Executive Summary

Firms have relied upon building a competitive advantage through the development of unique resources to achieve superior performance relative to others in the marketplace. Unfortunately, little has been written to help guide decision makers within firms to attain such competitive advantage. In this paper, we present insights on how to better compete by employing service-dominant (S-D) logic. S-D logic can help retailers, and all firms for that matter, to compete through service by viewing firms, markets, consumers, and exchange in a vastly different manner than the “goods dominant” (G-D) logic has traditionally provided. Historically, the G-D logic evolved to view competitive advantage as a result of how a firm better manipulated the 4Ps to embed value into physical, tangible products and distributing such to passive consumers. S-D logic, on the other hand, elevates service by emphasizing the process of providing benefit as opposed to focusing on the units of output (i.e. products) and sees previously uncontrollable forces, such as the environment (even the consumer!), not as forces to which the firm needs to adapt, but as resources the firm can utilize to help provide better service. Competitive advantage, then, is simply how a firm utilizes such resources better than other firms to serve customers.

            This paper relies upon the foundational premises of S-D logic to develop nine derivative propositions that assert the influence of S-D logic and how to compete through service. Firms that develop special knowledge in applying its abilities, or competences, can combine their competences with those competences of other firms through collaborative efforts to create innovative offerings. As such, collaboration becomes a special competence in its own right and is attainable by both comprehending trends and the knowledge of other firms and by changing to meet dynamic circumstances. Both enable firms to better acquire the knowledge needed for competitive advantage. The firm that best combines activities and resources through collaboration and coordination is in a stronger competitive position, and retailers are often in the best position to do so because they are closest to the customer.

            Current trends in technology, such as increasingly ‘open’ forms of information sharing and connectivity, are facilitating firms’ ability to collaborate in innovative ways with not only other firms, but their own employees and customers as well. From the customer perspective, customers collaborate with firms to gain the benefit of what the firm is offering through either the use-experience or by participating in the creation of the offering itself. Firms can learn from customers by both examining how customers choose to experience the firm’s offering in use and also by assessing how much the customer chooses to participate in creating an offering and facilitating that degree of participation. Examining how customers choose to experience the offering is dependent upon not only the offering of the firm, but also how the customer chooses to experience the offering in combination with other resources at the customer’s disposal. Employees of the firm are the key resource in which the firm’s knowledge and competences reside. Leveraging employees is a result of recognizing the dynamic capability of this resource to be constantly revitalized, enhanced, and their ability to cause changes in other resources. We assert that those firms that adopt a style of leadership that serves the interest of the employee can aid in leveraging their employees as a source innovation and knowledge within the firm.

            One of the more important managerial implications stemming from S-D logic regards price setting. Recognizing that the firm is only a producer of value in tandem with the customer, the firm can only make value propositions. Value propositions represent, in terms of price, signals to the level of value (in use) that will be received relative to the level of value that will be given up (in exchange). S-D logic suggests the seller and buyer should co-produce the value proposition in terms of price and benefits. Importantly the value proposition that is co-produced in terms of price can be dependent upon the level of actual value in use realized rather than predicted. Accordingly, part of the risk that was previously assumed by the buyer in the exchange process is now transferred to the seller. While this may not easily be seen as desirable, when both the buyer and seller have gains and risks at hand, such collaboration between firms could help achieve better financial returns through superior service strategies.

            The nine propositions developed provide numerous other managerial implications as well; however, contingent on realizing such positive outcomes for the firm is a shift from the traditional G-D logic and towards S-D logic. This requires an understanding of the centrality of the idea that value for both the firm and customer lies in the collaboration between the two and potentially other value co-creating partners. In doing so, all must recognize one another as resources to both draw upon and serve.