1. 0
SERVICES MARKETING
VS SERVICE SCIENCE
The Transition of Firms to a Service-Dominant
Logic using Value Co-Creation through the Customer
Experience
Megan Etcheberry, Michael Hanacek, Kan Kimura, Heber Miguel, and
Kalia Wormley
Abstract
The purpose of this paper is to define services marketingand servicescienceand their
similarities and differences. We pointout the continuous weight that is putinto services
marketing as companies make the shiftfrom goods-dominantlogic to service-dominantlogic and
argue why firms areunableto make that transition. Wepropose a new model that managers
can use in order to efficiently useservice-dominantlogic whileretainingthe benefits of services
marketing but excludingthe goods-dominant logic.
Keywords: Services, service,services marketing, servicescience,customer experience, co-
creation

2. 1
Table of Contents
Introduction......................................................................................................................... 1
The Evolution of Services Marketing ............................................................................. 1
Goods-Dominant logic vs. Service-Dominant logic................................................... 2
Service Ecosystems......................................................................................................... 3
Services Marketing ............................................................................................................. 4
The Customer Experience............................................................................................... 6
Customer Brand Engagement ..................................................................................... 6
The Brand Experience................................................................................................. 7
Service Science ................................................................................................................. 11
The Customer Experience............................................................................................. 13
Knowledge (Cognitive)............................................................................................. 13
Affect (Emotional) .................................................................................................... 13
Behavioral................................................................................................................. 17
Customer Engagement .................................................................................................. 17
Internal to the Actor .................................................................................................. 18
External to the Actor................................................................................................. 18
Value Co-creation......................................................................................................... 19
Service Ecosystems................................................................................................... 19
Service-for-service exchange.................................................................................... 21
Value Propositions in a Service Ecosystem.............................................................. 22
Co-Creation in Service Ecosystems.......................................................................... 22
Framework: The Customer Experience and Co-Creation Model ..................................... 23
Case Studies .................................................................................................................. 25
Level 0: Communications ......................................................................................... 26
Level 1: Resources.................................................................................................... 26
Level 2: Relationships............................................................................................... 27
Level 3: Technology ................................................................................................. 29
Grading Model.............................................................................................................. 29
Categories and their Key Factors.............................................................................. 30
References...........................................................................................................................A
Appendix A.........................................................................................................................F

3. 1
Introduction
The Evolution of Services Marketing
The beginning of the services industry started with the idea of consumer behavior.
Consumer behavior is the study of individuals, groups, or organizations and the processes of how
they react to certain situations when they face products, services, experiences or ideas. The
marketing perspective evolved to business-to-customer (B2C) perspective where a company
predicts consumer behavior. The idea originates from cognitive psychology, social psychology,
and behavioral decision theory (Cohen and Bernard, 2013). These studies were done in terms of
a relationship among people; how a person psychologically and physically react to others.
Marketing researchers started to use those studies to predict the behaviors of consumers (Cohen
and Bernard, 2013). This new perspective of psychological studies evolved to the study of the
relationship B2C. The purpose of services marketing started to study B2C in service industry
(Baron et al., 2014).
The idea of services marketing has developed since the mid-late 20th century (Berry and
Parasuraman, 1993). As service and services marketing develops, the scope has expanded with
the development of service industries. The research history of services and services marketing is
in four phases: Phase 1 (>1988), Phase 2 (1988-1997), Phase 3 (1998-2003), and Phase 4 (2004)
(Baron, Warnaby, and Hunter-Jones, 2014). These phases mark the shift of thinking from
services to service.
Phase 1 developed as the service industry started to have a significant impact on the
economy. The main argument of this phase was that services are different from goods; thus,
marketing and management are crucial (Berry and Parasuraman, 1993). This phase played an
important role in proposing a new perspective that leads to the next phase. In Phase 2, an
identifiable sub-discipline, services marketing, emerged (Baron et al., 2014). Researchers
conducted empirical research and focused on creating reliable and valid measurements of
services marketing (Baron et al., 2014). But the research conducted was for B2C services.
Services marketing focused on optimization of a company-related goal, such as profitability,
customer loyalty, and competitive advantage (Baron et al., 2014).
Phase 3 used new research directions, the development of self-service systems enabled by
technology, the changing role of customers, and a focus on customer-consumer engagements
(Baron et al., 2014). This phase coincided with the growth of the World Wide Web. The new
technology changed the way companies do business; the internet connects companies and
customers around the world. An increase in consumer’s access to technology allowed
organizations to offer self-service alternatives to traditional business models (Baron et al., 2014).
Although many researchers put a high value on self-service systems, they advocated the
importance of customer-consumer engagements. Phase 2 focused on increasing customer
experiences, but Phase 3 aimed to engage customers to increase customer experiences. These
three phases created a foundation for Phase 4, the beginning of S-D logic (Vargo and Lusch,
2004).

4. 2
Goods-Dominant logic vs. Service-Dominant logic
The terms services and service have different meanings in a marketing context. Services
use goods-dominant-logic (G-D logic) and considered either a restricted type of intangible goods
or an add-on that increases the good’s value (Vargo and Lusch, 2008). G-D logic is the
perspective which focuses on goods which include tangible (goods) and intangible (services)
units of outputs (Vargo and Lusch, 2008). In this logic, economic exchange is the production
and distribution of units of outputs in which the value’s created by the producer (Vargo and
Lusch, 2008). In contrast, service uses service-dominant logic (S-D logic). S-D logic is the
application of competencies including knowledge and skills for the benefit of another actor
(Vargo and Lusch, 2008). It “views what a firm does, not primarily as the production and
offering of tangible goods or, for the matter, any output but rather as the exchange of service that
occurs by one actor using its skills and capabilities for the benefit of another actor” (Lusch and
Nambisan, 2015).
The different perspectives of services between G-D logic and S-D logic means their view
on resources vary. Historically, resources are tangible goods that people can use for their
support; they are often natural resources. Those natural resources are ‘operand resources’ (Lusch
and Nambisan, 2015). G-D logic sees the value as operand resources. These resources need
some actions to make themselves valuable; whereas S-D logic views the value as operant
resources which are intangible and can create value (Vargo and Lusch, 2008; Lusch and
Nambisan, 2015). The fundamental operant resources are knowledge and technology. People
use knowledge to generate other things, technology in service innovation, and they use
technology to produce new things or increase efficiency, operations, and productivity. S-D logic
has conceptualized definitions of ‘value exchange’ and ‘resources’.
S-D logic is also proposed as a new perspective on value; value is not determined only by
organizations, but ‘co-created’ with customers through their experiences (Berry and
Parasuraman, 1993). Value occurs only when the firm’s offering is beneficial or helpful to the
customer (value-in-use); it's not a firm’s embedding its offerings with value (value-in-exchange)
(Lusch and Nambisan, 2015). In a process of creating value, each actor relates with other actors
and other resources. The relationship creates the context for each actor to perceive value. That
is, each actor experiences value depends on their own context in a value creating process. This is
the reason why the firm is not the one who creates value, but proposes value. The recipient
creates value. This perspective of value co-creation is a key foundation for S-D logic.
According to IBM researchers, there are two types of views of value creation, value-
chain and value constellation (Kieliszewski, Maglio, and Cehkin, 2011). Value-chain “focuses
on positioning fixed set of actors and activities along a chain” (Kieliszewski, Maglio, and
Cehkin, 2011). The process of a value-creation system is linear and fixed. This means that there
is less information, technology, and knowledge shared by companies in the value creation
system. This view is characterized by the traditional services marketing where value is co-
created but the process is not complex and dynamic. On the other hand, value constellation is
more complex and dynamic. Value constellation focuses on the value creation system where the
main purpose is to mobilize value creation in new forms and in new ways (Kieliszewski, Maglio,
and Cehkin, 2011). The characteristics of value constellation is “continuous design and redesign
of complex business systems to connect knowledge and relationships” (Kieliszewski, Maglio,

5. 3
and Cehkin, 2011). The traditional services marketing does not capture this value creation
system; this view is better explained by the new service science perspective, service ecosystem,
which will be explained in the nest section.
G-D logic and S-D logic are the key ideas that many researchers have been arguing in the
development of service(s) marketing. The argument of S-D logic is that there are no meaningful
differences between services and tangible goods or between service firms and manufacturing
firms (Martin, 2012). The advocates of S-D logic claim that service is the application of skills
and knowledge for the benefit of another party (Vargo and Lusch, 2008). This means that
‘service’ (singular) is different from ‘services’ (plural) which are outputs and known as G-D
logic. The characteristic of S-D logic is that the logic applies to B2B marketing as well as B2C
marketing.
Service Ecosystems
The progression of S-D logic beyond the original perspective and framework led an
introduction of a new concept, service ecosystem (Vargo and Lusch, 2012). This new
perspective is complex and has a dynamic nature. Also economic factors and social factors
influence and are influenced by service exchange (Vargo and Lusch, 2012). Service ecosystem
views all social and economic actors as resource integrations and active actors of value co-
creation (Vargo and Lusch, 2012). This means that value is co-created through the integration of
both existing and new knowledge, and also affected by the social contexts; value is created not
only among firms and customers but also across various social organizations (Vargo and Lusch,
2012). Instead of viewing participants of value co-creation as customers and firms, in service
ecosystem, the relation between participants is “actor to actor” (Vargo and Lusch, 2012). In this
complex service system, value determines the context, not only the evaluation of an individual
person, and depends on the ability for each actor to adapt in the social situation (Vargo and
Lusch, 2012).
A service ecosystem has a weak-tie among actors compared to traditional service systems
where the emphasis is on transaction exchange to various forms of interaction and resource
integration (Vargo and Lusch, 2012). In traditional services marketing, value is co-created
between a value provider and value recipient and cannot explain the value co-creation process in
the service ecosystem. The traditional value of the co-creation process views value as the dyadic
relationship between a provider and recipient where other factors might influence the value co-
creation; such as social and economic contexts and other actors. Technology and institutions are
not considered. In this sense, the co-creation process in service ecosystem is more complex and
dynamic than the one in traditional services marketing.
As discussed, there are many perspectives of markets where various players interact.
Each perspective views the process in which value is created, the kinds of actors in the value
creating system, and the measurements of created valued by actors. When value is co-created by
many actors, the co-created value can enhance value experiences, and the enhanced value
experiences become competitive advantages for companies. This article includes two research
streams: services marketing and service science. Each stream contains two parts, ‘the customer
experience’ and the ‘co-creation of value’.

6. 4
Services Marketing
Services marketing is the traditional way of thinking. Marketing strategies and models
commonly use G-D logic. As the industry shifts from G-D logic to S-D logic, many firms still
use services marketing to create their new model. This inhibits firms from transitioning from G-
D logic to S-D logic because they end up with the same G-D logic model. Part of the problem is
not knowing what services marketing means since the concept of services marketing varies
between authors. It ranges from the tangible to intangible, thus giving each concept different
meanings. For example, Lovelock is considered one of the pioneers of services marketing. In
“Principles of Service Marketing and Management,” Lovelock and Wright describe services
marketing as having “service products [that have] intangible performances” (Lovelock and
Wright, 2001). After stating this, they then go on to discuss using marketing strategies such as
the 4 P’s: product, price, place, and promotion. The keyword in that statement is product,
showing G-D logic. Lovelock, Patterson, and Wirtz (2014) published “Services Marketing”
where they then stated that services have tangible and intangible elements. It’s important to note
that services marketing is not just a service, it is also a product. Gummesson (1987) supports
this by stating that "companies are seldom clearly just consumer or industrial or goods or service
companies. Their output is both goods and services but in varying proportions." In this paper,
we view services marketing as both tangible and intangible using G-D logic. The customer
experience makes up the majority of services marketing as it relates to the interaction between
the firm and the customer.

7. 5
Table 1: Taxonomy of Services Marketing, Customer Brand Engagement, and the
Customer Experience
FOCUS AUTHOR KEY POINTS
SERVICES
MARKETING
Lovelock, Patterson, and
Wirtz, 2014
 Services have tangible and
intangible elements
CUSTOMER
BRAND
ENGAGEMENT
(CBE)
Kumar, Aksoy, Donkers,
Venkatesan, Wiesel, and
Tillmanns, 2010
 Defines CBE as creating
deep and meaningful
connections between the
company and customer
Patterson, Yu, and Ruyter,
2006
 Defines the components of
the CBE
CUSTOMER
EXPERIENCE
Brakus, Schmitt, and
Zarantonello, 2009
 Defines the brand
experience in regards to the
three basic systems that are
related to brand related
stimuli.
Gentile, Spiller, and Noci,
2007
 Introduced the concept of
consumption and having a
holistic experience; shows
the relationship as evolving
 Uses the three basic systems
to show the multi-
dimensionality of the
experience
Holbrook and Hirschmann,
1982
 Created one of the first
customer experience
models; contains the inputs
and outputs between the
environment and the
customer
LaSalle and Britton, 2003  Re-names customer to actor
and uses the holistic
approach to describe the
interaction between the actor
and the company
Nysveenand Pedersen, 2014  Created a model showing
direct effects of co-creation
on satisfaction and loyalty
and indirectly through the
three basic systems
Prahalad and Ramaswamy,
2004
 Found that by creating
“unique” experiences, the
customer can co-create with
the company

8. 6
The Customer Experience
The customer experience is key in services marketing. Eighty-five percent of senior
managers no longer believe that the 4 P’s will bring a sustainable competitive advantage
(Gentile, Spiller, and Noci, 2007); thus, managers are looking towards differentiating in the
customer experience when competing in the market (Shaw and Ivens, 2005). The concept of the
customer experience was created in the 1980’s and considered consumers to be rational decision
makers (Holbrook and Hirschmann, 1982). Their model, Figure 1 in Appendix A, shows the
environmental inputs and customer inputs that create the customer experience. This model has
become the foundation for what other models have become today. In the 1990’s, the concept of
the customer experience evolved with the concept of consumption and having a holistic
experience (Gentile et al., 2007). The holistic approach sees an actor, not a customer, and the
interactions between the actor and the company (LaSalle and Britton, 2003). Pine and Gilmore
(1999) stated that the customer experience should have “staged” events where the company has
control over the experience. But, studies have shown since that it is more than what experience
the company creates, but what unique experiences the customer can co-create with the company
(Prahalad and Ramaswamy, 2004). This is where the importance of co-creation comes in which
will be discussed later.
The customer experience “originates from a set of interactions between a customer and a
product, a company, or part of its organization, which provoke a reaction” (LaSalle and Britton,
2003; Shaw and Ivens, 2005). It is also seen as an evolving relationship between the customer
and the company (Gentile et al. 2007). The interactions between the actor and the company are
what make up the customer experience. Using psychological and behavioral studies show basic
systems that an actor would use in the customer experience (Anderson, 1995; Brakus, 2001;
Fiske and Taylor, 1991; Goleman, 1995; Schmitt and Simonson, 1997; Tavassoli, 1998). The
basic systems are cognition, emotional, and behavioral. These systems are used throughout
literature reviews when connecting the person to the customer experience and in regards to co-
creation. They also show the multi-dimensionality of the customer experience (Gentile et al.,
2007).
Through literature reviews, we have defined the customer experience as containing
customer brand engagement, the brand experience, and influences of co-creation. These are
important concepts to understand when developing a model or framework for services
marketing. Literature reviews have shown that customer brand engagement is the antecedent to
the brand experience.
Customer Brand Engagement
Customer brand engagement has various definitions by researchers. Kumar, Aksoy,
Donkers, Venkatesan, Wiesel, and Tillmanns (2010) stated that customer brand engagement is
“the creation of a deeper, more meaningful connection between the company and the customer.”
This is not involving co-creation, this is about the relationship between the company and the
customer. For the customer, it is also “the level of a customer’s cognitive, emotional and
behavioral investment in specific brand interactions” (Hollebeek, 2011). Brodie, Ilic, Juric, and
Hollebeek (2011) also stated antecedents to customer brand engagement are customer
participation and involvement.

9. 7
Patterson, Yu, and Ruyter (2006) define the components of customer brand engagement
as: absorption, dedication, vigor, and interaction. Absorption is the level of focus a customer has
on the object. Nysveen and Pedersen (2014) connect this to the customer’s level of cognition.
Dedication is the level of consumer connection to the object. This could be related to the
emotional and relational dimension in Figure 2 as shown belowError! Reference source not
found. (Nysveen and Pedersen, 2014). Vigor and interaction are the level of energy the
consumer communicates with the object. These components relate to the relational and
behavioral dimensions in Figure 2 (Nysveen and Pedersen, 2014). Sensory and relational are the
two experiential components that are not as important to our research. Sensory uses G-D logic
as it uses the customers senses in relation to a product. Relational is relationship-based and is
also related to the product and the company.
Figure 2: Empirical results including direct affects of co-creation on satisfaction and loyalty
Figure 2 shows the results of a study that where co-creation has a direct effect on
satisfaction and loyalty. Satisfaction and loyalty are important because they are attributed with
gaining a competitive advantage in the market. Senior managers should find ways to gain
customer satisfaction and loyalty; thus, our framework will use these as outputs. This framework
is also important because it shows how co-creation through the three basic systems (cognition,
affective or emotional, and behavioral) can lead to satisfaction and loyalty. With this logic, we
are using the three basic systems in our framework. They also show up in literature reviews and
other frameworks that try to describe the brand experience.
The Brand Experience
The brand experience is complex but important to understand. Brakus, Schmitt, and
Zarantonello (2009) conceptualizes the experience as ‘subjective, internal consumer responses
(sensations, feelings, and cognitions) and behavioral responses evoked by brand related stimuli
that are part of a brand’s design and identity, packaging, communications, and environments’.

10. 8
They can create ‘unique and valuable experiences’ (Nysveen and Pedersen, 2014). These
‘experiences are the relevant measure of value’ and are the brand (Prahalad and Ramaswamy,
2004). Customers are the only actors that can create value. If they do not perceive that there is
value, then it does not exist. Thus, the definition of the brand experience is the environment
where value is created by the customer through their interactions with the firm and the service
and product.
The environment is where the experience can occur. The brand experience can “occur
when consumers search for products, when they shop for them and receive service, and when
they consume them” (Arnold, Price and Zinkhan, 2002; Brakus, Schmitt, and Zhang, 2008;
Holbrook, 2000). Through these experiences, value is created. They vary by setting by being
either indirect or direct. By being direct, they “occur directly when consumers shop buy, and
consume products” (Brakus et al., 2009). Indirect could be through a website.
The concept of Brakus et al. (2009) is covered by many literature reviews. It is broken
down into several types of experiences: product, shopping, service, and consumption. The
product experience occurs when the “consumer interacts with products” (Brakus et al., 2009).
This is when the consumer searches and evaluates alternatives (Hoch, 2002). This can be either
direct or indirect. The shopping and service experience “occur when a consumer interacts with a
store’s physical environment, its personnel, and its policies and practices” (Hui and Bateson,
1991; Kerin, Jain and Howard, 2002). This is what makes a model G-D LOGIC, it relies upon
the physical presence of the customer. The consumption experience occurs “when consumers
consume and use products” (Brakus et al., 2009). These include hedonic dimensions described
by Holbrook and Hirschman (1982) that include feelings, fantasies and fun.
How the Brand Experience differs from other Constructs
Brakus et al. (2009) argue how the brand experience differs from other brand constructs
such as attitudes, motivational, and affective. Attitudes are basic assessments based on beliefs or
routine emotional reactions (Fishbein and Ajzen, 1975; Murphy and Zajonc, 1993). Brakus et al.
(2009) compare that the brand experience is not general evaluations about the brand, instead they
“include specific sensations, feelings, cognitions, and behavioral responses triggered by specific
brand-related stimuli.” This means that the brand experience evokes certain behavioral
responses by the consumer when they are exposed to brand-related stimuli. These stimuli are
“part of a brand’s design and identity, packaging, communications, and environments” (Brakus
et al., 2009). These attributes are tangible and describe a product; this is G-D logic. The
motivational and affective concepts include involvement, brand attachment, and customer
delight. The involvement concept is based off of Zaichkowsky’s study in 1985. It is described
as motivating a consumer-based on “needs, values, and interests” (Brakus et al., 2009). The
antecedents to this are the perceived importance and personal relevance to the brand
(Zaichkowsky, 1985). Brakus et al. (2009) argues that the brand experience is not motivational,
that the experiences occur when there is no interest or connection with the brand. Brand
attachment is a strong emotional connection between the consumer and the brand (Park and
MacInnis, 2006). Brakus et al. (2009) argues that the brand experience is not an emotional
relationship, instead it evokes behavioral responses. Brakus et al. (2009) references a study
about customer delight as the ‘positive affect’ of customer satisfaction (Oliver, Rust, and Varki,

11. 9
1997). This again differs from what Brakus et al. (2009) describes the brand experience as since
its relation is to behavior, not emotion. They state that over time, the brand experience could
lead to emotional attachment or customer delight, but it is not directly related.
Frameworks of the Brand Experience
There are literature reviews that have used models and frameworks to describe what the
brand experience is and what components create it. The frameworks mentioned are well cited
and have concepts that are relevant to S-D logic despite the ties to G-D logic. It is those ties that
we want to carry forward into our model.
Gentile et al. (2007) created the customer experience perspective. Adapted from Addis
and Holbrook (2001), they created Figure 3 in the Appendix, to show the different types of
products: utilitarian, balanced, and hedonic. These products have a combination of consumer
value: utilitarian (functional) and hedonic (experiential). These products are more related to
services rather than service. But, the model makes a point of showing that there can be a balance
of function and experience to create a balanced product. This shows the beginning of S-D logic.
Using Figure 3, Gentile et al. (2007) created Figure 4:4. The model describes how the
right environment can contribute to the co-creation of value. The experience has experiential
components: sensorial, emotional, cognitive, pragmatic, lifestyle, and relational. The sensorial
and pragmatic (usability) components are related to G-D logic. Lifestyle and relational are both
behavioral experiential components because they relate to the consumer integrating the service
into their lifestyle and using social effects with the services. The model describes the interaction
between the consumer and the company. The company gives the value proposition, the
consumer then perceives the value from the experience and relates their value expectation back
to the company. The company realizes the value from the experience and uses this to create
another value proposition. These interactions continue creating a co-creation loop.
This framework is based off of G-D logic as it uses a brand equity (company value) and
the utilitarian value (consumer value). It is instead the feedback loop of co-creation that is
important and a key element to S-D logic. This feedback loop and the cognitive, emotional, and
behavioral (lifestyle, relational) that will carry over to S-D logic.

12. 10
Figure 4: General Framework
Another popular framework is Brakus et al. (2009). Their model shows the affects that
the brand experience can have in Error! Reference source not found.5 below. Brakus et al.
(2009) define dimensions of the brand experience as: sensory, affective, intellectual, and
behavioral. Two dimensions were later added: a relational (Nysveen, Pedersen, and Skard,
2012) and a social (Dirsehan and Celik, 2011). The sensory dimension is like the sensory
component from the customer experience perspective (Gentile et al., 2007) where it refers to the
consumer using their senses. The brand uses them to try and make an impression. The affective,
or emotional, dimension is where the brand tries to evoke feelings from the consumer. The
intellectual, or cognitive, dimension is described by Nysveen and Pedersen (2014) where the
‘degree to which a brand stimulates consumers’ curiosity, thinking and problem solving’. The
last dimension is the behavior where the brand tries to get the consumer to physically engage
with the brand. The brand experience has shown to have positive influences on brand
personality, satisfaction, and loyalty (Brakus et al., 2009; Şahin, Zehir, and Kitapḉi, 2011).
Brakus et al. (2009) uses validated scales to measure the dimensions.
This model has similarities to Figure 2 in that it shows connections to satisfaction and
loyalty. These connections again involve cognitive (intellectual), emotional (affective), and
behavioral components. This validates our logic of connecting the basic systems to satisfaction
and loyalty. In this study the connection is not as strong, but through aspects of service science,
in “Service Science: Value Co-creation,” the effect will be stronger. Brand personality uses G-D
logic; thus, it will not be carried over.

13. 11
Figure 5: Discriminant and Predictive Validity of the Brand Experience Scale
The brand experience is complex and multidimensional. The frameworks use G-D logic
to describe the experience by using products as the objects. To carry these frameworks forward,
the object must adjust to fit a service and not a good. To be successful, there must be a transition
from G-D logic to S-D logic in not only the company, but the frameworks as well.
Service Science
Evolutions in service science research has produced new literature to help companies
break free from the remnants of good-based manufacturing models. Vargo and Lusch (2004)
argued that rather than differentiating services from goods, the focus should be on understanding
how they are related. “Manufacturing is a service, and its output is part of the service-provision
process” (Vargo and Lusch, 2004). Goods serve as an appliance for the service; thus, emphasis
should be on service strategy. “S-D logic emphasizes knowledge and skills (operant resources)
as primary resources of economic and social exchange, as opposed to G-D logic, which
emphasizes physical resources (operand resources)” (Chandler and Lusch, 2011). Service
providers should focus their efforts on understanding their customer base and develop co-
creation opportunities. The focus on this section is to outline the key elements that will allow a
company to target individual customers and businesses for marketing co-creation opportunities.

14. 12
Table 2: Service Science Customer Experience Taxonomy
AUTHORS FOCUS KEY POINTS
MAKLAN AND KLAUS (2011);
VARGO AND LUSCH (2004);
VARGO AND LUSCH (2005).
Customer
Experience
 Interactivity, integration,
customization, and coproduction.
 Process based on collaboration
with customers and patterns to
create and sustain value.
 Move away from G-D logic
quality models that have
captivated the field.
 Knowledge, Affect, Behavioral,
and Customer Engagement.
BINDROO, MARIADOSS, AND
PILLAI (2012); BRAKUS ET AL.
(2009); FIDEL, PILAR,
WALESSKA CERVERA (2015);
JOHNSON AND GRAYSON
(2005); NYSVEEN ET AL., (2014).
Knowledge  Dimension concerns the degree to
which a brand stimulates
customers curiosity, thinking, and
problem solving
 Blending S-D Logic properties
with Customer Knowledge
Management (CKM) to increase
customer relationships and
collaboration opportunities.
 Diverse knowledge can be
obtained through the network of a
firm’s partnerships
 Cognitive trust: Customer’s
confidence or willingness to rely
on a service provider
BRAKUS ET AL. (2009); WALDEN
AND JANEVSKA (2014).
Affect  Conceptualization, experience,
dimensions of brand-related
stimuli, and actor engagement
lead to emotional experiences.
 Firms struggle with understanding
and measuring customer emotions
 Emotions can be considered as
short-cuts that enable decision
making
 Emotional Signature
CHANDLER AND LUSH (2015);
PRESS AND ARNOULD (2011).
Behavioral  Firms need a better understanding
of customers, building
relationships, and documenting
consumer influences.
 Organizational identification:
organizational values with focus
on customers and society

15. 13
 Brand: evaluating a particular
entity with some degree of favor
or disfavor.
 Customer Engagement
The Customer Experience
S-D logic highlights customers and building long-term relationships with a customer
base. “Interactivity, integration, customization, and coproduction are hallmarks of a service-
centered view and its inherent focus on the customer and the relationship” (Vargo and Lusch,
2004). Prior research has examined consumer behavior and the importance of customer
experience; but, no comprehensive outline has been constructed in ordinates with a ‘market with’
mentality. This thought process is based on collaboration with the customer and patterns to
create and sustain value (Vargo and Lusch, 2005). The first important step is moving away from
the G-D logic quality models that have captivated the field (Maklan and Klaus, 2011). As well
as mention that management origins of service quality are too limited. The customer experience
is unique and involvement can take place at many different levels. Models that are good-
centered ignore the importance of the customer’s experience, engagement, and collaboration in
the service industry. Three main factors of the customer experience highlighted in the research
in both services marketing and service science are: (1) knowledge or cognitive, (2) affect or
emotion, and (3) behavioral. The importance of these properties of the customer experience is
understanding what they are and how they fit into the service experience.
Knowledge (Cognitive)
Customer knowledge is increasing in priority for service providers to manage and
understand. “The intellectual (or cognitive) dimension concerns the degree to which a brand
stimulates consumers’ curiosity, thinking and problem solving” (Nysveen and Pedersen, 2014).
Customer knowledge management (CKM) is an organization’s capability to help with
knowledge creation, preservation, and transfer in customers. Blending customer knowledge
management with properties of S-D logic, increase customer relationships and collaboration
opportunities (Fidel, Walesska, and Cervera, 2015). “Firms with adequate CKM policies will
more likely detect emerging market opportunities than their competitors” (Fidel et al., 2015).
Other important factors of CKM are relational and communication. “Research also indicates that
diverse knowledge can be garnered from the network of a firm’s partnerships” (Bindroo,
Mariadoss, Pallai, 2012). It is a challenging task for organizations to track how stimulus effects
customer knowledge. “For example, although colors, shapes, typefaces, and designs usually
result in sensory experience, they may also result in…intellectual experiences” (Brakus et al.,
2009). Developing CKM infrastructures rooted in S-D logic will help organizations understand
customer knowledge development, and how to manage it.
Affect (Emotional)
Customer affects are the emotional responses exhibited by customers when faced with
certain stimulus, situations, or experiences. “In line with our conceptualization, the experience
dimensions are evoked by brand-related stimuli (e.g., colors, shapes, typefaces, designs, slogans,
mascots, brand characters)… [that] may result in emotional…experiences” (Brakus et al., 2009).
Firms struggle with this aspect of the customer experience because emotions are difficult to

16. 14
measure and firms lack the strategy to understand customer emotion. “In a complex world,
emotions can be considered as short-cuts that enable us to make decisions…although beliefs may
guide our actions, they are not sufficient to initiate action” (Walden and Janevska, 2014). Table
3 as shown below, outlines five principles of emotion that are relevant to business. It then
explains how emotional profiles can be built for customers (Walden and Janevska, 2014).
Table 3: Emotions Importance to Business
S-D logic is “the application of the competencies for the benefit of another” (Vargo and
Lusch, 2004; 2008). It is fundamental in developing the concepts of services, services
marketing, and service science. Service science is a study of the evolutions, interaction, and co-
creation of values with business and technological understanding to explain many types of
service systems (Vargo and Akaka, 2009). Service systems are “value co-creation configuration
of people, technology, value propositions connecting internal and external service systems, and
shared information” (Maglio and Spohrer, 2008). According to Vargo and Akaka (2009), the
service systems are the basis for analysis in service science. Service systems are an ‘open
system’ which are capable of improving the state of another system and itself through exchanges
of resources of each actor. The size of service systems varies from an individual person to a
worldwide system (Vargo and Akaka, 2009). The key factor of service science is the exchange
and sharing of resources within and among service systems (Vargo and Akaka, 2009). These
resources include four types: (1) resources with right, (2) resources as property, (3) physical
entities, and (4) socially constructed entities (Vargo and Akaka, 2009). Furthermore, entities

17. 15
exchange competence of four dimensions: information, risk, work, and goods-sharing (Maglio
and Spohrer, 2008). In service systems, value cannot be realized by one entity. There are at
least two entities: the one that proposes the value and the other that realizes the value. This is
why the value creation process is called the ‘co-creation of value’.
The managerial value is in understanding how customer emotions influence their
customer’s decisions. To help managers with identifying relevant customer emotions, that are
driving decisions, creating the Emotional Signature tool. Figure 6 as seen below, show how
business can classify customer emotions and the affect they could have on business value
(Walden and Janevska, 2014). It also demonstrates how customers react to stimulus, develop a
response-based on internal and external factors, and this leads to a documentable affect.

18. 16
Figure 6: Emotion Scale and Three-Stroke Emotional Signature Model
With this information emotional signature tools use statistical analysis to develop easy to
read summary tables and charts. Emotional signature information will give companies stronger
information to help devolve strategy. It will also help organizations with communication to
certain customer segments. Emotional signatures could also allow organizations to better
document customer behavior and develop strategies to better control consumer behavior in the
long-term.

19. 17
Behavioral
Consumer behavior research focuses at better understanding customers, building
relationships, and documenting how consumers are influenced. Important research for the
customer experience and the goals of building long-term relationships is organizational
identification. In the past, “organizational identification has been discussed primarily as a
cognitive construct, focusing on the perception of unity between the self and the organization”
(Press and Arnould, 2011). Positive Identification is formed through strong customer
engagement, as customers connect with preferred organizational values and benefits (Press and
Arnould, 2011). In order for the development of long-lasting relationships with customers to
continue, organizations need to understand the shift in value. Customers can be seen shifting
from traditional tangible cost-benefits to placing more focus on possible intangible benefits.
This builds strength for organizations to begin “implementing socially responsible business
models” (Harmon, Demirkan, and Raffo, 2012). This allows consumers to identify with a
service provider dependent on intangible value and benefits. Customers connecting themselves
with an organization allows for increased communication and co-creation opportunities.
Brand is an important factor for consumer behavior. Consumers judge brands daily and
often show “a psychological tendency expressed by evaluating a particular entity with some
degree of favor or disfavor” (Chandler and Lusch, 2015). This evaluation has a strong
connection with brand and is another reason why organizations need strong image and customer
communication.
Customer Engagement
A part of behavioral actions is a customer’s engagement to a brand or organization. It is
important that mangers understand how important it is to understand customers and to have an
effective communication ecosystem to facilitate co-creation. “Customer engagement reflects a
psychological state, which occurs by virtue of interactive customer experiences within a specific
service relationship” (Chandler and Lusch, 2015). But, as mentioned before, this can happen at
many different levels. “Each and every experience occurs in a specific time and place, the
connections surrounding the experience contribute to the framing of a psychological state or
disposition” (Chandler and Lusch, 2015). The five properties of engagement outlined by
(Chandler and Lusch, 2015) can be found below in Table 4. Two of the five properties are
external to the actor: external connections that occur in relational space (relational) and over time
(temporal). The last three properties are internal to the actor: future disposition, past disposition,
and present disposition.

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Table 4: Five Properties of Engagement
Internal to the Actor
The importance of temporal connections is understanding how it is oriented toward future
service experiences. “Temporal Connections refer to connections stemming from service
experiences in the past and giving rise to service experiences in the future” (Chandler and Lusch,
2015). This builds strength for increasing efforts to develop long lasting relationships with
customers. This is because of present connection, hoping to further positive future connections
are affected by past.
Relational connections is when the actor’s current role at the time of the experience is
dependent on the social roles that affiliate them with other actors. These connections continue to
evolve and an actor may take on different social roles (i.e. parent, student, friend etc.) based on a
given service experience Chandler and Lusch, 2015). This means that “relational connections
are conduits by which actors may influence one another” (Chandler and Lusch, 2015). It is
important for service provider to understand that customers encompass many different social
roles, and should work to understand and meet a majority of the roles an actor may encompass.
External to the Actor
Future disposition is when the actors have many different connects and experiences from
one another. This leads to different ideas and actions about desired future outcomes. “Future
disposition is how actors appropriate, reproduce, or potentially innovate on connections as
resources for moving toward a specific future” (Chandler and Lusch, 2015). Organizations
should also view customer connections as resources. Both parties can enjoy resources that each
side could not produce on their own. This develops opportunities for service providers to work
with their customer base to create value, rather than just focus on the exchange of money for
service provisions.
When actors remember past events and have different perspectives of attitude or
judgments of an organization or brand, it is called past disposition. “Engagement is based on an

21. 19
actor’s appropriation, renovation, or innovation of connections in response to a specific past”
(Chandler and Lusch, 2015). Past events can contain strong affective and cognitive responses, so
it is important for organizations to have an understanding of negative or positive past customer
dispositions. Then develop leverage strategies to strengthen positive connects or remedy
negative connects.
Present disposition is the actor’s present space between past and future dispositions.
Meaning that a current experience is what ties both past and future to current connects. “In this
way, meaning making can facilitate service experiences by continually refocusing and aligning
past and future dispositions in an actor’s current connections” (Chandler and Lusch, 2015).
Organizations must place resources in aligning past experiences and future expectations to
develop a loyal customer base. This will require an organizational environmental change in how
customers are included into the service experience as a whole.
With a stronger understand of the customer experience and the process of building
relationships, organizations can transition to an S-D logic focused model. The importance of
data analytics in connection with the customer experience is advancing to a new form of
communication and marketing. The ability to target individual customers through emotional
signatures and data analytic tools will become far superior marketing method when compared to
traditional demographics and segmentation. Developing IT infrastructure and big data analytics
with the new customer experience focus outlined in this section, will lead to a competitive
advantage and advancements in the field. But, organizations also need a strong understanding of
co-creation in a service eco-system to achieve this end.
Value Co-creation
Value co-creation extends beyond the dyadic, customer-supplier perspective to a multi-
level approach where many stakeholders, or “actors,” interact within a service ecosystem.
Within these ecosystems, value is proposed, evaluated, and accepted because of institutions,
resource integration, and technology. Since each actor has access to different resources,
evaluations may differ depending on their unique context.
Service science widens the scope of value co-creation and how it influences the actions
and interactions of individual actors by taking a service ecosystem approach that centers on
resource integration. As explained earlier, service science shifts the basis for all exchange from
“services” as intangible outputs, to “service” as the application of operant resources. This
emphasizes the process rather than output. Service science also recognizes that the interactions
among actors influence and are influenced by social structure and context.
Service Ecosystems
A service ecosystem is a multi-level network of reoccurring interactions between
interdependent social and economic actors. Instead of viewing it as a dyadic relationship
between B2C and B2B, it represents a constellation of interactions between A2A (actor-to-actor)
(Vargo and Lusch, 2004). Since no one actor has all the resources needed to operate, they must
take part in resource integration processes to maintain meaningful relationships through
economic and social exchange (Frow, McColl-Kennedy, Hilton, Davidson, Payne, and Brozovic,
2014). These exchanges result in an on-going re-evaluation of experience that create a dynamic,
self-contained, and self-adjusting ‘system-of-systems’ (Frow et al., 2014). This is not to say that

22. 20
B2C and B2B interactions are separate from the service ecosystem, but rather nested within a
broader level of institutions. These institutions, along with technology and resource integration,
make up the structure of a service ecosystem in three levels: micro, meso, and macro.
At the micro level, producer and consumer interactions are central (Frow et al., 2014).
These are the B2C interactions. At this level, ‘value’ is a singular term for individual evaluation
of experience of a market offering (Vargo and Lusch, 2004). The goal is to exchange services to
improve each actor’s well-being. The micro level is the base of the service ecosystem and is
influenced and has an influence on the meso and macro levels.
At the meso level, firms, customer networks, and institutions are central (Frow et al.,
2014). These can be viewed as B2B interactions. At this level, ‘values’ is a plural term
representing social norms that influence the evaluation of an experience (Frow et al., 2014).
Although any actor may interact with the focal firm, value propositions operating between
employees and suppliers are the most important because they connect with the focal firm and
have many opportunities for knowledge sharing.
At the macro level, networks of institutions, or markets, are central. These are the A2A
interaction where “values” are not co-created at one time. Actors evaluate experience-based on
past experience, present encounters, and anticipated interactions (Frow et al., 2014). At this
level, the success of an organization is determined by the ability to interact within a broad range
of market relationships characterized by complexity, non-linear, and systemic interdependencies
(Frow et al., 2014).
Figure 7: Structuration in Service (Eco)Systems
Institutions
As previously discussed, service ecosystems are complex and influenced by social
structures and institutions as shown above in Figure 7. The social structure is made up of
consumer culture that influences the experience, which is ‘value-in-context’. Experiences at
micro, meso, and macro levels all involve interactions among various actor’s that contribute to

23. 21
the co-creation of value and co-construction of markets (Vargo and Lusch, 2011). Social
structure is also made up of ‘signs and symbols’ influenced by lived experiences of actors. As
Venkatesh, Penaloza, and Firat (2006) stated, “what is more important than skills and
knowledge, or products and services, are the meanings and values underlying these two sets or
levels of market symbols, which together constitute the micro elements of the world.” These
symbols influence and are influenced by the meso and micro level; but, a consumers’ social
structure will influence their interpretation of a proposition, in turn changing the meaning or
value for that particular consumer. Since the viewpoint determines value, what is valuable for
one actor in a particular context may not be the same for another actor in the same context or the
same actor and different context (Gronroos, 2011). When considering co-creation, signs and
symbols of social structure, as well as lived cultures and access to resources all play a role in the
interpretation of propositions or value.
Value is dependent on the particular perspective and specific context of an actor such as
time, place, or social setting, which is ‘value-in-context’. Depending on the access to particular
resources in a particular context, value is determined by the improvement of a systems well-
being. This can be measured as “a system’s adaptiveness or ability to fit in its environment”
(Vargo and Akaka, 2012).
Resource Integration
Value co-creation is through mutual beneficial interactions within and among service
systems, as they integrate and apply resources and exchange service for service (Vargo and
Lusch, 2012). Since value is not only created between the customer and firm, but among various
actors in the service ecosystem, value co-creation depends on the availability of resources as well
as the relationships associated with each service system (Akaka and Chandler, 2011).
Technology
Technology acts as a duality in the service ecosystem being both operant and operand
resources. Technology can be a product of human action, an operand resource, but can also be a
medium of human action, an operant resource (Vargo and Akaka, 2012). Although institutions
guide the development and use of technologies, they are also influenced by the development and
use of technology.
Service-for-service exchange
Using the increased scope of S-D logic of ecosystems, service is the basis of exchange.
At a meso and macro level, service systems are maintained through individual actors co-creating
value for themselves, others, and the value all interactions (Vargo and Akaka, 2012). These
interactions will improve a system as well as their ability to fit in the environment. It is the result
of applying operant resources through operand resources that result in a competitive advantage
(Vargo and Lusch, 2004).
Value is value-in-exchange, value-in-use, and value-in- context. Value-in-exchange is
nominal and takes place at the micro level. It is a good-dominant approach that focuses on one
exchange or interaction. In this view, there are traditional roles of ‘producers’ and ‘consumers’
who exchange operand resources such as goods and money (Vargo and Lusch, 2004). ‘Value-in-
use’ is the integration or application of resources at the meso level. This represents a service-

24. 22
dominant approach (S-D) of co-creation. In this view, value is always co-created through the
interactions among various actors and integration of many resources. Thus, the relationship
blurs the lines between provider and consumer. Although the process of co-creation of value is
driven by “value-in-use”, it is mediated and monitored by “value-in-exchange” (Vargo and
Lusch, 2004). “Value-in-exchange” focuses on the collaboration of institutions, which can be
individuals or groups of individuals that adapt through the exchange of operant resources. These
institutions are systems-of-systems that exchange resources to enhance, adapt, and survive in
their social context (Vargo and Lusch, 2004). “Value-in-context” is the value through use that is
influenced by social context such as time, place, and society, as well as access to other resources.
This takes place at the macro level where there is a cultural aspect to value. The interaction
among actors will influence the evaluation of another based on the context. Actors are
interdependent-based on the resources they need from one another to survive. This drives
service-for-service exchange and resource integration to provide mutual beneficial values (Vargo
and Lusch, 2004). Value(s) at the micro, meso, and macro level is not created, it is proposed and
other actors realize value through evaluation of experience and integration or application of
resource or proposition.
Value Propositions ina Service Ecosystem
Value propositions in a service system consider roles within a service system that are not
generally viewed as a stakeholder (Frow et al., 2014). This transition from micro level focal
actors, to meso level stakeholder systems, to macro level service ecosystems reflects the dynamic
aspects of ecosystems. Value propositions are “a statement that represents the core strategy and
describes the distinctive competitive advantage of a firm” (Frow et al., 2014). It’s how a service
provider uses their resources to achieve the most beneficial outcome that supports the well-being
of the ecosystem. To do this, a service provider proposes value depending on their operant
resources, such as skills and knowledge, and the value proposition is either accepted, rejected, or
unnoticed by other actors based on their evaluation of the proposition (Vargo and Lusch, 2004).
Since an actor’s context determines their evaluation of a proposition, a provider does not
customize offerings, but enables customers to customize their own resources and needs. An
accepted value proposition has a reciprocal exchange of knowledge between resource-integrating
actors to shape the resource integration within the system (Frow et al., 2014). This means that
the resource offering of each actor has implications for the offerings of another since all
relationships are interdependent. When the most attractive value proposition accepted, the
highest performance will need constant revision from customer changes in order for the
advantage to be maintained (Frow et al., 2014). Thus, the ecosystem is dynamic and always
changing. Value propositions operate within each of the levels of the ecosystem, between the
levels, and also serve to shape the levels.
Co-Creation in Service Ecosystems
Taking the S-D logic approach to service ecosystems, we see that institutions not only
guide, but are also guided by the interactions among many actors at the micro, meso, and macro
levels. These interactions determine the evolution of each actor’s experience; meaning value
differs depending on the multiplicity of shared institutions, and availability and access of
resources (Akaka and Chandler, 2011)

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In an S-D view, value is co-created as service, the application of knowledge and skill, as
the basis of exchange by focusing on the experiential view of value (Vargo and Lusch, 2004).
With the introduction of service ecosystems, value co-creation focuses on the participation of
many stakeholders and is influenced by institutions and social structures within the system
(Archpru et al., 2015). All stakeholders, or ‘actors’, are interdependent for service-to-service
exchange and have reoccurring interactions-based on value propositions. Although an actor can
provide a proposition, it takes the evaluation and acceptance of another actor to realize the value.
Whether the resource is valuable depends on shared social structures, or context, that influence
and guide the evaluation (Archpru et al., 2015). Figure 8 below represents how value is co-
created among service systems.
Figure 8: Value Co-creation among Service Systems
Co-creation of value occurs through many levels of interaction which all influence the
determination of value or evaluation of experience. Managers need to be aware of social and
cultural contexts that influence evaluations of experience and be able to respond to change.
Research Questions
 What factors are included in an S-D logic transition model?
 What factors are important for managers to understand in order to transition to S-D logic?
Framework: The Customer Experience and Co-
Creation Model
Due to the rapid change in technology over the past few decades, our society has
transformed and become more digitalized and interconnected. The Internet has connected people
from all across the globe that weren’t connected before. Also many developing economies offer
cost-efficient labor and production of physical goods, which has spurred the growth of
manufacturing in those economies. This has created a problem for many manufacturing
industries in developed countries, since many of these developed economies have minimum
wage laws they must adhere to, worker unions they must work with, and other regulatory
expenses developing economies don’t have to deal with. To compete with the world,
manufacturing companies in developed countries are seeking to add services to their product

26. 24
with the purpose of gaining a competitive advantage and increasing customer satisfaction and
loyalty. In recent years the trend towards services has progressed and gained traction in many
developed countries. Although the validity of the preceding statement is accurate, services still
have a ways to go before they become as productive as the manufacturing sector. This is a
concern not only for companies within manufacturing, but also the economic growth of these
developed countries. The economic concept known at Baumol’s cost disease states, “a rise of
salaries in jobs that have experienced no increase of labor productivity in response to rising
salaries in other jobs which did experience such labor productivity growth.” IBM one of our
case study company has created a new discipline known as Service Science Management and
Engineering (SSME) also referred to as Service Sciences to make services more efficient.
In Figure 9 below, the model includes the transition phases between G-D logic and S-D
logic. The four transition phases created within our model are the following: Level 0:
Communications, Level 1: Resources, Level 2: Relationships, and Level 3: Technology. Within
the communication level, the company has no or minimum internal or external communication
structure in place, external resources, and the state of their current technology can improve. In
the first level, ‘Resources’, is defined as the integration of all resources which means employees
and other stakeholders have access to the company’s resources. Also companies have partial IT
infrastructure. The second level, ‘Relationships’, is when the company has constant relationship
with other actors. This relationship comes in the form of sharing knowledge, skills, and
technology. The third level is the technology phase, which means there is a completed
technology infrastructure within the company. This includes having a sophisticated supply chain
as well as understanding and having access to big data. In this part of the paper we will analyze
how the case companies fit into this spectrum. In essence, this spectrum or represents the
transition from G-D logic companies to S-D logic. Furthermore, we’ll use a grading model to
grade each company and determine how they are performing in the transition from G-D logic to
S-D logic.

27. 25
Figure 9: Customer Experience & Co-Creation Model
Case Studies
The companies we have chosen for our case studies are IBM, Cisco Systems and
Starbucks Coffee. The reason we chose the preceding companies for our case study is that these
companies exemplify service sciences and services marketing. IBM and Cisco Systems are the
forerunners of service science alongside other American and European universities. Although
there is no consensus on the definition of service science, from the research conducted the
definition that best defines service science is that from Paul Horn. Paul Horn, the head of IBM
Research, states that “service science is the interdisciplinary application of science, engineering,
and management for the purpose of improving services.” Service science also contributes to
systematic innovation and improved productivity. It is the guiding force for the improvement of
services through improved predictability in the productivity, quality, performance, compliance,
development, reusability of knowledge, and operational innovation in services (Tagg, 2009). In
contrast, Starbucks uses G-D logic and has exemplified an excellent customer experience
throughout the company’s history. Starbucks CEO states, “While we are a coffee company at
heart, Starbucks provides much more than the best cup of coffee- we offer a community
gathering place where people come together to connect and discover new things. Starbucks

28. 26
represents something beyond a cup of coffee” (Gallaugher and Ransotham, 2010). We also test
the three companies against our model.
Level 0: Communications
The communications phase is the lack of communication infrastructure in place to
support co-creation. Furthermore, the company has no to minimal use of IT connectedness and
data analytics or use of external resources. Our case study companies all seemed to have met
these criteria. The validity of the preceding statement supports the findings found while
researching IBM, Cisco Systems, and Starbucks. All our case companies have demonstrated
they have an infrastructure in place to support co-creation. In the following paragraphs we’ll
explain how these structures work in correspondents to the other levels.
Level 1: Resources
The Resources level of our model is when the company shows resources integration.
Furthermore, there is an increased access to resources and partial IT infrastructure. There is also
the development of some co-creation functions.
According to our model, Starbucks Coffee is in the transition between level 1, and level
2. Further analyzing our model in the customer experience component could confirm the
preceding statement. The customer experience component in level 2 is superior to the other
levels. Furthermore, customer engagement is high and the company gets a grasp on their
consumer’s behavior. Starbucks Coffee was built upon the foundation of customer experience.
They have excelled as a company and it has been evident throughout the company’s history.
This was most evident in 2008 when the company faced competition from Dunkin’ Donuts,
McDonald's, Peet’s Coffee and Caribou Coffee. All these competitors had enacted the customer
experience Starbucks first pioneered. After having a declining business in 2008, Howard Schultz
returned as CEO of Starbucks. He noticed that the customer experience in Starbucks was
becoming stagnant. In the previous section, “Services Marketing,” the customer experience
“originates from a set of interactions between a customer and a product, a company, or part of its
organization, which provoke a reaction” (LaSalle and Britton, 2003; Shaw and Ivens, 2005). It is
also seen as an evolving relationship between the customer and the company (Gentile et al.
2007). The interactions between the actor and the company are what make up the customer
experience. This was what Starbucks wanted to evolve to during these tough times. To remain
competitive, Howard Schultz launched a new way of improving the company's customer
experience. Mystarbucksideas.com initiative was an effort to join with the consumer and co-
create. This new initiative allowed consumers to help co-create the future of Starbucks with their
own ideas. The website had different categories where consumers could build and/or contribute
to discussion threads. Starbucks would chose ideas to initiate. According to Starbucks, “In the
first year alone, more than 65,000 ideas and 658,000 votes were cast. In late 2009, the company
announced that fifty distinct ideas were drawn from the site had been approved, including health
food options as a major initiative for the company” (Gallaugher and Ransotham, 2010).
Also, Starbucks created a communication platform to communicate with various
stakeholders. An example of such platform is the Small Farmer Support Initiative. It is a joint
engagement platform with the Fairtrade Foundation. This allows Starbucks to stay involved in
dialogue with farmers in Latin America and east Africa.

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Currently, one of the biggest problems within the service sector is the productivity of
people. The reason behind this is the service sector relies on the intuition, knowledge, and
experience of employees. To increase the productivity and efficiency of the service sector, IBM
created a new type of employee known as ‘T-shaped’ people. According to IBM, ‘T-shaped’
people are excellent communicators with real world experience and deep (or specialized) in at
least one culture, one discipline and one system area. They have good teamwork skills
interacting with others who are deep in other cultures, disciplines and system areas.
Furthermore, ‘T-shaped’ professionals are entrepreneurs and innovators by heart; they help
create new technologies, businesses, and societal innovations. When it comes to the realm of
rapid innovation, ‘T-shaped’ professionals are more equipped to become successful in changing
environments than ‘I-shaped’ people, who lack the breath. IBM looks for individuals that show
both breadth and depth. Service science looks to investigate these elements through the use of
existing academic disciplines to raise productivity.
Level 2: Relationships
The Relationship Phase of our model is defined as the company having a relationship
between various actors. This relationship is based on sharing and transferring of knowledge,
skills, and technology. Also, the company shows an increased development of IT infrastructure
and use of data analytics. The company understands the customer experience and development
of targeted engagement marketing strategies.
The companies the best exemplify the relationship phase are IBM and Cisco Systems.
Both IBM and Cisco have integrated and implemented their relationships between differing
actors. The following examples state how they have done this. Sam Palmisano, IBM’s former
CEO, envisioned global collaboration. Palmisano stated that the view of the future is centered
on humans living on earth, and how the interaction can generate new opportunities for IBM and
for its clients (Tagg, 2009). In a fast changing and innovative world, there needs to be openness
and transparency in all parts of a company. Different minds, perspectives and skills brought
together to find new solutions to long-standing problems in our society. This is the approach
IBM took with the creation of global collaboration. John Chambers, CEO of Cisco Systems,
states that “collaboration will affect every industry. It will change service, sales, and business
models. It will change the size, scope, and the number of projects an organization can take on.
And it will change the speed of implementation” (Ramaswamy, 2010). This new type of co-
creation is the ‘human network’. The concept of improving relationships among stakeholders
has been in business for many decades. An example of attempting to build more trusting
relationships with stakeholders of the company is the Japanese-style participative management
concept; creating partnerships with suppliers. Furthermore, it introduced new concepts to
business such as quality cycles, lean production, and six sigma. The introduction of co-creation
has ameliorated the concept of improving relations among stakeholders.
Furthermore, IBM created Innovation Jams to co-create with government officials,
educational institutions, clients, partners, suppliers, and other stakeholders. In essence,
Innovation Jam brings together 150,000 IBM employees, stakeholders, and vendors. They
participate in two to three days of online events that foster innovation through co-creation with
the purpose of helping IBM bring products to the market faster. They also are creating new

30. 28
opportunities through massive co-creation of ideas which is creating a global democracy
business. The name Innovation Jam was derived from the notion of a jam session. In a jam
session, a jazz musician who is passionate about music connects with others to create something
new. This is innovation. People from all across the globe, who have technical and business
expertise, can collaborate to innovate a new service that can help the world, those in need, or
create new business opportunities. The Innovation Jam in 2006 was the largest IBM online
brainstorming session held and had more than 150,000 people from 104 countries and 67
companies. The result of the 2006 Innovation Jam was the launch of ten new IBM businesses.
In addition, the new businesses were funded with seed investment totaling to $100 million. The
Innovation Jams also has a reputation of collaborating with non-profit organizations. These
include NATO, USAID and the World Urban Forum. They co-create solutions to various
challenges such as urban poverty and international security.
IBM has a history of moving closer and closer to the concept of co-creation. In 1995, the
Industry Solution Labs were introduced to play a role in taking IBM employees from the labs to
client sites. They could see their scientific discovery and progress meet commercialization. The
Global Technology Outlook (GTO) was created in an effort to facilitate one-on-one interview,
focused on co-creation. These meetings involve a wide-range of global leaders from academia,
business, and government to discuss the topic of their interest. These discussions are then turned
into reports and given to executives around the world for new insights on how the world is
changing. The participants of the GTO are selected for their expertise, accomplishments and
influence.
Another program IBM has to further spur co-creation is Innovation Discovery. It
provides a platform for IBM to have co-creative conversations with its clients. Like the program
mentioned in the preceding statement, Innovation Discovery brings together the brightest minds
from IBM’s network and the client’s internal organization. IBM states by concentrating the
focus on what your company and IBM can do together, Innovation Discovery accelerates the
process of identifying new areas for growth and achievement. The way Innovation Discovery
works is that IBM selects participants such as IBM fellow, distinguished engineers, senior
researchers, industry leaders, and experts from various fields that are tailored toward the client’s
needs. The IBM participants are then combined with 5-7 executives from the client's company
that range from different part of the company such as innovation, technology function,
marketing, information technology, and other customer-facing functions. These meetings are
both virtual and face-to-face collaborations to co-create new insights, innovations, technologies,
business models, business units, and breakthrough service.
An example as described in The Power of Co-Creation: Build It with Them to Boost
Growth, Productivity, and Profits by Venkat Ramaswamy and Francis Gouillart explain the
relationship between IBM and Royal Dutch Shell. The purpose of Innovation Discovery was to
drive innovation by using each company’s resources, expertise, and experiences. The
relationship IBM has with Royal Dutch Shell is that IBM provides key IT applications to Shell.
The traditional client-supplier relationship between IBM and Royal Dutch Shell had to evolve to
stay competitive and innovative. This was done was by creating a new framework for
collaboration that included the following: types of collaboration, requirements, commitments,
and outcomes. With regards to collaboration, the main question that has to be answered is: what

31. 29
challenges are appropriate for collaborative research? The requirement component of the new
framework involved discussing the investment and resources needed for collaboration. Another
important component is commitment in the form of time and focus given to each project. The
last component of the new framework is outcomes which revolves around terms of IP ownership,
commercialization, and joint go-to-market strategies and plans. This new type of collaboration
has further pushed the importance of co-creation in all aspects of business. This approach works
best when there is no solution to an existing challenge or the solution lacks key technology
capabilities. In the case of IBM, the company is well known for their expertise in computer
modeling, analytics, and computer simulations. Furthermore, Shell is well known for their
expertise in subsurface and reservoir engineering (Ramaswamy and Gouillart, 2010). Thus, the
new collaboration or form of co-creation benefits both companies and ensures they maintain a
competitive advantage.
Level 3: Technology
The Technology Phase of our model has the company with a completed IT infrastructure.
They use big data and data analysis to develop individual customer profiles. In addition, a
Customer Knowledge Management department is established to facilitate communication and
documentation of customers. Their marketing and communication strategies are developed on
individual customer profiles, instead of demographics and segmentation strategies.
The companies that show plans towards moving in this direction or both IBM and Cisco.
Although this is true, it will not be realized until 2025-2035 due to the pace technology is
currently developing. IBM has introduced The Smarter City initiative which will be the
foundation for level 3. Within the Smarter City initiative, IBM looks to interconnect and digitize
the following sectors: health care, education, traffic, airports, rail, energy and utilities, social
services, public safety, retail, communications, and economic development. Cities are
competing with each other to attract more work talent, residents, businesses, and visitors. This
means that cities have to be efficient and to their highest quality. In other words, customer
experience is detrimental to the success of these cities. Thus, IBM is attempting to use big data
and data analysis to increase the quality of customer experience in these cities. They’ll use co-
creation and collaboration methods to implement their ideas and technology. Furthermore, Cisco
plans to transform Urban Services by unifying the infrastructure and delivering new citizen
services. One way they are doing this is by providing City Wi-Fi that will connect people and
objects. All these innovations are leading to our last stage of transitioning from a G-D logic
company to S-D logic. These innovations will allow these companies to develop individual
customer profiles for their marketing and communication strategies. Firms are transition from
demographic and segmentation strategies to marketing based on individual customer profiles.
Also, the development of IBM’s Watson will help with big data and data analysis when the time
comes.
Grading Model
We based our grading model off the transition phases developed in our model. The
scoring card allows companies to know where they are in the transition between G-D logic and
S-D logic. Table 5 below shows the grade range from ‘A’ to ‘F’. An ‘A’ means a company uses
S-D logic. ‘B’ or ‘B-’ means the company is in a transition from G-D logic to S-D logic. A ‘C’,

32. 30
‘C-’, or ‘D+’ means the company is currently at a hybrid state. ‘D’, ‘D-’, or ‘F’ signifies the
company is still a G-D logic company. We have graded the following case companies to
determine where they are at with regards to the transition between a G-D logic to an S-D logic
company. Our findings are backed by the research we have done earlier and thus each score is
based on the research we have accumulated with regards to these companies.
Table 5: Grade Definitions
Grade on Transition from G-D Logic to S-D Logic
Grade Definition
A S-D Logic company
A- Medium steps towards S-D Logic
B+ Beginning steps towards S-D Logic
B Transition
B- Transition
C+ Transition
C Hybrid
C- Hybrid
D+ Hybrid
D G-D Logic
D- G-D Logic
F G-D Logic
Categories and their Key Factors
Communication
There are several key factors that are part of this category. Is there a communication
infrastructure in place to support co-creation? Is there and absence or minimal use of IT
connectivity and data analytics? Do they use external resources? A high score means the
company is doing well with respects to this category. A low score means the company can
improve in this category.
Resources
The key factors for this category are: Are resources integrated? Is there an increased
access to resources? Is a partial IT infrastructure evident within the company? Is there a
development of some co-creation functions? A high score means the company is doing well
with respects to this category. A low score means the company can improve in this category.
Relationships
Is there sharing of knowledge, skills, and technology? Is there an increase development
of IT infrastructure and of data analytics? Does the company understand customer experience
and the development of targeted engagement marketing strategies? High score means the
company is doing well with respects to this category. A low score means the company can
improve in this category.

33. 31
Technology
Lastly, the key factors for technology are: Is there a completed IT infrastructure in place?
Is the company using big data and data analysis for the development of individual customer
profiles? Is a Customer Knowledge Management department in place to facilitate
communication and documentation of customers? Are marketing and communication strategies
developed based on individual customer profiles, instead of demographic and segmentation
strategies? A high score means the company is doing well with respects to this category. A low
score means the company can improve in this category.
Table 6: IBM Grading Model: IBM Receives a B+ with a score of 87.25%
Company Name: IBM
Date: May-15
Category Score Weight Weighted Score
Communication 100% 0.25 25%
Resources 99% 0.25 25%
Relationships 95% 0.25 24%
Technology 55% 0.25 14%
Total 1.00 87%

34. 32
Table 7: Cisco Systems Grading Model - Cisco Receives a B+ with a final score of 88.50%
Company
Name: CISCO SYSTEMS
Date: May-15
Category Score Weight Weighted Score
Communication 100% 0.25 25%
Resources 100% 0.25 25%
Relationships 99% 0.25 25%
Technology 55% 0.25 14%
Total 1.00 89%
Table 8: Starbucks Grading Model - Starbucks Receives a D+ with a final score of 67.50%
Company
Name: STARBUCKS COFFEE
Date: May-15
Category Score Weight Weighted Score
Communication 100% 0.25 25%
Resources 70% 0.25 18%
Relationships 75% 0.25 19%
Technology 25% 0.25 6%
Total 1.00 68%
Managerial Implications
It is important for managers to first recognize the differences between G-D logic and S-D
logic. Only at this point can management evaluate their business model, through an S-D logic
lens. Service systems are “value co-creation configuration of people, technology, value
propositions connecting internal and external service systems, and shared information” (Maglio
and Spohrer, 2008). Pure S-D logic transition requires a few factors: (1) Resource integration,
(2) Relationship development and understanding of A2A communication, (3) Sharing & use of
knowledge, skills, and technology (operant resources) in co-creation processes, (4)
Organizational eco-system developed with a focus on customer and societal value, (5)
Organizations ability to operate in a service ecosystem, and (6) Big data and data analysis used
to develop individual customer profiles to help drive customized marketing strategies. Through
the use of the conceptual framework and grading scale constructed in this paper, organizations
can take the first steps to evaluating current business models, and begin the transition to a
service-dominant organization.

35. A
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40. F
Appendix A
Figure 1: Contrasts between the Information-Processing and Experiential Views of Consumer Behavior
Referenced on page 1.
Figure 3: Hedonic, Utilitarian, and Balanced Products
Referenced on page 4.