Earlier this year, some of the leading scholars in the world of marketing decided to talk paradigm. It was a pretty interesting discussion, particularly by the standards of the academic Journal of Marketing. The topic was a "new dominant logic for marketing."
As Stephen Vargo and Robert Lusch put it in the lead article: "Over the past several decades, marketing has been evolving toward a new dominant logic... The evolving logic represents a shift away from the exchange of tangible output (goods) toward the exchange of services, which are defined as the application of specialized competences (knowledge and skills), through deeds, processes, and performances for the benefit of another entity or the entity itself."
This piece was a big deal in the world of academic marketing research. It essentially argued that marketing is about services, not products. Tangible products are merely the vehicles by which services (or solutions) are delivered -- and customer knowledge is recognized as the "fundamental source of competitive advantage."
Unfortunately, the proposition is about three or four decades late. Alvin Toffler was talking "service economy" in the early 1970s when he published Future Shock -- and Jack Welch turned General Electric into a services company (servicing aircraft engines, providing financing) two decades ago.
All of the scholars who were invited to respond naturally praised the article; few were critical at all. Which is part of the problem. Academia has become such a cozy, log-rolling little world. Rarely does anyone get flamed anymore on their track to tenure. But let's be honest: It's probably time to start looking beyond the product-service paradigm altogether.
Actually, C.K. Prahalad politely points in a new direction -- albeit in the typically inaccessible language of academe. He suggests that we start looking at an "experience-centric cocreation" view of value -- one that recognizes the "criticality of consumer communities" and "the need for a network of firms." The experience -- not the product or the service -- should be at the center of theory and practice, as he sees it.
Let me suggest one more entry to put at the center of our dominant logic: transformations. Beyond product, service and experience marketing comes "transformational marketing." As Joe Pine and Jim Gilmore have written, the "experience economy" will eventually be supplanted by the "transformation economy." As they see it, "Eventually the world will become so saturated with experiences, just as it has with goods and services, that...businesses will charge not just for experiences but the demonstrated outcomes based on those experiences."
1. alan moore on June 10, 2004 11:52 AM writes...
I read your article with great interest and it got me thinking about why does marketing have to change. Which is something I have done a little bit of thinking on.
Marketing is much debated at the moment it seems, as evidence mounts that current “interruptive” communication techniques are increasingly seen as intrusion . And both Jim Stengel, Chief Marketing Officer for Procter & Gamble and Steve Heyer, Chief Executive Officer at The Coca Cola Company have berated the marketing communications industry for failing to offer up viable cost-effective alternatives to deliver growth through marketing communications.
A recent Yankelovich survey makes some very interesting observations;
“Marketing is a significant percentage of the cost of doing business for many companies, so the return on marketing investments is coming under intense scrutiny. Yet, clutter, competition and fragmentation have steadily chipped away at the productivity of marketing. In response, marketers have redoubled their efforts, flooding the marketplace with a deluge of more marketing in the hope that some message somewhere will break through to consumers. This creates a marketing-saturated environment that consumers are resisting with increasing sophistication and skill. As a result, marketing resistance has become another major factor in the continuing declines in marketing productivity.”
Consumer resistance to marketing is a growing proven phenomenon. However, as a former practitioner of traditional advertising and marketing communications, I believe that we do not consume marketing communications in the same way anymore. For a variety of reasons which I will come onto.
John Ranelagh, a founding Commissioning Editor for Channel 4, and former Commissioner of the ITC says that there is evidence to show that TV has lost young males to computer games.
Whilst Jim Stengel is quoted as saying;
“In 1965, 80 per cent of adults in the US could be reached with three 60 second TV spots. In 2002, it required 117 prime time commercials to produce the same result. In the early 1960s, typical day-after recall scores for 60 second prime time TV commercials were about 40 per cent and nearly half of this was elicited without any memory aid. Currently a typical day-after recall score for a 30 second spot is about 18-20 per cent and virtually no one is able to provide any form
of playback without some form of recall stimulate. Traditional marketing methods are diluted by a hurried lifestyle, overwhelmed by technology, and often deliberately ignored.”
Separately and together, new technologies in the form of satellite, cable, the Internet, mobile telephony etc. have triggered a proliferation of new media and communication channels and the rapid fragmentation of audiences. This is a structural change affecting the entire industry, transforming the costs of using and accessing media and the habits of audiences (e.g. ‘sit forward’ search modes rather than ‘sit back’ audience modes).
The author Alan Mitchell argues that marketing is a system in crisis; technologies, structural changes, systemic effects (such as information overload), changing consumer attitudes,increasingly stringent regulation are all combining to undermine the economics and logic of modern marketing.
To put this into perspective lets look at the math of Hollywood,
• The average cost of making a new Hollywood movie went up 8.6% in 2003.
• The average cost of marketing a new Hollywood movie went up 28% in 2003
• Yet audience numbers FELL by 4% in 2003
• As ticket prices grew 4%, Hollywood box office revenues remained at $9.5B in the USA in 2003
The trifecta of media proliferation and fragmentation, the falling cost line of digital economics, and the rising costs and ineffectiveness of traditional advertising. Is what is causing the current heartache within the worlds of business and marketing. And, what to do about it?
Bundle in the empowered customer who is more interested in experiences, service and authenticity and who want their human rights returned, rather than be stripped down to a single unit of economic value and one can see companies just can’t afford to do it the old way. The Yankelovich Survey argues that,
“Intrusive marketing rides roughshod over these new competencies, needs and expectations.”
It is as though companies are from Mars and customers are from Venus, because each has their own P&L. For customers the critical contributors to ‘personal’ P&L include:
• Value for money
• Value for time
• Return on attention (was it worthwhile paying attention to this thing?)
• Emotional return (was it a cause of happiness or hassle?)
• Return on labour (was it worth it?)
Whilst a companies P&L include; revenues, profits, shareholder return, etc. They want to drive ‘consumers’ to the point of ‘value exchange’ as fast as possible, this being the point of purchase. But in an increasingly commoditised world this is no longer cost effective. And traditional interruptive advertising can rarely contribute to the customers P&L.
Brands are finding the traditional costs of being famous and getting through to their customers increasingly prohibitive. Traditional advertising has a value crisis.
Alan Mitchell in a whitepaper commissioned by SMLXL entitled, The Long Goodbye.
http://www.smlxtralarge.com describes the issues surrounding ‘value’,
“Historically, it is the marketer’s assumption that the value he offers is embedded in the product or service he is selling. The cost of marketing is a necessary cost of realising this value. It is not meant to add value in its own right. However, in a world where total go-to-market costs can account for 50% or more of total costs this neat division of labour is no longer tenable. And if marketing were a thing in its own right would anyone want to buy it? The answer is on the whole, no.”
Robert Heath in a monograph wrote,
“…the universal love affair which advertisers have with television will eventually come to an end. Television has survived the arrival of multi-channel mainly because of its supposed ability to get the attention of the consumer, but once it is realized how inefficient it is at doing this then people will start to examine the cost/return equation much more closely.”
He goes on to argue that “the cynical truth is that a huge amount of TV advertising is run not because it works, but because the retail trade demands it . . . when the marketing industry starts to perceive the weakness of television versus other media, this retail 'blackmail' will start to be challenged; and how many brand owners will carry spending millions on TV if they no longer need to?”
Experience is only one element to this debate. More crucially from my perspective is 'value' and how you embed it into your marketing? Which means you are creating better services, developing more joined up thinking and perhaps for the first time putting the customer at the beginning not at the end of the value chain.
We have seen that by companies creating value in a more customised ways they can grow, and, they can sustain their revenue streams.
Alan Moore
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