Service-dominant (S-D) logic, in behavioral economics, is an alternative theoretical framework for explaining value creation, through exchange, among configurations of actors.
S-D logic argues that in order to create value, that is to maintain and increase wellbeing and viability, actors engage in interdependent and reciprocally beneficial service exchange (Lusch and Vargo, 2014).
The first axiom (FP1) 'Service is the fundamental basis of exchange' is based on the previously introduced definition of service as the application of operant resources (primarily knowledge and skill) for the benefit of another actor.
This 'service' (singular), a process, should not be confused with 'services', (usually plural), usually intended to denote a unit of (intangible) output, which is associated with goods dominant (G-D) logic.
The second axiom (FP6), 'Value is cocreated by multiple actors, always including the beneficiary', contradicts the traditional worldview, in which firms are seen as the sole creator of value.
This value creation is seen as unfolding, over time, with a consequence of continuing social and economic exchange, implicit contracts, and relational norms.
More recently, S-D logic has begun to use to term value-in-context to capture the notion that value must be understood in the context of the beneficiary's world and the associated resources and other actors (Vargo et al. 2009).
This is different from co-creation of value, which is intended to capture the essential nature of value creation: it always involves the beneficiary's participation (through use, integration with other resources, etc.,) in some manner.
In the fourth axiom (FP10) of S-D logic, 'Value is always uniquely and phenomenologically determined by the beneficiary', the term 'beneficiary' reflects the generic nature of actors.
Instead, institutions are humanly devised rules, norms, and beliefs that enable and constrain action and make social life predictable and meaningful (Scott 2001; see also North 1990).
However, he sees both knowledge and institutions as environmental, or exogenous, to marketing systems, whereas in S-D logic they are seen actor-generated and endogenous to service ecosystems (Vargo and Lusch, 2016).
The five axioms and the service ecosystems perspective help to communicate an S-D logic narrative of value cocreation – the central focus of this alternative worldview.
This narrative is recursive over time, as actors integrate resources, provide reciprocal-service and cocreate value through "holistic, meaning-laden experiences in nested and overlapping service ecosystems, governed and evaluated through their institutional arrangements" (Vargo and Lusch 2016, p. 7) It is a modular structure that encompasses tangible and intangible components and facilitates the interaction of actors and resources.
There are two important aspects in service platforms: Modular Layered Architecture and Resource Density: A united set of skills and specialized knowledge that easily connect with heterogeneous products.
In supply chain management and logistics, scholars have started to think in terms of value networks and systems and focus on cocreation due to the influence of S-D logic (see e.g. Flint and Mentzer, 2006; Tokman and Beitelspacher, 2011, Yazdanparast, Manuj, and Swartz, 2010).
S-D logic is shown to facilitate a seamless integration of ethical accountability in marketing decision-making (Abela and Murphy, 2008) and used to guide practitioners to achieve and sustain strategic advantage (Bettencourt, Lusch, and Vargo, 2014).
S-D logic has been applied in such diverse fields as information systems (Alter, 2010), health disciplines (see e.g. Hardyman, Daunt, & Kitchener, 2015; Rehman, Dean, & Pires, 2012), arts philosophy (Boorsma, 2006), tourism management (see e.g. FitzPatrick, Davey, Muller, & Davey, 2013), public management (Osborne, Radnor, and Nasi, 2013) and innovation studies (Michel, Brown, and Gallan, 2008).
Recent research has introduced an instrument to measure the service-dominant logic orientation for service firms (Karoen, Bove, and Lukas, 2012).
Analysing more than 1700 scientific publications using Service-dominant logic, Ehrenthal, Gruen and Hofstetter (2021) identify the following basic approaches, good practices, and quality criteria for conducting (and reviewing) Service-dominant logic research: In 2005, an international group of academics led by David Ballantyne met to discuss these issues at The Otago Forum (2005, 2008, 2011), with special issues of major marketing journals emerging, as a consequence.