an influence on customers’perception of the next service and value-in-use (Roos et al., 2009). Vargo and Lusch(2008b, p. 7) suggest that value is always “determined by the beneficiary.” However,the focus in SD logic is on co-creation and this raises unanswered questions regardingthe scope of control: does “uniquely and phenomenologically determined by thebeneficiary” (Vargo and Lusch, 2008b, p. 7) mean that in practice there is little controlon part of the seller? Or can companies influence this experience so that they do notonly control their own activities but also customers’ activities and thereby customers’thinking and emotions, resulting in a company designed experience?
Gronroos (2008a, p. 9) suggests that the control of value creation varies and thatcompanies can take the role of value facilitators where they can potentially influencethe customer:
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The customers create the value for themselves, but during the interactions the serviceprovider gets opportunities to change the process of value creation, for example so that thecustomers get more value than otherwise out of the service or good.
Gronroos proposes that companies control their own value creation and the co-creationprocess but not customers’ own value creation. Verhoef et al. (2009, p. 32) suggest that“experience is created not only by retailer controlled elements but also by elements thatare outside of the retailer’s control.”
3.2 Value-in-useContrasted with exchange value, value-in-use has been seen as a process in whichvalue emerges rather than is delivered (Gronroos, 2006; Gummesson, 2007). It has beenargued that “suppliers only create the resources or means required to make it possiblefor customers to create value for themselves” (Gronroos, 2006, p. 324). Value creationhas been linked to an interactive process (Gronroos, 2008a; Vargo and Lusch, 2008b),either by direct or indirect interaction:
A service is an interactive process and during such interactions the customer and the serviceprovider co-produce the service. During this interactive part of the service process, productionand consumption take place simultaneously, and hence during that process the customerperceives the value that is created or emerges from the service (Gronroos, 2008a, p. 7).
Thus, the SD view on value-in-use emphasizes that value emerges in the interactiveprocess. This is in line with traditional service management that has addressed theservice episode where customers and interactions are visible to the company (Shostack,1984; Bitner et al., 2008). From the service provider’s point of view visibility becomesan issue.
3.2.1 Visibility. The CD logic entails a broader understanding of value-in-use. Thecustomer and most of the value-in-use emergence might be invisible to the company,beyond the company’s visibility line (in contrast to the traditional visibility line forcustomers described in service blueprinting). Value emerges in customers’ practices, ineveryday life processes (or in the case of companies, their business processes) by usingboth goods and services. Value emerges mostly beyond the visibility of companies inthree respects. First, the customer’s time frame is broader. Value is experienced before,during and after the service and as such it is not only related to service but is alsoapplicable to goods. Hence, value-in-use is not only linked to the service process, butextends beyond the interactive process. For example, when thinking about a holidaytrip, customer value can emerge before the trip, value is created during the holiday, butalso after the holiday in terms of memories. The role of companies would thus be tounderstand the customers’ value creation processes embedded in customers’ practicesand contexts.
Second, when emphasizing that value emerges in customers’ contexts and practiceswe argue that value-in-use is more complicated and has a larger scope than only “use”in terms of the consumption process (Holt, 1995), the concrete interaction with theservice (Vargo and Lush, 2008b; Gronroos, 2006; Hoolbrook, 2006) or activity chainswith a desired outcome (Sawhney et al., 2004). We consider use to encompass both theoutcome and process of an activity. We further argue that value-in-use emerges notonly in interactive processes, but also in customers’ non-interactive processes. Thus,value-in-use represents more than physical activity and also includes mental activity.
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For example, reflecting on earlier experiences of a holiday may create value. In aprovider-dominant logic these experiences would entail how the company hasperformed, for example, in offering friendly and timely service or exciting events. Incontrast, in a CD logic the experiences would entail the enabling effects on the customer’slife, for example the emergence of new friendships. Additionally, value-in-use containsalso an evaluation of the concrete or abstract outcomes irrespective of whether they werepre-determined or not. In other words, using the classic drill-hole example, we argue thatvalue-in-use does not refer only to the hole, nor to the drill, but it resides also in theprocess of drilling, in the usefulness of the hole, in the unrealized potential of the drill, aswell as in the pure sensation of possessing a drill. Third, although Vargo et al. (2008)introduced context through their value-in-context concept, but they did not pay explicitattention to the drivers at the collective/intersubjective customer level. We suggest,the context is dynamic and dependent on the customer’s role, position and interactionwithin a social structure, which subsequently forms the basis for both the co-creation ofservice and value-in-use assessment. According to social construction theory, however,the value assessment is part of the social reality and becomes more than individual andsubjective: value must also be understood as part of a collective and intersubjectivecontext. For example, the understanding of value in fashion is more or less sociallyconstructed (DeBerry-Spence, 2008). Collective social forces often have a dominant role,but individual needs, preferences, habits and values play an important part in bothservice co-creation and value assessment, both from the customer’s and the provider’sperspective. In a CD logic, value-in-context is inherently included and is dynamicbecause experiences are continuously accumulated. From a customer’s perspective,earlier experiences are always present as an (to the company) invisible context and arecontinuously updated through new experiences. Value in context is thus inherentlyintegrated in the value-in-use evaluation.
3.3 Customer experienceIn the last few years, the interest in the customer experience concept has increasedconsiderably. One example is the latest amendment to the fundamental premises of SDlogic (Vargo and Lusch, 2008a), in which value is seen as “idiosyncratic, experiential,contextual, and meaning laden,” i.e. a highly subjective experience. Several specialissues of journals have focused on customer experience. Different terms with differentfocus areas have been proposed, e.g. service experience, customer experience,consumer experience, and consumption experience (Caru and Cova, 2003; Harris et al.,2003; Gentile et al., 2007; Patterson et al., 2008; Baron and Harris, 2008; Puccinelli et al.,2009). Adopting a narrow view, customer experience is seen as constructed, staged,and created by the service company. This reflects the research on service experiencethat emerges within a certain service encounter. Here, customers are seen as a blankpage and it is assumed that they will experience the service according to how it isdesigned by the company: “Customer experience is the internal and subjectiveresponse customers have to any direct or indirect contact with the company” (Meyerand Schwager, 2007, p. 118). For example, customer experience may refer to a detaileddescription of the perceptions of a store (Patterson et al., 2008) or the elements of abuying process (Puccinelli et al., 2009). Frequently, it is assumed that the servicecompany can more or less control the customer’s experience, which thus representsboth the planned process and intended outcome designed by the company.
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For example, brand experience has been defined as “subjective, internal consumerresponses (sensations, feelings, and cognitions) and behavioral responses evoked bybrand-related stimuli that are part of a brand’s design and identity, packaging,communications, and environments” (Brakus et al., 2009, p. 53).
Adopting a wider scope, the customer’s experience may include the relationshipperspective. Here, the customer is assumed to evaluate the service provider’s performancein the relationship over time: customer experience arises through the combination of allcontact points between the customer and the company (Grewal et al., 2009). This view isadopted within the domain of integrated relationship communication and a wide array ofpopular management books (Shaw, 2007). The approach does not, however, includefactors contextually or temporally outside the service provider’s input or activities. Also,the focus is on the company’s perspective and the company is assumed to managecustomer experience.
A third perspective includes the customer’s viewpoint. In the experiential-phenomenological stream of consumer research (Caru and Cova, 2003; Holbrook, 2006;Schembri, 2006) consumer experience is seen as internal and emotional. Thus,experiences do not consist only of cognition, calculation and overt behavior, but are bynature also subjective and inseparable from feelings. Caru and Cova (2003) distinguishbetween consumption experiences and consumer experiences. Although consumptionexperience is clearly managerially more relevant than consumer experience, we arguethat a broader perspective is needed. Therefore, one should not study only onecompany, because the customer may be linked to several companies.
3.3.1 Scope. Traditionally, service has been defined according to the serviceprovider’s interest and way of seeing service. From a CD point of view, we argue thatexperiences are something that customers orchestrate themselves and that arise withintheir own activities. The argument for this is twofold: first, several researchers havesuggested that the customer should be seen as an active participant in the marketsystem (Normann, 2001; Stewart and Pavlou, 2002; Beckett and Nayak, 2008; Vargo andLusch, 2008a, b). On a general level this means that customers orientate themselveswithin a realm of possible purchases, practices and activities. Thus, customers areactively creating their own experience landscape by picking and choosing which type ofexperiences to seek out. Second, research indicates that the customer’s mood,understanding and frame of interpretation will influence the experienced outcome of aservice encounter (Forgas and Bower, 1987; White, 2006; Ravald, 2008; Sandstrom et al.,2008). Third, building on the theories on deliberate and emergent strategies (Mintzberget al., 1998), companies’ intended experience may not always be equivalent to the realizedexperience of the customer. This means that the ultimate shape of the service experienceis only partly under the provider’s control.
We also suggest that customer experiences should be understood not just as directinteractions between customer and company, but as something that goes beyond directinteractions. From the customer’s point of view, service episodes and encounters areonly parts of an ongoing flow of interrelated experiences and sense-making (Verhoefet al., 2009). Arnould and Price (1993) describe how experiences before and after thecentral service encounter contribute to the overall experience. Customers’ discussionsabout a shared experience may serve to re-frame it completely, meaning that theunderstanding of the value of a focal event may be re-negotiated outside it. However,it can be argued that the analytical focus in Arnould and Price’s (1993) study is on the
Customer-dominant logic
541
service episode. Verhoef et al. (2009) propose that customer experience is based onthe total experience which extends beyond the purchase activity. Thus, customerexperience should not be understood in terms of an episode, but rather as a part ofcustomers’ ongoing life. All components in the customer’s experience can be seen ascontinuous processes, all of which have an outcome that is incorporated in thecustomer’s experiences of value. Some experience patterns are routine and reoccurring,while others may be unique and one-off. For example, the value of travelling is notexclusively restricted to the trip itself; rather, it also emerges within activities beforeand after the trip, such as planning and remembering and talking about the trip manyyears after. In extant service quality literature the quality of a service is traditionallyevaluated at the end of a service encounter (Parasuraman et al., 1985, 1988, 1991). Thismeans that the timing of measurement is based on the company’s perspective.However, when extending the focus from service encounters to activities beyond theinteraction, as we suggest, the time frame inevitably changes.
3.3.2 Character. In addition we propose that the service experience is more than aprocess of perception: it is a process of long-term and context-bound relating. Eventhough both experience and perception refer to a person’s subjective understanding ofsome external object or event, “experience” contains an element of activity and reflectionthat is not innate in “perception.” Thus, “perception” can be seen as the act ofsubjectively registering information and forming initial impressions about it, while“experience” is the process of realizing how these impressions relate to oneself and howone understands and feels about them. In the customer’s mind, a service is always putinto a context of some kind, be that of function or time. With different emotions, thoughtsand activities, the customer experiences a different process, outcome, and context.Therefore, we argue that companies need to understand how customers integrateservice into their own activity systems. We want to emphasize the importance ofunderstanding how customers create their own experiences and the problems andopportunities they are facing. At present, there are no managerial concepts forunderstanding the role of service in the consumption experience. Based on CD logic wepropose that instead of emphasizing only one type of activity, i.e. customer-companyinteractions, the focus should be on customers’ activities and different consumptioncontexts. In line with Caru and Cova (2003), who suggest that experiences can be bothordinary and extraordinary, we claim that customer experience includes all types ofactivities, also routine, mundane, everyday activities.
In Table I, we summarize the main differences between the provider-dominant logic,and the CD logic. Three core issues are employed to illustrate how service can be seen
Provider-dominant logic CD logic
Co-creationInvolvement Customer involved in co-creation Company involved in customer activitiesControl Company controls co-creation Customer controls value creationValue-in-useVisibility Focus on visible interactions Also considers invisible and mental actionsCustomer experienceScope Formed within the service Emerges in customers’ lifeCharacter Extraordinary and special Also mundane and everyday
Table I.The provider-dominantvs the CD logic of service
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as embedded in customers’ contexts, activities, practices and experiences: co-creation,value-in-use, and customer experience.
4. Discussion and contributionIn this paper, we have discussed the shift from a GD logic to a SD logic that has latelybecome topical and has changed marketing’s focus from the company’s internalprocesses to the points of interaction between company and customer. We claim thatboth these logics are examples of a provider-dominant logic. We have argued that, ifwe only focus on interaction, we will fail to take into account what the role of thecompany is in the customer’s life. Therefore, we propose that marketing should startconsidering CD logic as the next step towards an in-depth understanding of customerexperience. This means that the ultimate outcome of marketing should not be theservice but the customer experience and the resulting value-in-use for customers intheir particular context. Thus, the central question is how companies can supportcustomers’ ongoing activity and experience structures.
The paper contributes to the current discussion on marketing logics. It demonstrateshow the customer’s logic underpins the CD business logic. The CD logic was contrastedwith the provider-dominant logic, and subsequently five challenges to managementwere derived and discussed: company involvement, company control in co-creation,visibility of value creation, scope of customer experience, and character of customerexperience.
When questioning the basics of business logics, the definitions of marketingconcepts and terminology need to be revised. A CD understanding of service highlightsseveral topics for further research. Within all three of the core issues presented in thispaper there are questions that should be explored further. Table II summarizestheoretical and managerial challenges that result from adopting a CD logic.
Whereas the SD logic seems to adopt a single logic perspective (Brown, 2007) bydescribing the ideal scenario where the customer is always seen as a co-creator ofvalue, the CD logic takes a more open-ended stance: is the customer always a co-creatorof value? So far research has not explicitly focused on the mechanisms of co-creationfrom both the customer’s and the provider’s perspective. In this paper, it is argued thata more critical view of the role of co-creation in service is needed, a view where the rolesand input of both the customers and the company are evaluated. For example, theremay be a large number of actors involved in co-creation, some of them providingimportant complementing services.
In addition, we argue that value-in-use should be seen as everything that thecompany does that the customer can use in order to improve his life or business. Valueis a relative preference evaluation (Holbrook, 2006) that an individual can perform atany time when needed concerning a particular part of their activities or life.Value-in-use refers to the fact that value emerges when the customer uses a service.Use, however, tends to be defined rather narrowly, but a service might be used beforepurchase, during interaction, or after purchase. It might not be related to exchange orintegration of resources as such, but can be a mere mental activity concerning a comingor a past service interaction.
Because value is created within experiences, focusing only on value creation withinthe interactions between service provider and customer is too narrow. All experiencesare not co-created with the service provider. From the service provider’s point of view
Customer-dominant logic
543
Con
cep
tT
heo
reti
cal
chal
len
ge
Man
ager
ial
chal
len
ge
Co-creation
Inv
olv
emen
tH
owm
any
acto
rsar
ein
vol
ved
incr
eati
ng
the
outc
ome
ofth
ese
rvic
e?W
hat
isth
ep
rop
orti
onof
cust
omer
and
pro
vid
erp
arti
cip
atio
nan
din
flu
ence
ind
iffe
ren
tst
ages
ofth
eco
-cre
atio
np
roce
ssre
aliz
ing
a
Rat
her
than
focu
son
inv
olv
ing
thei
rcu
stom
ers
inco
-cre
atio
n,
shou
ldse
rvic
eco
mp
anie
sfo
cus
onin
vol
vin
gth
emse
lves
inth
ecu
stom
er’s
bu
sin
ess
orli
fe?
serv
ice
pro
cess
?W
hat
acti
vit
ies
and
inte
ract
ion
sar
eca
rrie
dou
tsi
mu
ltan
eou
sly
and
/or
seq
uen
tial
ly?
Con
trol
Wh
enan
don
wh
atb
asis
isco
-cre
atio
nju
dg
edas
har
mon
iou
s?W
hen
and
wh
yis
the
cust
omer
inco
ntr
olof
the
co-c
reat
ion
pro
cess
and
wh
enis
the
pro
vid
erin
con
trol
?W
hen
and
wh
yca
nth
ere
be
ast
rug
gle
bet
wee
nth
ep
arti
esin
vol
ved
Ifv
alu
ecr
eati
onis
not
orch
estr
ated
by
the
com
pan
yb
ut
rath
erb
yth
ecu
stom
ers,
wh
atim
pli
cati
ons
doe
sth
ish
ave
for
the
com
pan
y’s
serv
ice
stra
teg
y,
serv
ice
des
ign
,an
dse
rvic
eop
erat
ion
s?in
co-c
reat
ion
?W
hat
role
sd
on
orm
s,v
alu
es,
hab
its,
and
soci
alfo
rces
pla
y?
Value-in-use
Vis
ibil
ity
Wh
atk
ind
sof
acti
vit
ies
are
cust
omer
sen
gag
edin
and
wh
y?
How
can
val
ue-
in-u
seb
eex
pli
citl
yex
pre
ssed
?W
hic
har
eth
eb
oun
dar
ies
ofsu
chan
acti
vit
y?
Inw
hat
typ
esof
acti
vit
ies
doe
sv
alu
eem
erg
efo
rth
ecu
stom
er?
Sh
ould
the
focu
sm
ove
bey
ond
the
inte
ract
ion
sv
isib
leto
the
serv
ice
com
pan
yto
thos
e(t
oth
eco
mp
any
)of
ten
inv
isib
lean
dm
enta
lac
tiv
itie
san
dex
per
ien
ces
that
lead
tov
alu
eem
erg
ence
?
Wh
atfa
ctor
sin
dif
fere
nt
con
tex
tsar
ecr
itic
alfo
rfa
vor
able
and
un
fav
orab
lev
alu
e-in
-use
?H
ow,
wh
enan
dw
her
eca
nv
alu
e-in
-use
be
mea
sure
d?
Custom
erexperience
Ch
arac
ter
Wh
atar
eth
ed
imen
sion
sin
flu
enci
ng
anex
per
ien
ce?
Ifcu
stom
erex
per
ien
ceis
not
rest
rict
edto
trad
itio
nal
serv
ice
epis
odes
orre
lati
onsh
ips,
how
shou
ldth
eco
mp
any
sup
por
tcu
stom
erex
per
ien
ceth
atis
con
tin
uou
sly
emer
gin
gin
the
cust
omer
’sb
usi
nes
sor
life
stru
ctu
red
by
the
cust
omer
’sti
min
gan
dti
me
fram
es?
Sco
pe
Wh
atar
eth
eti
me
fram
ean
dth
eti
me
un
its
ofan
exp
erie
nce
?W
her
ean
dh
owd
oes
anex
per
ien
cest
art
and
end
?H
owto
sup
por
tcu
stom
erex
per
ien
ces
rela
ted
toal
lty
pes
ofac
tiv
itie
s,so
me
ofth
emex
trao
rdin
ary
,bu
tm
ost
ofth
emro
uti
ne
ever
yd
ayac
tiv
itie
sem
bed
ded
inth
ecu
stom
er’s
con
tex
t?
Table II.Implications for theoryand marketing practice
JOSM21,4
544
this means that customers create value beyond their role as participators. Such valuemight contain a business opportunity for the service providers, and consequentlyrepresent an interesting innovation opportunity.
A managerial implication resulting from this line of reasoning is that serviceproviders need to change their mindset and to a higher degree consider customers inthe customers’ own context. Awareness of the mechanisms of the customer’s logic willprovide businesses with new perspectives on the role of the company in theircustomer’s lives. Compared to the traditional view this means that, besides visible andcontrolled interactions, service providers should expand their perspectives in order toget to know their customers on a deeper level than before. This means going beyondthe co-creating activities to identifying activities that customers are involved in withother individuals, companies, or service systems.
Further, adopting a CD logic has implications for how research should be conducted,both from an academic and a practitioner perspective. Companies and researchers needto revise their tools and approaches for understanding customers. Traditionally,understanding customers has been based on studies of customers’ perceptions andthoughts about offerings. Currently, in line with the academic focus on co-creation, somecompanies are trying to find out how customers use and experience offerings in theirown context. In contrast, we argue that companies should try to discover the potential,unrealized value of a service by learning what processes customers are involved with intheir own context, and what different types of input, both physical and mental, theywould need to support those processes. This means setting out from understanding ofcustomers’ activities, and then supporting those activities, rather than starting fromproducts/services and then identifying the activities where a company can fit in. In otherwords, companies need to do more in-depth ethnographical studies.
A third managerial implication is the need to design a service based on the newin-depth knowledge of customers. Rather than trying to persuade customers that theoffering is valuable to them, companies need to try to embed service in customers’ existingand future contexts, activities, and experiences. This means that the design is not basedon what the offering can do, but what customers want to achieve, be it functionalperformance, mental experience, or both. CD logic entails facilitating and enhancingcustomers’ activities, and this has not been given sufficient attention in current servicethinking and business practice. However, it does not necessarily mean that companiesshould customize their operations to individual customers. Rather, we argue thatcompanies need deeper insights into their potential role in the customers’ activities. Basedon an understanding of the customers’ scripts, service companies can construct their ownscripts and service blueprinting to be effective. These scripts should be based on acommon mental model that cuts through the organization, in which the customer, not theencounters or internal processes, is in focus. Even if the company currently has the powerto compel customers to follow the company’s script, the development global competitionand empowered customers may radically change the situation.
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Corresponding authorKristina Heinonen can be contacted at: [email protected]
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