Adopting a service business logic in relational business-to-business marketing: value creation, interaction and joint value co-creation

Adopting a service business logic in relational business-to-business marketing: value creation, interaction and joint value co-creation Otago Forum 2 (2008) Academic Papers Paper no: 15 Hanken School of Economics, Finland christian.gronroos@hanken.fi

Adopting a service business logic in relational business-to-business marketing Adopting a service business logic in relational business-to-business marketing: value creation, interaction and joint value co-creation Abstract Thinking in terms of service is equally important on business-to-business markets as on business-to-consumer markets. Business contacts on the former markets are often ongoing relational processes. In the article it is concluded that to support customers business processes suppliers will have to provide support to a variety of a customer s everyday processes. The supplier s processes will have to support corresponding customer processes in a value-supporting way. This means that the supplier must think of itself as a service business. In the article it is furthermore observed that according to the value-in-use concept customers as the value creators create value out of the support in the form of resources and processes that they receive from a supplier. Fundamentally the supplier facilitates this customer value creation, but during the interactions with customers that exist in the relationship joint value co-creation between the supplier and the customer takes place. This enables the supplier, in addition to being a value facilitator, first of all to become a co-creator of value with its customers as well, and secondly, instead of being restricted to making value propositions only, to directly influence its customers value fulfilment. As the interaction phenomenon has a central role in value creation, and in marketing, this phenomenon is analyzed in some detail. Finally, conclusions of the analysis for understanding value for customers and marketing on relational business-to-business markets are presented in the form of five thesis on value creation and marketing. Key words: Service business, service logic, service-dominant logic, business-tobusiness marketing, relationship marketing, interaction Background and purpose According to a logic for business and marketing based on service (service business logic, service logic, service-dominant logic) customers use both goods and services as services that render value for them, i.e., goods and services are used by customers in various manufacturing, administrative, logistical, financial and other processes so that value is created for them in those processes (Grönroos, 1979 and Gummesson, 1995). Value is perceived by customers in their internal processes and in interactions with suppliers or service providers when consuming or making use of services, goods, information, personal contacts, recovery and other elements of ongoing relationships (Grönroos, 2000:140; italics in the original). These customer processes have been labelled customers value-generating processes (Grönroos, 2000). Hence, not only service processes but also goods are distribution mechanisms for services (Vargo & Lusch, 2004). These observations have also been put forward as foundational propositions in the discussion of a service-dominant logic (Vargo & Lusch, 2004 and 2008). Following these thoughts, suppliers will have to justify for its customers how their offerings, regardless of whether goods or services are at the core of those offerings, function as services in the customers various processes, i.e., how their offerings in those processes support the creation of value for the customers. In this respect all firms are 269

Otago Forum 2: Academic Papers service businesses (Grönroos, 2000; see also Vargo and Lusch, 2004). Although goods function as services in the customers processes, they are not necessarily always purchased as services. For example, a user of a given good who knows how to make use of this good in order to create value out of it, may very well look for an offering that only includes the good. A supplier that extends this offering to include, for example, advice and other service activities may only annoy this customer. Hence, although goods and services are used as services, marketing them as either limited goods offerings or extended service offerings is a strategic decision, based on the customers level of skills, needs and expectations (Grönroos, 2008). Adopting service as a logic for business has profound consequences for how value is created for customers and for the roles of suppliers and customers in value creation. Furthermore, it has equally profound consequences for how marketing should be understood and managed. For example, the concept of supplier-customer interactions gets a central role in marketing. The purpose of this article is to analyze the role value creation and marketing, especially the role of interactions in marketing, have in a relational business-to-business context. Service logic and value for customers in relational business-to-business contexts In on-going relational business contexts a multitude of more or less interactive contacts between a supplier and a customer takes place. The success of a supplier is not only dependant of how well it manages to provide, for example, a production machine or an administrative system to a customer. Whether or not this is of value for the customer is also dependant of how time tables are kept, the timing of deliveries, how well the core product (a good or a service) is made operational, how it is maintained, etc. In addition, the supplier s invoicing systems, ways of handling quality problems and service failures and how other customer-influencing process are handled also has an impact on what value the customer manages to create out of the core product. Because the latter type of activities normally are not seen, nor managed as services for the customers and therefore most often are perceived by them as nuisances rather than as support to their processes, these kinds of services are labelled hidden services (Grönroos, 2000:2) Value for a business customer does not emerge from one resource the core product only, but from the whole spectrum of supplier-customer interactions, including hidden services, that support a successful use of this core resource in the supplier s total market offering. As MacMillan and McGrath (1997) observe, to differentiate a market offering a supplier must not concentrate on the core product only, but take into account the customers processes and ask itself, for example, the following questions: How do customers order and purchase products (goods and services)? How are products delivered? What happens when they have been delivered? How are they installed? How are they paid for? How are products stored? How are they moved around? What are customers really using products for? What do they need help with when they use the products? How are products repaired and serviced? What happens when products are disposed of or no longer used? In its contacts with a supplier a business customer moves through a chain of everyday processes that all need support, either from the supplier or by actions taken by the customer or by a competitor. The customer s processes have corresponding processes on the supplier side, and these processes should meet in ways that helps the customer s everyday activities flow towards a successful and profitable business process. In Figure 1 typical corresponding 270

Adopting a service business logic in relational business-to-business marketing customer and supplier processes on a business-to-business market are illustrated. Figure 1: The customer and supplier business function chains According to a traditional manufacturing approach, following what could be labelled a goods logic, the supplier, for example producing and selling a production machine, would concentrate on how well the machine fits the customer s production process. Other customerinfluencing activities, such as deliveries, installing, making the machine operational, invoicing, correcting mistakes and handling complaints, etc. would be given less attention and probably not more than marginally integrated into the market offering. Some of these activities would sometimes be more geared towards helping the customer s corresponding process support the customer s business process, others would be less or not at all geared towards that. A goods logic can be described as a business logic, where resources are provided to a given customer usage process for the customer s use in order to support that particular process in a value-creating way (Grönroos, 2006a). It remains the responsibility of the customer, as a project manager, to make sure that its other processes support and do not have a negative impact on the value that can be created out of the core product purchased. A service business would take a much more comprehensive responsibility for a customer s everyday processes and how they ultimately support the business process. According to a service business logic, the supplier as a service business supports the customer s processes with an extended offering, including a range of service processes and hidden services, that enables the customer to create value out of the core process (e.g., a production process). Ultimately, this extended offering (service offering) provides successful support to the customer s business process. The core customer process (e.g., a production process) is supported by the core of the supplier s extended market offering (e.g., a production machine), whereas the customer s business process is supported by the entire extended service offering. A service business takes a much larger responsibility metaphorically speaking as a project manager, for supporting the customer s processes. Hence, a service logic means that a supplier does not provide resources for the customer s use only, but instead it provides interactive processes including various types of resources (goods, people, systems, information, etc.) that support the customer s corresponding processes in a value-creating way. Service is to support customers processes with a set of resources and activities. (Grönroos, 2008:300 and Grönroos, 2006a). 271

Otago Forum 2: Academic Papers In a relational business-to-business context according to a service logic the market offering is a process consisting of several sub-processes and resources (e.g., order taking, deliveries, installing, product specifications and features as well as product documentation, maintenance, invoicing, complaints handling and service recovery, etc.) supporting corresponding everyday customer processes (e.g., order making, storage, installing, using, maintaining, paying, having problems and mistakes corrected, etc.) in a way that helps the customer create value in all its processes and through this ultimately has a value-creating impact on the business process. What is value for customers in a business-to-business context? In the literature on value creation and value co-creation value is used as an abstract concept that seldom is specified in more concrete terms, other than that value is a relationship between what one benefits and what one sacrifices. On a general level, as a working definition, value for customers can be described in the following way: Value for customers means that they after having been assisted by the provision of a resource (manufacturing business; goods logic) or by a process or set of processes (service business; service logic) are or feel better off than before (Grönroos, 2008:303; slightly developed and abbreviated). On consumer markets value for customers is often a perception and is difficult to measure in monetary terms. As business is always conducted by human beings, also on business-tobusiness markets value takes the form of a perception, but only partly. In addition, what a supplier is doing for a customer will always have some effect on the economic result of the customer s operations, i.e., on how profitable the business process is. The profitability of a business is dependant of how well various processes in the firm (order making, storing, producing, maintaining, paying, having mistakes corrected, etc.) function not only in terms of operational efficiency and effectiveness but also of how they support either the firm s growthand revenue-generating capacity or cost level, or both. And how well such processes function and have positive effects on revenues and costs is dependant of how well they are supported by the firm s suppliers. Hence, the roots of a firm s economic result can be traced back to how well the firm s various business processes are supported by its suppliers, in terms of the revenue and cost effects created by this support. In conclusion, value for customers and what value a customer can create out of the support provided by a supplier can be divided into three types of value-enhancing effects: 1. Effects on the customer s growth- and revenue-generating capacity a. Business growth opportunities (new markets, higher customer or customer segment penetration) b. Higher margins through premium pricing 2. Effects on the customer s cost level a. Lower operative and/or administrative costs b. Higher margins through lower operating/administrative costs 3. Effects on perceptions a. Increased trust in the supplier b. Increased commitment to the supplier c. Increased attraction of the supplier In principle and often in practice as well the two first types of value-creating effects can be 272

Adopting a service business logic in relational business-to-business marketing measured in monetary terms. The third effect can only be measured as perceptions and cognitive effects. From the supplier s point of view, when promoting an extended market offering (service offering) it is important to strive to calculate the revenue and cost effects of such an offering. This is a way of motivating a price tag on service. Co-production and value creation In the contemporary marketing and management literature as well as in the discussion about a service-dominant logic there is a common understanding that value is created in the users processes as value-in-use (see, for example, Normann & Ramirez, 1993, Holbrook, 1994 and 1996, Ravald and Grönroos, 1996, Vandermerwe, 1996, Wikström, 1996, Woodruff and Gardial, 1996, Normann, 2001, Ravald, 2001, Prahalad, 2004, Vargo and Lusch, 2004, Grönroos, 2000, 2006a and 2008, Lusch, Vargo and O Brien, 2007, to mention a few publications). Also in axiology, or the philosophy of value, value is considered to be created by the customers during use of goods and services (e.g., Lamont, 1955, Mattsson, 1991 and Holbrook, 1999). In the 1960s the economist and Nobel Prize winner Gary Becker (1966) described this view in a consumer context in his discussion of the household as a utility or value producing unit. Firms supply the household with the resources, such as goods, services and information, which the household needs in order to create value (or utility) for itself. Also in service marketing research this was observed very early: A good represents potential value (or utility) for the consumer. He purchases the good and subsequently he has to initiate and implement the activities required to transform this potential value into real value for him (Grönroos, 1979:86). Since the early days of modern service marketing research customer participation in service production processes and the customers role as co-producers of services have been recognized (Eiglier and Langeard, 1975 and Grönroos, 1982). The fact that customers participate as co-producers in firms production processes means that customers engage themselves with the firms work or processes (see, for example, Lengnick et al., 2000 and Auh et al., 2007). Because it is the firm that is in charge of and steers service production and the customers are entering this process during interactions with the firm, this statement is correct. Perhaps it is from this observation that the thought has emerged that also in the context of value creation customers are given opportunities to engage themselves with the firm s processes, i.e, in the firm s creation of value for its customers. However, as it is the customer who creates value and is in charge of the value-generating process, in the context of value creation this statement is not correct. Moreover, it is an inside-out view which is in conflict with the marketing concept, according to which the firm is best off by basing its decisions on the customers processes and their needs, wants and expectations. Mixing service co-production with value creation may have contributed to the confusion in the literature as to the roles of firms and customers in value creation for the latter. Production and value creation are not the same thing. In production processes the distribution mechanisms (goods and service processes) for service that render value for customers are produced. Value creation, on the other hand, takes place in the customers value-generating processes where goods and services are used. There value is created out of these distribution mechanisms. The customers are in charge of their value creation. What suppliers can do is, first of all and fundamentally, to provide their customers with such goods and services that they can use in a value-creating way. As suppliers in this way facilitate value creation, this can be labelled value facilitation. 273

Otago Forum 2: Academic Papers However, as production and usage, or in more general terms the supplier s and its customer s processes, are partly simultaneously occurring processes, interactions between suppliers and their customers occur. As part of such interactions customers co-producing opportunities exist. From a production point of view, where the supplier is in charge of the process, customers engage themselves with the supplier s production process. However, looking at the interactions from a value creation perspective the situation changes. In value creation the user is in charge, and hence it is the supplier that is invited to engage itself with the customer s work, or usage and value-generating processes, in order to support how value fulfilment is occurring in those processes. This view also describes a truly outside-in approach and is in accordance with the marketing concept. The supplier s involvement in its customers usage processes during interactions with the customers opens up additional opportunities for suppliers to influence value creation and customers value fulfilment. During the interactions the supplier can directly work with the customers and actively influence the flow and outcome of their value-generating processes. Because according to the value-in-use notion customers create value, the supplier is not a value creator or the value creator. However, during interactions with users in addition to its role as value facilitator, the supplier becomes a co-creator of value as well (Grönroos, 2008:307). As Storbacka and Lehtinen (2001) state, customers produce value for themselves independently, but suppliers may offer assistance. Co-creation opportunities that suppliers have are strategic options for creating value (Payne, Storbacka and Frow, 2008). As these interactions are dialogical situations, where both parties are active in a learning process and influence each others perceptions and actions (Ballantyne 2004 and Ballantyne and Varey, 2006), it is in fact a matter of joint value co-creation in which both are engaged. In Figure 2 the relationships between production and value creation, value facilitation and value cocreation as well as the supplier s and the customer s roles in these processes are illustrated. Figure 2: Value creation from a value-in-use perspective: value creation, value facilitation, and value co-creation as well as production and co-production 274

Service logic and marketing Adopting a service business logic in relational business-to-business marketing The focus on a service logic and customers value creation directs the service-focussed firm s interest towards its customers value-generating processes, which tend to repeat themselves over time and therefore are oriented towards the long run. Consequently, almost by definition a service business is customer focussed and relationship oriented (Grönroos, 2000 and Vargo and Lusch, 2004). In the discussion of marketing in general and not only in relationship marketing contexts value for customers has become a pivotal concept. In its efforts to update its marketing definition during the 2000s American Marketing Association has taken a new stance and distinctly based its new view of marketing on value creation. Because AMA, in its updating efforts in 2004 and again in 2008, emphasizes that value is delivered to customers and, thus, does not use the value-in-use notion, the definition is not as such in line with the contemporary marketing discussion. Although the underpinning logic of the definitions offered has been criticized on this and also other grounds (Grönroos, 2006b), the step towards focussing on value creation as a goal for marketing does take marketing to a new level. Building on the AMA efforts to redefine marketing Sheth and Uslay (2007) have argued that gearing marketing towards value creation indeed may be a contemporary focus for marketing. Focussing on value creation as the ultimate goal for marketing may be an answer to the challenge posed by Alderson (1957) over half a century ago, namely that rather than finding out what utility, or value, is created by marketing, what is needed is a marketing interpretation of the whole process of creating utility (p. 69). It also corresponds with Drucker s (1954) conclusion that it is what customers do with what firms produce and what they think is value for them that is decisive for any business. From the underpinning logic of service based on the notion that in order to support customers value creation the supplier should strive to get involved in the customer s processes, such as purchasing, order making, storing goods, paying, using, maintaining, updating, having mistakes and failures corrected, getting advice, and scrap disposal, the following formulation of the goal for marketing can be derived: The goal for marketing is to engage the firm with the customers processes with an aim to support value creation in those processes, in a mutually beneficial way. This formulation corresponds well with the definition of relationship marketing that has been considered the one that includes most common elements in corresponding definitions (Harker, 1999 and Harker and Egan, 2006). According to this definition (e.g., Grönroos, 2000:243), relationship marketing is the process of establishing, maintaining and enhancing, and when necessary terminating relationships with customers, for the benefit of all involved parties, through a process of making and keeping promises. 1 Making promises requires that the supplier engages itself with its customers processes in the first place. Keeping promises 1 In a recent article this definition has been developed as a general promise management definition of marketing: Marketing is a customer focus that permeates organizational functions and processes and is geared towards making promises through value propositions, enabling the fulfilment of individual expectations created by such promises and fulfilling such expectations through support to customers value-creating processes, thereby supporting value creation in the firm s as well as its customers and other stakeholders processes. (Grönroos, 2006b:407). 275

Otago Forum 2: Academic Papers relates to how the supplier supports the various processes relevant to its customers (order making, storing goods, paying, using, maintaining, etc.). Keeping promises well means that the customers processes are supported in a successful and value-creating way. Hence, the supplier s capability to support value creation through value facilitation (providing appropriate goods and services offerings) and joint value co-creation during interactions with customers in a variety of customer processes determines its success. Value facilitation will not be dwelt upon in this article, but in the following sections the interaction concepts and its role in suppliers co-creation of value and joint value-co-creation with their customers will be analyzed. The nature of commercial interactions Especially within the Nordic school research tradition the interaction concept is a key construct in relationship marketing (e.g., Grönroos, 2000, Gummesson, 2002) and in service marketing, for example in the form of buyer-seller interactions and interactive marketing (e.g., Grönroos, 1982), part-time marketers (e.g., Gummesson, 1991) and interaction quality (e.g., Lehtinen and Lehtinen, 1991). However, interaction has also been discussed to some extent within other service research traditions (e.g., Solomon et al, 1985). Moreover, the interaction concept and buyer-seller interaction term have also been used within the IMP approach in the interaction (e.g., Håkansson, 1982) and network (e.g., Håkansson and Snehota, 1995) models of business marketing, as well as in many industrial marketing publications (e.g., Dwyer et al, 1987 and Jap et al, 1999) and in publications with a broader marketing scope (e.g., Day and Montgomery, 1999, Rayport and Jaworski, 2005, Yadav and Varadarajan, 2005 and Ramani and Kumar, 2008). However, in a marketing context the underpinning logic of the interaction concept has not been thoroughly discussed. In general terms interaction is mutual or reciprocal action where two or more parties have an effect upon one another. An inherent aspect of interaction is connectivity, i.e. the parties involved are in some contact with each other. In a business context supplier-customer interactions mean that two or more parties are in contact with each other for a commercial reason, and in these contacts they have opportunities to influence one another s processes. Interactions do not necessarily require face-to-face or man-man contacts. Man-machine, mansystem and even system-system contacts can also occur. Hence, interactions can also take place between a customer and systems or infrastructures. Such interactions are often mediated by IT or mobile technologies. As Yadav and Varadarajan (2005) observe, increased interactions between customers and firms and also between customers have been triggered by technological developments. When using an Internet-based diagnostic tool to identify reason for a problem in, for example, a manufacturing process and to find an applicable solution, a customer interacts with an IT mediated system provided by the supplier. When two persons talk to each other using mobile phones they interact with each other and with the telecommunication mediated infrastructure provided by the telecom operator. Such IT mediated systems and mobile technology infrastructures can be, and often are developed into intelligent systems which, within limits, can perform in a flexible manner according to the customers actions. If this is the case, both parties, the customers as well as the supplier, take actions that influence the other party. On the other hand, in many service settings interactions take place between customer and service employees. Frequently these interactions involve systems and other elements such as goods and other tangible items as well. Characteristic for all these situations is that the two or more parties involved are in contact with each other and can take actions of some sort which influence the other party s process. Hence, during the 276

Adopting a service business logic in relational business-to-business marketing interactions the supplier and customer can influence the course of each other s processes. Traditionally, in typical goods-marketing situations the supplier provides its customers with goods as input resources into their processes. The goods are more or less standardized and cannot be influenced by actions taken by the supplier. No interactions occur, only actions taken by the user. The supplier is inactive and silent. By creating intelligence into goods, so that they, again within limits, can adjust their performance to the customers actions, interactions are developed. Also by adding, for example, call centre services, interactive systems for order taking, logistics or diagnosing problems a goods marketer creates interactions with its customers. In all these cases the supplier, through the development of interactions, creates opportunities to engage itself with its customers processes and influence those processes and the outcomes of them. By creating and adding interactions with its customers and making active use of them to support customers value fulfilment the supplier adopts a service business logic. Value creation and marketing implications of interactions The customer s and the supplier s processes flow partly as parallel processes. For example, order making and order taking may include interactions between people, between people and automatic systems or even between systems, or maintenance activities include interactions between people and even between automatic systems representing the supplier and the customer, respectively. The same goes for several supplier processes that are needed for and influence corresponding customer processes. Such corresponding processes occur partly simultaneously and in parallel with each other. However, from a value creation perspective they are dialogical processes that merge into one integrated joint value co-creation process where both parties are active. The user can directly influence the supplier s actions, and by its actions the supplier operates directly as part of the customer s value creation. The supplier is in the user s process in the same way as the user through co-production activities does not work in parallel with the supplier s process but as integrated parts of the this process. From a marketing point of view this means that during the joint value co-creation process the supplier being part of the customer s process is part of their value fulfilment. This means that the supplier is not restricted to making value propositions only, but during interactions it can extend its activities to directly and actively influencing its customers value fulfilment as well. This opens up new opportunities for suppliers to develop its marketing strategies in a way that is unique to a service business. The different types of interactions in commercial settings can be thought of as an interaction continuum. Such a continuum is illustrated in Figure 3. At one end of the continuum are interactions with a low level of interactivity content, such as goods with some degree of inbuilt intelligence or with some sort of interactivity support. Call centres and frequently asked questions sections on the Internet are examples of such interactivity support. Further away from this end are service systems mediated by mobile technology and IT. Towards the other end of the continuum are service processes with a higher level of interactivity, such as semi-standardized service processes and at the far opposite end full-service, high interactivity service processes, such as interactive on-site repair and maintenance activities. Hence the continuum goes from low interactivity content at one end to high interactivity content at the opposite end. 277

Otago Forum 2: Academic Papers Figure 3: The interaction continuum The existence of an interaction does not only imply that direct actions that influence the other party can be taken. During interactions both parties can also gain information about the other party s processes and use this information in various ways for the benefit of itself and of the other party. For example, a customer may learn about a supplier s need for information to run their processes more smoothly and, as a consequence, in future interactions automatically provide the supplier with these pieces of information. On the other hand, a supplier delivering components to a manufacturer may observe that this customer, for example, uses a less effective logistical system and can use this observation to help the customer develop its processes in a more effective direction. The customer s value creation may not have been as effective as possible and through what is learnt during interactions the supplier can take actions not only to support the customers value creation but also to improve the value creation process itself. Hence, interactions are also learning opportunities for all parties involved. Based on Argyris and Schön s (1978) double-loop learning concept, Payne, Storbacka and Frow (2008) suggest the term proportioning for this type of learning. With proportioning they mean that customers and suppliers and service providers reflect on how they are involved in each others practices and based on these reflections, if needed, they may change their behaviour and use of resources for future interactions. Of course, this proportioning may also make one or both of the parties disengage from future interactions. (Payne et al, 2008) Furthermore, it is important to realize that the existence of interactions is only a platform for influencing the customers usage processes. The opportunities provided by this platform can be taken care of well or less well by the supplier. In the former case customers probably perceive that they get more value out of the goods or services they use, whereas in the latter case the customers will perceive that their processes are influenced in an unfavourable way by 278

the actions taken by the supplier. Adopting a service business logic in relational business-to-business marketing 279

Otago Forum 2: Academic Papers Managing the interaction platform The interaction platform has to be managed in a way that supports value creation for the customers and, of course, also value capture for the supplier. In Figure 4 this is captured in an interaction activity scale, which is based on how active or passive the supplier and the customer, respectively are in interactions that take place. In the figure only three possible situations are illustrated. In reality, of course, both parties can be more or less active or passive in the interactions. The various possibilities indicated by the scale offer strategic options for the firm. Figure 4: The interaction activity scale To the left in the figure the customer is active and the supplier passive in the interactions. Typically, a user s trouble shooting on the Internet using the supplier s web site is an example of such a situation. The user searches for possible reasons for a problem, for example in a manufacturing or administrative process. The web site only responds to the customers actions but does not proactively take actions. The supplier only provides the system and infrastructure needed and when required may provide, for example, a contact phone number or e-mail addresses for the customer s use. On the other hand, to the right on the scale the supplier is active and the customer passive. Routine maintenance activities performed by a service technician without any real interactions with the user are examples of such a situation. The service technician is active and performs the maintenance task, whereas there is no need for representatives of the customer to engage themselves. In the middle of the interaction activity scale both parties are active. On-site training of the customer s personnel to use a production machine or an administrative system is an example of this type of situations. Both the supplier and the customer s employees have to be active, ask questions, provide information, reflect on the information available, and make decisions. Depending on the activity level of each party the nature of the interactions vary considerably. The position on the interaction activity scale that should be chosen by a supplier depends on the nature of the customers processes and level of knowledge, what they consider value creating as well as on their needs, wishes and values. Of course, it also depends on the business mission and overall strategies of the supplier. 280

Adopting a service business logic in relational business-to-business marketing Conclusions: Implications of joint value co-creation and supplier-user interactions on business-to-business markets In this final section five central conclusions from the analysis of value creation and especially from the existence of joint value co-creation between the supplier and customer and of the role of interactions between suppliers and users are presented. These conclusions relate to the understanding of both value creation on business-to-business markets and the marketing implications that follow from the way value for customers is created. They are presented in the form of five theses about value creation and its marketing implications. The theses extend and specify the propositions about a service-dominant logic that have been discussed in the literature (Vargo and Lusch, 2004 and 2008) and at the same time they take the ten service logic theses that have been put forward previously (Grönroos, 2008) a step further. (These five theses are summarized in the appendix.) 1. The goal for marketing is to support customers value creation As value created in customers value-generating processes is considered the key value concept in the contemporary literature on marketing and management, and customers creation of value have been suggested as a pivotal process in business, obviously the role of contemporary marketing must be geared towards the creation of value for customers. 2. The customer is always the value creator The view that value for customers is created in the customer s usage or value-generating processes (value-in-use) implies that it is the customers who create value for themselves, when using services and goods that they have bought, possibly adding other necessary resources and also skills held by them. Hence, value for customers is created at the moments of use and not before, for example by the supplier in its manufacturing and other processes. However, as the third thesis demonstrates, during part of this usage process the supplier may engage itself with the user s value-generating process. Regardless of this, the customers are always in charge of their value creation. 3. The firm is fundamentally a value facilitator, but during interactions with its customers the firm may in addition become a co-creator of value By supplying customers with goods and services and other resources such as information the supplier provides its customers with a fundament for their value creation. Creating this fundament is production, not value creation, and by producing value-supporting resources the firm facilitates value creation. However, by engaging itself with its customers processes the firm creates interactions with the customers. Typically, for service firms such interactions exist naturally, but for goods-providing firms there is always a possibility to create interactions with their customers. Adding call centres, frequently asked question sections on the website, maintenance of goods that have been delivered and customer training are examples of such interaction-creating efforts. During these interactions the supplier s and the customer s processes proceed simultaneously and from a value creation perspective they merge into one integrated process. During these integrated processes joint co-creation of value takes place. This enables the firm to become a co-creator of value and not to remain a value 281

Otago Forum 2: Academic Papers facilitator only. 4. The firm is not restricted to making value propositions only but can directly and actively engage itself with its customers value fulfilment as well Adopting a service logic means that the offering to the market is extended from a good or core service to include the process of interactions between the firm and its customers as well. During interactions the firm s and the customer s processes not only proceed in parallel with each other, the customer participates in the supplier s process with co-producing activities, which in turn influence the supplier s actions in a continuous flow of activities, so that the firm also participates in the customer s process. In this way the two processes merge, and from a value-creating perspective they form an integrated joint value co-creation process. Consequently, the firm s inputs into this integrated process is not only an external signal taken up by the customer, rather it is an integrated part of the customer s value-generating process. Hence, the supplier directly and actively influences value fulfilment for the customer. If no interactions occur the supplier has no opportunities to engage itself with the customers processes and directly influence value fulfilment for them. In this situation the firm is restricted to making value propositions only. 5. Adopting a service logic for marketing is a strategic decision As customers, although they always use goods and other resources as services, when making their purchasing decisions cannot be expected to always appreciate extended offerings including value-supporting processes (services) in addition to a value-supporting resource (a good), a service logic is not always the most effective basis for a marketing strategy. If customers do not appreciate an extended offering but for example have the skills and knowledge to use a given resource independently in a value-supporting way, a goods strategy can be expected to lead to better results. Although in this case the market offering should not be extended to include process elements, still the value proposition can and probably should focus on how the resource (a good or even a service) may support the customers processes in a value-creating way. 282

Adopting a service business logic in relational business-to-business marketing Appendix. Five service logic theses a summary Theses Comments 1. The goal for marketing is to As value creation for customers has been support customers value creation emphasized as an ultimate outcome for businesses, it is only natural that is should be the goal for marketing. 2. The customer is always the According to the value-in-use concept value for value creator customers is created or emerges in the customers processes during usage of goods and services. Consequently, there can be no other value creator than the user, i.e., the customer. 3. The firm is fundamentally a Input resources into customers valuevalue facilitator, but during generating processes are produced by firms, interactions with its customers and hence they only facilitate value creation. the firm may in addition become They do not include value in themselves. a co-creator of value During interactions with customers firms get opportunities to influence its customers valuegenerating processes and thus can become co-creators of value with its customers. 4. The firm is not restricted to During interactions the firm s and the making value propositions only but customer s processes merge into one integrated can directly and actively engage process of joint value co-creation. Hence, the itself with its customers value firm is inside the customer s value-generation fulfilment as well process and can directly and actively influence that process and value fulfilment for the customer. 5. Adopting a service logic for Although customers use goods and services as marketing is a strategic decision services that render value for them, they cannot be expected to automatically appreciate extended offerings that include value-supporting processes. Some customers look for a resource to be used by them only and do not appreciate to be offered more than that. 283

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