Xiang (Robert) Li
Introduction
It has been widely suggested that the fi eld of marketing, both its practice and research, is facing great challenges, which call for a major transition or paradigm shift (Achrol and Kotler 1999; Bolton 2005; Gummersson 2002; Vargo and Lusch 2004a). While some suggest evolutionary changes in reforming marketing’s mental model (Wind 2009), others consider it necessary to take a more revolutionary approach, a ‘process of de-programming’ in terms of building fresh marketing theory foundation, creating alternative research methods, and inventing new pedagogical approaches (Gummersson 2002: 585). One line of thought which has drawn much attention lately is the service-dominant logic (SDL) (Vargo and Lusch 2004a, 2004b).
Vargo and Lusch (2004a) contended that marketing is evolving from the conventional
‘goods-dominant’ (G-D) logic toward a logic centring on service provision, which highlights intangible resources, co-created value, process orientation, and relationships. Their article ignited a heated debate and international discussion about the future of marketing and the role of service (Grönroos 2008). Increasingly, marketing researchers have agreed that SDL may be instrumental in providing an overarching framework, or at least a useful perspective unifying the seemingly fragmented marketing ideas. In the tourism literature, SDL has also drawn some attention (Li and Petrick 2008; Saraniemi and Kylänen 2011). Although most tourism scholars welcome and appreciate the intellectual challenges SDL presents to the fi eld, some could argue that SDL is a moot point for tourism, a service-driven industry (Li and Petrick 2008).
This chapter attempts to continue what Li and Petrick (2008) have started, and further explores the relevance of SDL to destination marketing. To do so, this chapter will start with a review of the development of marketing, and external forces that may infl uence the future of marketing. While understandably for many this review is common knowledge, it is pertinent to be reminded where we have come from, to better understand where we should go. After that, the chapter will provide a brief overview of SDL, its latest development, as well as its criticisms. Finally, the chapter will conclude with a number of connections and implications of SDL in the destination marketing context.
The evolution of marketing thoughts
Over a century has passed since the formal study of marketing emerged as a separate fi eld from economics. Marketing took shape as a recognized discipline by the mid-twentieth century (Bartels 1983). The growth of marketing as a discipline corresponds to the development of marketing as a business function and philosophy. Early efforts to track the evolution of marketing concept documented that marketing scholars used to view marketing as a simple activity, as the coordination of a group of activities, as a business process undertaken from the customer’s point of view, as an economic function of production, but have increasingly viewed marketing as a social phenomenon (Bartels 1965).
In a similar vein, Kotler (1972) suggested that the focal point of marketing progressed from a commodity focus (e.g. farm products, manufactured goods, services), an institutional focus (e.g.
producers, wholesalers, retailers, agents), a functional focus (e.g. buying, selling, promoting, transporting, storing, pricing), a managerial focus (e.g. analysis, planning, organization, control), to a social focus (e.g. marketing effi ciency, product quality, and social impact). Correspondingly, Kotler and Amstrong (1999) concluded that the practice of marketing management has gone through fi ve generations of philosophies, evolving from focusing on the improvement of production and distribution effi ciency (the product concept) in early days, to now delivering
‘superior value to consumers in a way that maintains or improves the consumer’s and the society’s well-being’ (1999: 20). From the marketing function perspective, Sheth et al. (2000) proposed that the second half of the twentieth century has witnessed a shift from mass marketing to segmented marketing, with a further movement toward customer-centric marketing (i.e. serving the needs of each individual customer) on the way.
As for research, marketing studies have gone through at least four phases (Vargo and Lusch 2004a). The origins of marketing can be traced back to classical and neoclassical economics, as it was initially founded as a branch of applied economics studying distribution channels (Kotler 1972). In its formative period, owing to a traditional ‘concern for agricultural markets and the processes by which products were brought to market and prices determined’ (Webster 1992: 1–2), early marketing scholars focused on commodities exchange, the role that marketing institutions played, and functions these institutions performed. Starting in the 1950s, the marketing management school dominated the fi eld, ‘which was characterized by a decision-making approach to managing the marketing functions and an overarching focus on the customer’ (Vargo and Lusch 2004a: 1).
The well-known marketing mix model (or, 4Ps) also appeared during this period. New marketing theories surfaced in the 1980s, which broke free from the traditional 4Ps framework and challenged the dominant microeconomic profi t-maximization worldview (Webster 1992). During the process of unifying these separate theoretical streams, a new paradigm was estimated to be emerging, characterized by the belief in marketing as a social and economic process (Vargo and Lusch 2004a;
Webster 1992).
Changing environment
For an applied discipline boasting a traditional emphasis on ‘empirical research’, ‘applied thought development’, and ‘occupational concern’ (Bartels 1983: 33), external environment is critical in directing its future. The recent emergence of new marketing thoughts has been externally determined by demographic changes, technological development, as well as dissatisfaction with existing marketing productivity (Sheth, Sisodia and Sharma 2000). Thus, the on-going discussion on marketing’s future direction should be regarded as a response to the changing environment, rather than a conceptual artefact.
Service logic and destination marketing At the macro level, the most pressing environmental condition that marketers are facing is the
‘new economy’, which is commonly labelled as the ‘service economy’, the ‘knowledge society’, and the ‘information era’ (Gummersson 2002: 587). Day and Montgomery (1999: 6) suggested that fi ve emerging themes in the ‘new economy’ are shaping the future direction of marketing, including:
• the connected knowledge economy;
• globalizing, converging, and consolidating industries;
• fragmenting and frictionless markets;
• demanding customers and consumers and their empowered behaviour; and
• adaptive organizations.
The connected knowledge economy
In the connected knowledge economy, intellectual capabilities, or ‘operant resources’ (Constantin and Lusch 1994), become the key resource for wealth creating (Achrol 1991; Achrol and Kotler 1999) and productivity improvement (Powell and Snellman 2004). People are increasingly connected through networks, in which information and knowledge fl ow in a more free (low cost) and frequent (low barrier) manner – clearly, in recent years the ubiquity of social media has further reinforced this trend. For the knowledge-based industries – those focusing on ‘the development, application, and diffusion of new knowledge’ (Day and Montgomery 1999: 7) – the traditional assumption of diminishing returns (scale economy is eventually constrained by the upward marginal cost curve) may no longer hold true (Arthur 1996; Berthon and Hulbert 2003). Customers may be locked into the system, procedure, or protocol they are familiar with, due to the complexity of those information-intensive products, which makes the market a ‘winner-take-all’ (Frank and Cook 1995) or ‘tippy’ (Varadarajan and Yadav 2002) one. For destination marketing, travel today is less about location and more about experiences, and natural resource endowment alone can hardly make a place attractive any more. Experience providers’
intellectual capital embedded in product offering is making a big difference.
Globalizing, converging and consolidating industries
The worldwide globalization process was caused by and has caused ‘the homogenization of customer needs, gradual liberalization of trade, and the recognition of the competitive advantages of a global presence’ (Day and Montgomery 1999: 7). International organizations and treaties such as WTO, NAFTA, and the EU, help extend market areas beyond national boundaries (Berthon and Hulbert 2003). Technology advancement has to a great extent eliminated the conventional spatial and temporal constraints and barriers of marketing. Market structures and boundaries, classifi cation of industry and product, role of competitors and partners are increasingly blurring and undetermined. In the tourism context, globalization has created unprecedented convenience for destinations to access their target market, but this very accessibility could very well dilute a destination’s novelty/exoticness, which is one fundamental driver of travel (Lee and Crompton 1992). Further, globalization has also presented major challenges to small, local tourism business when competing with multinational corporations.
Fragmenting and frictionless markets
As indicated, globalization, industrialization, and modernity have on the one hand led to a homo-genized world (Franklin 2003), which features the confl uence of demographic characteristics
and the ‘convergence of consumer needs and preference’ (Ohmae 1989: 144), i.e. a frictionless market. Paradoxically, on the other hand, there has also been an obvious trend of increas-ing market diversity in household (due to lifestyle, ethnic, income, and age diversity) and business (due to size, locations, and type of business) markets (Sheth, Sisodia and Sharma 2000). The fragmented market is characterized by more porous segments, which may ultimately result in individual customers being targeted (Oliver, Rust and Varki 1998; Varadarajan and Yadav 2002).
The strategic advantage of mass production has been overshadowed by that of mass customization (Kotha 1995); correspondingly, it has been suggested that what marketers offer today should not be merely ‘products’ but ‘solutions’ (Ettenson, Conrado and Knowles 2013; Tuli, Kohli and Bharadwaj 2007). Tourists worldwide are developing more diversifi ed needs and tastes. Notably, tourists from emerging markets are going through the same, yet much accelerated transition as their counterparts in industrialized countries, from preferring conventional, mass-tourism products to more unique, individualized travel experiences (Li et al. 2011; Ryan and Chen 2012).
Demanding customers and consumers and their empowered behaviour
Customers (both in B-to-B and household contexts) nowadays are facing a plethora of choices, and have easy access and improved capability to acquire their choices. As a result, they ‘are demonstrating a keen interest in developing and exercising greater control over the communication they receive and generate’ (Varadarajan and Yadav 2002: 308). Traditional intermediaries, without whom transaction used to be impossible, get bypassed because direct transaction usually means a better value proposition (Buhalis and Licata 2002; Sheth and Parvatiyar 1995). Today’s tourists, empowered by improved technology in an unprecedentedly transparent marketing environment, are expecting better effi ciency and effectiveness brought by customer centric marketing (Niininen, Buhalis and March 2007).
Adaptive organizations
Market organizations today are forced to be more market-driven and more agile and capable of processing information (Achrol 1991). This is mainly due to changes in three dimensions (Day and Montgomery 1999):
1 fewer broadcast and more interactive strategies, i.e. fi rms need to interactively address individual needs and personalize the communication process;
2 more competition and more collaboration – a shift in mind-set is needed from transactional to relationship exchanges. Moreover, in order to be successful in competition, an organiza-tion needs to be a reliable co-operator fi rst (Morgan and Hunt 1994; Varadarajan and Cunningham 1995);
3 more facts and less conjecture – information about market structure, market responses, and market economics is of vital importance in decision-making. Consequently, never has market information and strategy performance research been so important for destinations marketing and management organizations as today (Williams, Stewart and Larsen 2012).
While Vargo and Lusch (2008a) argued that the emergence of SDL is not justifi ed by the service economy (and they claim ‘all economies are service economies’), the abovementioned environ-mental changes have clearly made the inadequacy of the goods-based conceptualization more explicit, hence calling for a new frame of reference. Next the author turns to a brief synthesis of the SDL.
Service logic and destination marketing
The service-dominant logic
Vargo and Lusch (Lusch and Vargo 2006; 2004a; 2005) refl ect on the development of economic activity and argue that marketing inherited a goods-centred view from economics, which emphasized producing tangible outputs, completing transactions, and maximizing profi ts. They argue that marketing is evolving toward a service-centred logic, which:
1 views service as the common denominator of exchange;
2 focuses on process rather than output;
3 argues value is not embedded in product or unilaterally defi ned by manufacturer, but co-created with customers (Merz, He and Vargo 2009: 328).
After multiple rounds of revision (Lusch and Vargo 2006; Vargo and Lusch 2004a, 2006), Vargo and Lusch concluded that SDL involves a total of ten foundational premises (FPs), including:
FP1: Service is the fundamental basis of exchange
FP2: Indirect exchange masks the fundamental basis of exchange FP3: Goods are a distribution mechanism for service provision
FP4: Operant resources are the fundamental source of competitive advantage FP5: All economies are service economies
FP6: The customer is always a cocreator of value
FP7: The enterprise cannot deliver value, but only offer value propositions FP8: A service-centred view is inherently customer oriented and relational FP9: All social and economic actors are resource integrators
FP10: Value is always uniquely and phenomenologically determined by the benefi ciary.
(2008a: 7) At the core of this view is service, which is defi ned as ‘the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefi t of another entity or the entity itself ’ (Vargo and Lusch 2004a: 2). Note that, to emphasize the focus of SDL being the process rather than a special type of output, Vargo and Lusch (2008a, 2008b) switched from using the plural term ‘services’, to the singular term ‘service’. Service is considered the basis for all exchanges, whereas goods are identifi ed as vehicles for service provision (FP1 and 3) (Merz, He and Vargo 2009). However, because service provision usually involves complex combination of goods, money, and institutions, the service basis of exchange is not always evident (FP2). Organizations engage in and win competition by their knowledge and skills (FP4).
Because ultimately value is idiosyncratically and experientially determined by the benefi ciary (i.e. clients or customers in most cases) (FP10), fi rms cannot independently create or deliver value (FP7). Instead, they may offer value propositions for customers’ consideration. The value creation process is interactional and collaborative (FP6), and the co-creation process implies that SDL is inevitably customer-oriented and relational (FP8).
Finally, Lusch and colleagues (Lusch, Vargo and Malter 2006; Lusch, Vargo and Tanniru 2010) suggest that SDL implies eight shifts in thinking, including:
(1) a shift to a focus on the process of serving rather than the creation of goods; (2) a shift to the primacy of intangibles rather than tangibles in the fi rm’s marketplace offering, (3) a shift to a focus on the creation and use of dynamic operant resources as opposed to the consumption and depletion of static operand resources, (4) a recognition of the strategic
advantage of symmetric rather than asymmetric information, (5) a shift to conversation and dialog as opposed to propaganda, (6) an understanding that the fi rm can only make and follow through on value propositions rather than create or add value, (7) a shift in focus to relational rather than transactional exchange, and (8) a shift to an emphasis on fi nancial performance for information feedback and learning rather than a goal of profi t maximization.
(Lusch, Vargo and Tanniru 2010: 22) Collectively, these eight shifts direct organizations to be more sensitive to customer needs and wants, more adaptive to environment changes, and more capable of learning.
Granted, some of the specifi c ideas and propositions tackled by SDL are not necessarily new.
For instance, manufacturing strategy researchers have long pleaded for ‘servitization’ (Baines et al.
2009; Vandermerwe and Rada 1988; Voss 2005), i.e. ‘the innovation of an organization’s capabili-ties and processes to shift from selling products to selling integrated products and services that deliver value in use’ (Baines et al. 2009: 547). They argue that an organization’s service capabilities, which allow it to add service components to goods manufacturing and create additional value to customers, may help it gain a competitive edge over rivals focusing only on manufacturing capabilities. A major contribution of SDL is it proposes a perspective bring related ideas together.
Since its introduction in 2004, SDL has found much resonance but also drawn criticisms. For a new perspective still largely lacking empirical evidence, it is understandable some researchers express criticism of SDL being just a smart way of repackaging or rebranding old ideas (Cova, Ford and Salle 2009; Grönroos and Voima 2013). Some issues, such as fuzzy defi nitions and misleading terminologies, or whether ‘service’ is the proper concept capturing the essence of the new logic, have at least been partly addressed by Vargo and Lusch (2008a, 2008b). Some other issues could only be resolved at the philosophical level after researchers agree upon fundamental issues such as what defi nes service (Grönroos 2006, 2008). Still, key issues remain including the testability (i.e. whether there is empirical evidence to support the logic and whether the logic is testable at all), normative power (i.e. whether fi rms should adopt the SDL for better performance) of SDL (Wright and Russell 2012), and the role of natural (operand) resources in an era of resource scarcity (Campbell, O’Driscoll and Saren 2012).
Despite these criticisms, by raising some fundamental questions such as what resource is and who defi nes value, SDL sparks attention to the inadequacy of the current marketing paradigm and the need to break free from conventional mentality. As Cova, Ford, and Salle (2009: 572) argue, ‘SDL represents an opportunity for a huge amount of new work to be done once the service orientation is taken.’
Implications for destination marketing
Destination marketing organizations (DMOs) are usually government or non-profi t organizations engaging in public–private partnerships. Destination marketers hence need to practice a different set of rules, wherein the concern for social equity transcends destination marketing (or marketing in public sectors in general) from for-profi t, economic behaviour to a social function with complicated political and sociological implications (Novatorov and Crompton 2001a, 2001b).
Unlike their private-sector counterparts who prioritize service as a key product differentiator and/or competitive advantage, destination marketers need to focus more on satisfying many disparate stakeholders with competing priorities in the marketing process, occasionally at the expense of service quality and customer involvement. Adopting SDL has some important implications to destination marketers and destination marketing research. For instance, although tourism is not traditionally viewed as a knowledge-intensive industry, it becomes clear that the
Service logic and destination marketing information-intensive nature of tourism puts it at the forefront of adopting knowledge-based operation and practices. Destinations are hence not just competing with each other based on natural resource endowment, but operant resources and network.
The following paragraphs elaborate on three major implications this author deems important to tourism marketing, particularly destination marketing practices.
Service is not inferior to goods
Conventional wisdom of services marketing suggests that services are uniquely different from goods for at least four characteristics, i.e. intangibility (service is impalpable), heterogeneity (service production cannot be standardized), inseparability (service production and consumption is simultaneous, whereas goods production, purchase, and consumption is sequential), and perishability (service cannot be inventoried after production) (Zeithaml, Parasuraman and Berry 1985). These four features, collectively termed the IHIP characteristics by Lovelock and Gummesson (2004), are considered limitations or shortcomings of services that service marketers need to work exceptionally hard to make up for. Both Vargo and Lusch (2004b) and Lovelock and Gummesson (2004) argued that these four characteristics do not necessarily differentiate services from goods. Most importantly, the complaints about the IHIP characteristics of service refl ect a goods- and manufacturing-based mentality, i.e. the G-D logic (Vargo and Lusch 2004a).
SDL instead calls for a new mindset, and suggests service marketers make no apologies for what service is about. In today’s market environment, competence in customization, co-creation, and providing solutions, as opposed to standardization, scale of economy, and tangible outputs, are likely to bring marketers a competitive edge. The IHIP characteristics of service will be more desirable because fundamentally ‘value is always intangible, heterogeneously experienced, co-created, and potentially perishable’ (Vargo and Lusch 2008b: 28). Thus, one may argue that instead of making service more ‘goods-like’, goods should be marketed more like service (Grönroos 2006). Further, the traditional goods–service distinction is getting blurred, and service appears to be the more encompassing idea because ultimately, ‘manufacturing is a service, and its output is part of the service-provision process’ (Vargo and Lusch 2004b: 334). No longer do destination marketers need to be ashamed of the heterogeneity of their offerings, as designing and promoting highly customized travel experiences will become a norm rather than an exception. Put differently, SDL directs destination marketers to actively customize travel experiences and pursue tourists’ involvement in product design and innovation (Lee, Tussyadiah and Zach 2010).
Tourists as co-creators and operant resources
Marketers used to view customers as white rats in labs or fi sh in ponds, i.e. objects to be observed, analyzed, and taken advantage of (AMA Task Force 1988; Li and Petrick 2008). Much has been said about the empowerment of customers in recent decades, mainly owing to the development of the information technology (Chen and Popovich 2003; Cova and Pace 2006). SDL goes one step further and emphasizes the idea of value-in-use, and the role and activities performed by customers to achieve their goal in the experiential value creation process (FP10) (Payne, Storbacka and Frow 2008; Vargo and Lusch 2004a). During this process, customers contribute their knowledge and skills to co-create value of their experiences with service providers.
Customer value is created and determined by their total experience of all service elements. Thus, a tourism destination or service provider gains its competitive advantage by better understanding a tourist’s values and needs (e.g. goals in life), by providing better solutions and resources to
tourists during the entire co-creation process, and by optimizing tourists’ value creation process (e.g. improving the process’ effi ciency) (FP4, 6, 7, and 8) (Payne, Storbacka and Frow 2008).
In the tourism literature, the idea of tourists being involved in defi ning and creating their own tourism experience is not necessarily new (Jackson, White and Schmierer 1996; Wang 1999), but an explicit recognition of tourism experience co-creation is fairly recent (Binkhorst and Dekker 2009; Prebensen and Foss 2011; Scott, Laws and Boksberger 2009). In addition to SDL, research interests on tourism experience co-creation seem to result partly from renewed attention to studying quality or memorable tourism experiences (Jennings, Lee and Ayling 2009; Jennings and Nickerson 2006; Ritchie and Hudson 2009; Tung and Ritchie 2011).
Experience co-creation in tourism seems to include at least three types: tourist–tourist interaction/co-creation (e.g. the behaviour of fellow tourists in a theme park could substantially affect one’s experience), tourist–service provider co-creation (see Lee and colleagues (2010) for an example of travel product innovation driven by tourists), and visitor–local co-creation (Binkhorst and Dekker 2009). Notably, one rather unique characteristic of experience co-creation in tourism is the high level of interaction with other tourists and local residents, as most other categories of services are catered either without other customers’ involvement or with such involvement minimized.
Destination as a service system and resource integrator
In the past, most tourism scholars viewed destinations as places people travel to and stay for experiences unavailable at their home environment, as objective backdrops against which tourism development simply occurs and impacts upon (Bærenholdt et al. 2004; Leiper 1995), and as ‘taken-for-granted resources and as fi xed territorial entities where faceless tourist masses come and go via different routes’ (Saraniemi and Kylänen 2011: 135). Put differently, they conceptualize destinations as operand resources, or ‘resources on which an operation or act is performed to produce an effect’ (Vargo and Lusch 2004a: 2). Saraniemi and Kylänen (2011), obviously impacted by SDL, recommend defi ning destinations as ‘a set of institutions and actors located in a physical or a virtual space where marketing-related transactions and activities take place’ (2011: 133).
In essence, they view destinations more as operant resources – resources ‘employed to act on operand resources (and other operant resources)’ (Vargo and Lusch 2004a: 2).
This author concurs with Saraniemi and Kylänen (2011). Moreover, from a service science perspective, this author suggests viewing destinations as dynamic service systems that integrate resources (FP9). SDL researchers defi ne service system as ‘an arrangement of resources (including people, technology, information, etc.) connected to other systems by value propositions’ (Vargo, Maglio and Akaka 2008: 149). Entities within a service system exchange competence by sharing information, work, risk, and goods (Maglio and Spohrer 2008). In the tourism destination context, because of the highly fragmented nature of tourism product offerings – multiple different service providers are involved in providing tourists’ holistic travel experiences – destination marketing organizations (DMOs) today need to play a role in integrating localized, specialized skills and resources and transforming them into higher-order competences (FP9) (Lusch, Vargo and O’Brien 2007). To survive in today’s environment, a destination needs to constantly enhance its competences, build relationships, and capture and process information (Lusch, Vargo and Tanniru 2010).
A destination’s competitiveness thus comes from its ability to understand and co-create value with its clients (e.g. tour operators) and customers (e.g. tourists), its ability to empower and educate institutions and individuals in the value co-creation process, its ability to build relationships with other destinations and service systems, and its ability to optimize competence
Service logic and destination marketing distribution and value propositions among entities involved to sustain the synergy. In short, for a destination to enhance its competitiveness, it needs to engage in knowledge-based interactions within itself, with other destinations (competitors or allies), and with its (potential) tourists. This is why DMOs need to evolve from ‘marketing to’ to ‘marketing with’ its (potential) tourists (Lusch, Vargo and O’Brien 2007; Saraniemi and Kylänen 2011). It calls for more knowledge-intensive tourism operation and the development of SMART tourism destinations or destination intelligence systems (Wang, Li and Li 2013; Gretzel 2011). Further, following the Nordic School of service marketing thoughts, the author believes many aspects of contemporary destination marketing are beyond the responsibility of DMOs, because all aspects of tourists’ consumption
‘that has an impact on customers’ perception of quality and support their value creation’ should be handled as part of destination marketing (Grönroos 2006: 328).
The global market is undergoing fast and profound changes, which call for new ways to understand and explain the world. For the fi rst time, the idea of a more service-oriented logic is presented in front of the whole fi eld of marketing, not just service marketing (Cova, Ford and Salle 2009; Grönroos 2008). SDL is clearly not a theory, but a mindset and increasingly a fertile ground for new ideas, conceptualizations, even theories (Vargo and Lusch 2008a). How destination marketers can take advantage of this transition of mindsets remains to be seen. This chapter aimed to present a more tourism-grounded understanding of SDL, as well as a more SDL-grounded understanding of destination marketing. It is hoped SDL provides a refreshing theoretical lens to destination marketing research as well as new strategies in destination marketing practices.
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