On Theories of Markets and Marketing: From Positively Normative to Normatively Positive

1. On Theories of Markets and Marketing:From Positively Normative to Normatively Positive Presentation to BIGMAC 3: EMAC/ANZMAC Research Symposium October 7, 2006 Stephen L. Vargo, Shidler College of Business, University of Hawai’i at Manoa

2. Marketing’s Missions (something Like) • Applied/Managerial: • Enhance organizational wealth and wellbeing through the facilitation of exchange • i.e., apply normative marketing theory • Academic/Educational: • Disseminate scientific knowledge that informs applied marketing • i.e., teach normative marketing theory • Academic/Scholarly: • Develop theory and knowledge that can inform marketing practice • i.e., develop positive marketing theory

3. The Problem: Shaky Foundations • Normative marketing theory • is (should be) built on positive market/marketing theory • Positive marketing theory • built on positive economic theory • Positive economic theory • built on a normative theory wealth creation

4. Background • Smith’s Bifurcation • Positive foundation of exchange: • specialized knowledge, labor (service), Value-in-use • Normative model of (national) wealth creation: • Value-in-exchange and “production” • Creation of surplus, exportable tangible goods • Say’s Utility: • Usefulness (value-in-use) • Morphed into a property of products (value-in-exchange) • Development of Economic Science • Built on Newtonian Mechanics • Matter, with properties • Deterministic relationships • The science of exchange of things (products), embedded with properties (“utiles”)

5. Reflections of the Product Model • Marketing is: • The “creation of utilities” (Weld) • Time, place, and possession • “production function” • Concerned with value distribution • Orientations • Production and Product • distribution vs. value-added • Consumer Orientation • Evidence of problem vs. correction • Marketing management and Consumer Behavior • Alderson’s admonition: • “What is needed is not an interpretation of the utility created by marketing, but a marketing interpretation of the whole process creating utility.” • Disconnect between marketing theory and marketing practice • Sub-disciplinary division

6. Sub-disciplinary Divergences and Convergences • Business-to-Business Marketing • From differences • Derived demand, professional buyers, flocculating demand, etc • To emerging new principles • Interactivity, relationship, network theory, etc • Service(s) Marketing • From differences: • Inseparability, heterogeneity, etc. • To emerging new principles: • Relationship, perceived quality, customer equity, etc. • Other Sub-disciplines • Other Intra-marketing initiatives • e.g., interpretive research, Consumer culture theory, etc. • From deterministic models to emergent properties • From products to experiences • From embedded value to individual meanings and life theme

7. Evolving…Service-Dominant Logic • A logic that views service, rather than goods, as the focus of economic and social exchange • i.e., Service is exchanged for service • Essential Concepts and Components • Service: the application of competences for the benefit of another entity • Service (singular) is a process—distinct from “services”— particular types of goods • Shifts primary focus to “operant resources” from “operand resources” • Sees goods as appliances for service deliver • Implies all economies are service economies • All businesses are service businesses • An orientation (mindset) rather than a theory

8. What is needed • Positive Theory • “Market are everywhere and nowhere...” • (Venkatesh, Penalosa, and Firat 2006) • Foundations for Positive theory • Reorientation to marketing and marketing • S-D Logic • Shift from products as unit of analysis to collaborative value creation and determination • B2B, service, and relationship • Refocus on operant resources as source of value • Resource-based theories of the firm; resource advantage theory • Elimination of producer/consumer distinction • B2B marketing/network theory • Inframarginal analysis • Models of emergent structure and processes • Complexity theory • Interpretive research • Theory of resource integration and exchange • Theory of markets to inform normative marketing theory

9. Foundation: Modified FP9: All economic actors are resource integrators (and resource exchangers) RI (Firm) RI RI (Firm) RI Beneficiary RI (Consumer) RI RI (Firm) RI RI Resourse Integration Beneficial RI-1 (Producer) Value Creation

10. External Resources RI Resistance Reduction Resource Integration Needs Needs Needs Resources Resources Resources Exchange Resistances Resistances Resistances RI RI Customers Stakeholders The New Geometry of Marketing? Value Co-creation Value Co-creation Value Co-Creation

11. Concluding Observations • Pluralism and Duality? • Approaches • Acceptance (Pluralism) • Goods and services • (what marketing has been doing) • Confrontation • Goods vs services • (what some are hearing) • Transcendence • Service as generalizable • Goods as a service-provision vehicle • (what we are saying—”service dominant”)

12. Thank You! • For More Information on S-D Logic visit: • sdlogic.org • We encourage your comments and input. Will also post: • Working papers • Teaching material • Related Links • Steve Vargo: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net

13. Evolution of Marketing Thought Market With (Collaborate with Customers & Partners to Create & Sustain Value) To Market (Matter in Motion) Market To (Management of Customers & Markets ) Through 1950 1950-2005 2005+

14. Difficult Conceptual Transitions

15. What’s Next • End of “producer”/”consumer” distinction • All economic actors as resource integrators, service providers and service beneficiaries • Theory of the market • network integration • Superordination of logic of discovery to logic of justification • Adoption of dynamic, non-linear, and longitundinal research methods