This research paper outlines the underpinning reason of co-creating value by analyzing the service logic. Ten foundational premises that explain the service dominance logic dismally give a deeper thoughtful view of value creation and co-creation via an understandingly theoretical framework. Deep analysis of the interaction concept is significant in understanding the locus, while the environment of value co-creation would not be easy to comprehend. This would mean that value co-creation is just a concept with no significant impact. In this paper, the argument is based on the fact that customers are not the only players involved in co-creation. Under some circumstances, the service providers also have the chance to co-create value alongside its consumers. This calls for the reformulation of 7 of the 6 statements of service co-creation introductory premises. .
Purpose: The notion that the customer is the main co-creator of value in the current rhetoric does not always hold. At the most advanced stage, the service provider and the customers are both involved in the process of value co-creation. The purpose of this paper is to analyze how value is co-created in the services logic by looking at the roles of customers and the firms as well as the whole aspect of value creation.
Design/Methodology/Approach: Most researches on marketing and value creation base their arguments about ideals of interactive marketing, the concept of part-time marketer, interaction quality, and the functional quality in the Nordic school of thought, while the French school of thought also developed the servuction concept. These ideals do not offer explanations regarding the existence of interaction between the customers’ roles and the role of the suppliers in co-creating value. Hence, this research model explains the connectivity between firms/suppliers and the customers as mutually dependent co-creators. This methodology explains why the traditional marketing methods, which view the premise that once a customer has received goods or services, no contract exists between the supplier and the customer, as unrealistic in the current market.
Findings: The discussed model points out the most significant area of service co-creation. The model holds that service also refers to physical goods as consumable because of the processes involved in creating the goods. There are four main factors of evaluating the concept of co-creation of services. These are service logic, value application and service, the customer as a co-creator of value, and the impact of a firm in value co-creation.
Research Limitations/Implications: The implication of value creation as a mutual process involving the customers and suppliers allows the firms to adopt service perspective that will in turn create more opportunities for them. When business organizations understand that they need to extend their role as makers to include the customers, then they would open up for a new world of opportunities. This is steps from the fact that by studying the customers’ feedbacks as acting upon them encourages customers’ loyalty.
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Practical Implications: The abovementioned model opens up avenue for firms to view marketing as a wider area, regardless of whether products are physical goods or just services. In marketing, there are no physical goods as all products are considered services. With this in mind, firms would take initiatives to reach out to the customers and engage them in service co-creation.
Originality: No prior research has been dedicated to viewing all products as services as well as the fact that suppliers and customers are mutually involved in the process of service co-creation.
Firm and Customer Roles in Value Co-creation
The term value in the business environment remains an elusive concept that is defined by many experts in different ways. According to Grönroos (2008), value creation is a process in which the customers’ experiences better off with respect to some aspects or if the general well-being of the customers increases (p.303). Value means different things to different consumers; for instance, an individual could derive more value in meeting new friends while another would be pleased by driving a sport car. Secondly, Ruth, Otnes & Brunel (1999) write that gifts play a significant symbolic role because of the meanings both the givers and the receivers attach to gifts (p. 386). Value creation is a conscious process in the explicit form; however, in most situations, creating value is experienced unconsciously in the use of goods and services. Thus, Grönroos (2011) construes that, “Value creation is not an all-encompassing process” (p. 282). The main fundamental premise of a business in the service sector is to exchange a service with a service according to the economic decision-making theory proposed by the French economist Frederic Bastiat (1848). The theory claims that economic decision-making should take into consideration the interests of the customers. In return, customers give back services to business organizations.
The service that customers give back to the firm could offer critical information about the market as well as new ways to redesign a product, in addition to the payments that the customers make. According to Vargo & Akaka (2009), the aim of a service system is to provide a contribution towards the understanding of value creation in the marketing field in order to get reciprocal benefits (p. 39). The intent of service provision is to create value for the parties involved. Whereas the business looks into the financial benefits of engagement with the customer, the customer, on the other hand, looks for the value in terms of getting better off. The current emphasis on value-in-use is based on the foundation that the customers create value with the help of suppliers in a bid to assist the suppliers to expand their financial reserves; the value is created in return (Ballantyne & Varey, 2006, p. 337). In this view, service process becomes the important factor as an avenue or medium that brings customers and suppliers together. This is the whole concept of reciprocal value creation that all business organizations rely on. Hence, “Value is created by customers through their experiences and cognitive associations within, related to those experiences, and only partially facilitated by marketers participating in customers’ experiences” (Flint, 2006, p. 349).
The reciprocity of value creation from customers to suppliers and vice versa fits in the goal analysis of most marketing and management studies. For instance, Arvidsson (2011) recognizes, “In the last five years we have seen the emergence of new forms of value creation in a wide range of business practices” (p. 263). With the advancement in information and communication, firms do rely on public information in monitoring brand strength in the market. Some firms have extended the outreach program to listen to what their competitors and customers say (Hagel, 2005). According to Flint (2006), symbolic interactionists believe the human race are communal, have ability to solve problems, and are practical in their interactions (p. 351). In this regard, opinions given by customers or competitors would be realistic in addressing the needs of the market.
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The methodology section of this paper focuses on interaction concept and the influences of interaction on value creation. This follows the successful definition of the interactions in the Nordic school’s ideals about interactive marketing, the concept of part-time marketer, interaction quality, and the functional quality. The French school of thought also developed the servuction concept among others (Grönroos, 2011, p. 289). The studied interactions have limitations, as their implications have not been properly articulated. In the aforementioned statement, interaction in business is mutual as long as two parties come together. Two parties come to contract with each other in order to drive business and as such, they influence each other’s processes. In service-orientated products, the interactions capture service encounters. In the conventional way of marketing, once a customer has received goods or services, no contract exists between the supplier and the customer. In essence, no service encounters occur lest the customer calls for it. On the other hand, the supplier remains mum.
The traditional ways of marketing no longer hold as business organizations are becoming more aggressive to create interactions through back and forth flow of information (Osborne & Ballantyne, 2012, p. 161). Internet marketing platform is essential in diagnosing customer problems via direct interaction that create simultaneous exchange of information from customers to suppliers and vice versa. These interactions are related to value creation, which is the focus of this paper. The model of analysis is based on the existence of interactions of suppliers and customers on value co-creation.
The service logic defines the reasoning behind the usage and provision. The logic of use puts customers and suppliers in an all-inclusive process where the consumers in a self-service mode utilize resources created by the suppliers. The customers utilize both goods and services even if the goods are in physical state. Logic usage is a closed affair for the supplier of goods, but for services’ activities and the goods involved in the creation of services, it remains an open affair from the perspective of the supplier. In this way, a business organization directly gets involved in an active interaction with the customers. Logic for provision, on the other hand, refers to the involvement of the suppliers and their firm in a manner that supports the initiatives raised by the customers when they create value for themselves. The supplier gains financial grounds by responding to the needs of the customers. However, the suppliers have no control over how the customers create value and its consequences.
Value Application and Service
Value-in-use occurs during usage. In the usage process, the customer takes full control. This happens just like the way through which service quality is perceived, where value is either accumulated or destroyed in the entire process. It does not take place at the end of a production as “there can be no value without customer incorporating the firm offering into his or her life” (Vargo & Akaka, 2009, p. 38).
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The Customer as a Co-creator of Value
The customer is a party to all business engagements that lead to the creation of value. According to Grönroos (2011), this disputes the notion that the customer is the main co-creator of value and the adoption of such an opinion “is not only simplistic to be useful for theory development and practical decision-making, it also directs the thoughts of academic and practitioners alike in a direction that may lead to invalid theoretical conclusions and fatal decisions and actions” (p. 288). Moreover, the notion overemphasizes and misjudges the role played by customers against the ideals of value-in-use.
The Impact of a Firm in Value Co-creation
Business organization has a critical role in creating customer values. This allows the formulation of the basic role of a firm based on its fundamental role as a facilitator. The role as a facilitator does not imply value or co-creation of value. Hence, there is a need for establishing whether there is the existence of value creation with respect to service logic that is addressed by the model above.
Explanation of the Model
F1: Service logic
According to Vargo & Lusch (2008), logic service “is the application of specific competencies on resources for the benefit of someone.” Competence plays a critical role in business and, specifically, marketing. It is prudent to note that this definition does not clearly capture aspects beyond benefit to include what exactly is achieved. Consequently, it is not clearly stated how anything is achieved. The meaning of service normally comes out as a support or assistance accorded to someone. In this regard, service is co-value creation of another firm’s practice. Normann (2001) illustrates that the support given is meant to enable customers accomplish a given task efficiently. This support goes a long way in saving time hence creates value. The service logic is a multifaceted concept whose nature varies. Therefore, the content of service may vary, but the meaning and scope is helpful in the value creation process.
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Logic for usage.
Customers’ service is defined to mean that all resources and processes gained from a supplier are applied for the benefit of customer self service (Gummesson, 1995; Vargo & Lusch, 2004). This process involves the integration of all resources together with other relevant resources available; it uses the skills and knowledge held by customers in a bid to create value for them. This process depicts the whole essence of customer service logic. The customers are viewed as resource integrators since they interact with good and services (Arnould et al., 2006; Vargo & Lusch, 2008). The aspect practice of self-service is enhanced to create value (for instance, the use of a vending machine to buy coffee). By looking for usage as self-service brings out the notion of ‘used as service’ as more real and easier to understand. The supplier in their role of value creation can ensure that they are a part of their customers’ usage processes and resource integration.
This aspect is crucial in making them interact with the customers, thereby offering them more assistance than the mere provision of resources. In this regard, the supplier pushes customers’ self-service usage to another level. On the other hand, from the perspective of a customer, service is defined as the ability to use the available resources in order to create value (Grönroos, 2011). It is noted that as the result of the various functionality of goods and services, they initiate self-service since they are utilities to the consumer. When a given commodity is bought by a consumer, it is the responsibility of the consumer to change the potential value for his or her benefit. In cases where value creation comes out via close interactions which occur between the customer and the commodity, then the customer should take the opportunity of value creation.
Logic for provision.
It is the responsibility of a firm to provide goods and services to customers. Therefore, logic for provision means the provision of support to customers’ practices together with goods and services. In addition, the process should be interacting in a manner that it enhances the customers’ ability to create value for themselves (Grönroos & Ravald, 2011). The firm earns financial value when supporting the customers' activities of creating value for themselves.
The abovementioned concept means firm should struggle to establish an interactive resource customer processes to enhance value creation by the customers. The interaction processes are some of the determining points of service activities; such interaction methods are service activities. Therefore, service logic entails business logic since it involves service provision.
F2: Value application and service
Vargo & Lusch (2004) present an insightful explanation of value application and use. Although the traditional perspective of value as being the price earned by the seller, still exists, certainly there has been an overwhelming agreement that a value is created in the user’s field (Vandermerwe, 1996). This concept underscores the reason why in the marketing value application and service are critical. Similarly, in a situation where the customer is unable to create value out of a commodity or service, he or she may decide to ask for price reduction or stop buying the commodity. On the other hand, when less value is realized, it, therefore, means that the revenue will automatically go down since less has been used. One interesting fact is that there is no value with the absence of a customer. Therefore, value is created and experienced by the customer.
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F3: The Customer as a Co-Creator of Value
The argument that customers together with firms are co-creators of value is true and one can logically conclude that the two parties are engaged in the process of value creation. However, this statement lacks specificity on where exactly each part starts the value creation and where it ends. Therefore, roles of a firm and the customers respectively remain vague. In addition, the significance of the customer and the firm in value creation and their specific roles in the entire process cannot be clearly established. Moreover, it is difficult to understand which of the company’s processes belong to the value creation and which are not.
The same argument is applied to the customer’s activities. It is prudent to note that a firm is in the process of either creation or co-creation of value by the provision of goods and services. On the other hand, customers are welcomed in the process as co-creators of value. This is because without customers there is no value as well as the firm. In this regard, the two parties are mutually inclusive in their relationship. The perspective held by some people that customers’ views are involved in the production of goods and services in most cases bring confusion on whether a customer is a co-producer or a co-creator. However, in respect to the value-in-application, the idea is widely practiced today. However, the conclusion cannot be authenticated. There is an argument that it is the users who normally give direction for value creation (Grönroos, 2008, p. 323). Firm can join the process as a co-creator. In a situation where the customer and a firm are involved in an unspecified manner, they are referred to be involved in a value creation on an equal basis (co-creators), from a value-in-use view it is wrong for the two parties tp have no distinct difference. Value-in-use has defined the customer as a user and the business as the entity that creates value.
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F4: The Impact of a Firm in Value Co-Creation
There is a common belief that customers normally co-create value for themselves. It is believed that the customer integrates the available resources in a firm with other requirements in a self-service process to co-create value. It is interesting to note that in the abovementioned scenario, the firm is charged with the provision of the resources; therefore, it cannot be referred to as a value creator along with the customer (Grönroos, 2011). Thus, the firm plays another role. Resources, which are used and integrated by a customer, are manufactured by someone else. However, some can also be created by the customer, but the majority are created by one or several companies. It is evidently clear that the process of manufacturing is a unique firms’ responsibility in the entire process of value creation geared towards satisfying customers. However, it is noted that goods and services are delivered in an interactive manner to the customer. This is mostly evidenced by goods and services, which are electronically delivered.
According to Grönroos (2008), firm is primarily a value facilitator. It is prudent to note that a value facilitator is not a value creator or a value co-creator; it is only found in the process that achieves value for customers (Grönroos, 2011). The argument behind value facilitation complicates the essence of value co-creation which needs further discussion.
Service co-creation would not be understood better if customers and suppliers are viewed to have explicit roles. As seen from the discussion above, both the suppliers and the customers have mutually involving processes in the creation of goods and services. Even though the physical products could be viewed simply as goods, it is vital to consider them as services because physical products also encounter services during the production. In the modern era, marketers should take advantage of the value creation model as the online platform offers back to back information from the customers to the suppliers and vice versa. Therefore, it would be much easier to study the behaviors of the customers and build brands that suit their demands.
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Table 1: Model: Variables, Quotes, and References
|Service logic||Logic service is the application of specific competencies on resources for the benefit of someone.||Vargo & Lusch (2004),|
|Value-in-use||Vargo & Lusch, (2008).|
|Value co-creation||Value creation is the establishment of real worth of good and service in the process of production to consumption||Piller FT. (2004).|
|Internet marketing||Internet marketing is the provision and promotion of products and services online||
Inci D. (2012)
|Production perspective||Production perspective is the view which concerns the creation of goods and services||Hackman (2008).|
|Reciprocity of value creation||Value creation from the customers to the suppliers and vice versa fits in the goal analysis of most marketing and management studies||Grönroos (2011)|
Table 2: Supporting Variables: Marketing and Business Literature
|transactional cost approach|
Hypothesis 1 (H1): service logic is a positive point in value co-creation.
Hypothesis 2 (H2): Value-in-use service positively captures value co-creation.
Hypothesis 3 (H3): Customer as value co-creators are critical to the firm as it is positive in product value creation.
Hypothesis 4 (H4): Firms in value creation positively capture value co creation.