Moreover, value proposition is determined by the producer, and from a firms perspective the pricing strategy not only defines the economic value of the product (Kuzgun and Asugman 2015) but is created during the purchasing process when money is exchanged with the product (Yip 2012).
Hence, value plays an important role in business because is considered the essence of strategy and represents the competitive advantage of the company. The producer creates the value which is implemented in commodities during the production process and, above all, does not provide the participation of customer in creating value because of the focus on the exchange of manufactured commodities (Skalen et al 2015). For this reason, GDL not only focuses on creating immediate cash flow but also sees the customer as a passive beneficiary of value created by companies. This marketing approach can therefore be viewed as a logic of separation because it embraces the idea of separating the consumer from the producer in order for the firm to focus on the production of commodities with the aim of increasing. In a nutshell, co-production is at the basis of the GDL since it emphasize a production-oriented philosophy where the service plays a secondary role and, above all, puts the firm at the centre of value creation ignoring the importance of cooperation between the firm and the customers (Chathoth et all 2013). Moreover, GDL theory considers goods as operand resources, that is to say, a complement of material objects (natural resources, or machinery), upon which an action or operation is performed in order to produce an effect (Vargo & Lush 2006) It is by the 1980’s that a new marketing approach started to take shape and new lines of thought begun to arise in order to overcome those barriers imposed by the GDL. The new dominant logic named Service Dominant Logic (SDL) is mainly concerned with the evolution, interaction, and reciprocal co-creation of value among service systems (Maglio and Spohrer 2008a) and focuses on the idea that service, defined as the application of knowledge and skills for the benefit of other actors – is at the basis of the exchange (Vargo, Akaka 2009a).
It represents not just a revolution in the way of making marketing but also in the way of thinking, contemplate and perceiving new marketing opportunities and evaluate resources from a different point of view. Since the most important difference between SDL and GDL lies in the basis of exchange, it is easy to understand that exchange can be considered the conditio sine qua non that bought the marketing perspective to switch from a logic based on exchanging goods to a logic focused on exchanging services. According to Vargo and Lush (2004c) SDL means that all businesses are service businesses and it embraces all the economic and also social activities. In other words, S-D logic considers a service as an activity that brings benefit to other actors and, as a consequence, focuses on the relationship between service and goods (Vargo and Akaka 2009b). Therefore, after the industrial revolution marketing shifted from a dominant logic based on the exchange of operand resources, usually tangible goods, towards the exchange of intangibles or operant resources (skills, knowledge, dynamic capabilities and competences of employees), which provide benefits to other actors by acting on operand resources (Vargo & Lush 2014a).
Hence, the SD logic focuses on the integration of goods with services and considers operant resources as a significant point in this new marketing approach. Vargo and Lush (2014b) defines SDL as one of the fundamental foundations upon which society is built since humans exchange the service – their skills and knowledge- they can provide to others for the service they need from others in order to enhance their collective and individual well-being. The switch from GDL to SDL represented thus an evolution not only in the business field with the creation of a new marketing approach, but also in seeing individuals under a new perspective by considering them as essential key players for building value during the production process. This was made possible because of the change of all the practices that guide employees behaviour towards production with respect of value creation, perceived by the consumer on the basis of value in use meaning that the value is created through the firm’s production process and the delivery of a service to customers (Vargo&Lusch,2004 d). In other words, this means that employees are strictly linked to customers because they co-create value with them by assisting customers in integrating value proposition into their customers use processes.
Although the concept of value creation is considered the central activity of economic exchange for both SDL and GDL , in both cases, participants, processes, and resources are involved but only in the SDL both producers and consumers are not two distinct figures (Vargo, Maglio and Akaka 2008). This means that value is always co-created collectively and reciprocally, through a combination of resources and competencies allowing a firm to connect with customers in order to co-shape their expectations. Trying to understand value co-creation is a significant theme in management literature. The table of the Foundational premises (FP’s) written and further extended, updated and consolidated by Vargo and Lush (2016a) helps to explore the major issues that surrounded the S-D logic. Many changes have been made in order to develop a better framework concerning these FP’s, but the most important change can be considered a general zooming out in order to offer a more realistic and dynamic overview of value creation where institutions, that is to say, practices, norms and rules, and institutional arrangements become essential for understanding value co-creation (Vargo and Lusch 2016b). Furthermore, changes have been made with particular regard to some of the FP’s with the intention of making them more precise and accurate. The term “competitive advantage” was initially used in both Vargo and Lush to underline the importance of operant resources. But, since is not directly addressed to service provision, Vargo and Lusch (2014) begun to use the term “strategic benefit”, considered as a more suitable definition because not only underlines the importance of the service provider who plays the role of the “beneficiary”, but also because it emphasize the focus of the SDL on reciprocal service exchange.
Moreover, in this FP, competition has little importance in creating value co-creation. Thus, Operant resources are the fundamental source of strategic benefit is the most appropriate sentence that describes this FP. This foundational premise has previously been the subject of lively debate and criticism. Despite Vargo and Lush pointed out that we had the main responsibility for this confusion because of the use of the term “co-production” in the original FP6, the premise have been corrected by providing a distinction between co-production, based on design, production etc.
, and “co-creation” which refers to the action of several actor that contribute to each other well-being (Vargo and Lush 2008). This means that value is always co-created collectively and reciprocally, through a combination of resources and competencies. Hence, Value is co-created by multiple actors and it always includes the beneficiary. The main purpose of this modification is to demonstrate that value is not derivable and that service-providing actors can still play an important role in value co-creation even after the value is embraced by potential beneficiaries (Vargo & Lush 2016b). Although this concept is captured in FP6, its main point is to highlight how value is created by both providers and beneficiaries.
The aim of the change of this FP is to show that “customer orientation” are not suitable words for this FP since the focus is pointed towards services rather than goods. Thus, the modification wants to divert the attention from words such as “customer” and “consumer” to a more appropriate word like “beneficiary” since it is more related to service and therefore to value co-creation (Vargo and Lusch 2016c). Moreover, it is important to observe how essential is in a market-based ecosystem to focus on interpersonal relationship with customers by paying particular attention on their personal life sphere. The intention of both actor’s to engage in a relationship, defined in literature as actor engagement (AE) (George et al., 2016) is necessary and essential for value co-creation to occur. AE consists in adopting an actor-to-actor view (Vargo and Lusch 2016 e) through which the concept of engagement can be applied to all types of human actors (Jaakkola & Alexander, 2014). Actor engagement, therefore, plays a significant role during the value co-creation process since it helps the firms to establish durable relations with different actors through time and, furthermore, can have a long time impact regarding co-creation processes in the future with other actors.
As already mentioned, in the SDL the management of intangible assets is the key success factor. But, since global economy is strongly interconnected through information and communication technology, the business and the logic behind value co-creation needs to change in order for the companies to sustain its value in the eyes of customers and ensure a long term success (Parmar et al. 2010a). In other words, because markets have become way more complex over time, organizations have been forced to shift from the production of offerings in isolation to the co-creation of value in collaborative and innovative contexts. The existing literature claims that the engagement of individual actors over time is one of the micro-foundations of value co-creation processes but is actually concerned on how stakeholders may be involved in co-creating value within a network (Nardelli & Broumels 2017).
Therefore, the involvement of stakeholders relationships in the process of value co-creation gains particular attention of both companies and scholars. The stakeholder theory provides a valuable help to understand the role and the importance of stakeholders in the process of value co-creation. According to stakeholder theory, the firm exists because of the interaction and relationship with its stakeholders thanks to which value creation can be built with and for them (Parmar et al. 2010). Firms, therefore, recognize the importance of stakeholders as a significant part for value co-creation to occur and, moreover, are well aware that satisfying stakeholders needs can definitely create more value overtime. Stakeholders contribute to the innovation process through a series of different and collaborative activities and creates new opportunities for unique knowledge creation. In fact, since a firm possess a limited set of resources to create knowledge (Kazadi, Lievens, Mahr 2016a), involving different actors during the co-creation process contributes to build knowledge and skills that enhance its capabilities. The combination between the firms internal knowledge and the knowledge gained by the influence of external players (governments, competitors, NGOs), also known as complementarity (Gyrd-Jones, Kornum 2013a), is therefore considered as a fundamental driver to create value since it embraces resources and capabilities through which a firm can gain competitive advantage by creating greater value than the sum of the value that each actor can create alone.
To summarize, if the ability of firms to create knowledge during the innovation process is considered as a key source for competitive advantage, then stakeholders capabilities is what is needed for a firm to exploit their unique sources in such a way that they create value for the firm. If in traditional ecosystems multiple actors represented similar types of stakeholders, new ecosystems consider external actors as important players that are necessary for value co-creation to occur. In conclusion, when a firm include multiple stakeholders in its activities, knowledge is created through the interaction of stakeholders (by sharing ideas, needs and expectations), but, if stakeholders rejects collaboration and interaction between themselves, knowledge will disappear. The SDL paradigm proposed by Vargo and Lusch (2004) considers everything in a given space (e.g.
community, neighborhood) as essentially a service. Moreover, Bryson et al (2004p.5) argues that because services requires direct interaction with end-customers, service providers needs to be located where customers are. Now more than ever, Information technologies (IT) are playing an important role in the SDL context. As stated by Barrett & Davidson (2008) the transformation of modern economies into service-based economies is taking place because enabled by the advent and the expansion of Information technologies which provides new opportunities for collaboration, innovation and work practices. IT has, therefore, radically changed the way services are now created, delivered and experienced. The growth of information and communication technologies (ICT), in fact, has become a source of competitive advantage and represents an opportunity for firms to connect directly with users. They can provide feedback and ideas and build online communities in order to engage in value creation with customers (Giangi, Wasko and Hooker 2010) by providing benefits perceived by the customers to be greater than the costs, that is to say, money, time, and effort associated with obtaining these benefits (Davies, Spohrer and Maglio 2011).
Although marketing practices are now taking place in a new environment, that is to say, in the IT context, consumers motivations and personalities still represents a valid contribute in building value co-creation. Social exchange theory (Füller 2010a) represents a valid contribution to the explanation of this phenomenon since it confirms how (virtual) interaction between consumers and producers and the consequent engagement in virtual co-creation activities during a new product development, represents once again a competitive advantage for a firm. Moreover, consumers engage in co-creation activities with the intention of interacting with other like-minded consumers (through bulletin boards, social media groups, blogs) in order to look for tools that allows them to transfer their knowledge and improve their own one (Fuller 2010b) As in the case of stakeholder co-creation described previously, also in the IT environment co-creation is built through the interaction between customers and producers regardless of how co-creation takes place (face-to-face interaction or through technological devices). It is clearly visible, therefore, that although the increasing penetration of internet and the emerge of new technologies are significantly changing and effecting the ability of consumers to engage in value co-creation, this always occur as a direct consequence of an interaction process. The classic scenario of service exchange (Fig.2) involves human actors – whose activities are considered by SDL theory as the objects of market exchange – who basically needs to share the same physical space at the same moment in order for the exchange process to occur (Cellary 2015 a).
With the advent of information technologies service is again offered by a human actor – defined as a service person – but physical space is not considered a prerogative anymore and is not even shared by both actors. A software platform is enough to provide a service and to unify both service person and customer as shown in figure 2. (Cellary 2015b).
Through new Internet-based technologies, services are now created and experienced in new ways and customers have now the possibility to compare prices, give feedbacks and become informed without leaving their homes. This is one of the main reasons why organizations shifted to a new collaborative process of value co-creation by adopting a network-centric perspective.Today, the SDL embraces IT and creates and delivers services through the operation of a service system where actors, technologies, and shared information are combined together to create value (Maglio and Spohrer 2008b) and where knowledge is viewed as a ‘meta-resource’ that is shared between actors through interaction (Badinelli et al. 2012). As for the original SDL, also this new logic considers knowledge as a key dimension for value co-creation to occur in the IT context.
It requires people to interact, exchange knowledge and competencies, and share information with the aim to build approval among other actors. In fact, as stated by Edvardsson et al. (2011), consensus, that means sharing understandings and rules for social conduct, is essential for building value in any social system. Conversely, conflict between actors can create resistance and, hence, represent an obstacle for value creation. Involving and encouraging user involvement is therefore necessary and indispensable for the development of new services and, consequently, for value creation. Moreover, consumers personalities and personal characteristics definitely affect value co-creation in the virtual environment. This happens because the web offers opportunities to involve customers in a variety of activities such as participating in the product development process, finding solutions or improve existing products. Various motivations drive individuals to give their contribution to different initiatives.
The Self-Determination theory, Deci & Ryan (2000) offer a description of motivations by distinguishing them between intrinsic motivations, which refers to doing something interesting and enjoyable in order to reach a personal satisfaction and includes motivations such as altruism and reciprocity, and extrinsic motivations, which are instrumental in nature and refers to doing something in order attain a separate outcome (e.g. improvement of programming skills, enhancing reputation, gaining approval from others). As the table shows, creating value through a co-creation process – in this specific case defined as Virtual co-creation- is always possible regardless of the motivations that leads an individual to take part and, most of all, interact in the virtual environment. For this reasons, in order to obtain value co-creation firms are putting effort in enhancing customer experience in order to distinguish themselves from competitors and gain an advantage with the experience they provide. As provided by the SDL theory, involvement and participation is essential for value co-creation to occur.
With the advent of new technologies, new opportunities and possibilities are made available for businesses and, moreover, new threats have arisen. All of this leads firms to change perspectives, attitude and behaviour towards the marketplace by adopting a new marketing approach based on technology and new communication strategies that must continuously be adapted to an ever-changing world. IT is now recognized by firms as an important tool that, if properly used, can represent a competitive advantage and, hence, lead to success.
Online communities and social media platforms represent, therefore, an essential tool for co-creating value and, as a reflection, an important characteristic for businesses to make the difference in such a competitive economy