A New Dominant Logic / 1
Journal of Marketing
Vol. 68 (January 2004), 1–17
Stephen L. Vargo & Robert F. Lusch
Evolving to a New Dominant Logic
for Marketing
Marketing inherited a model of exchange from economics, which had a dominant logic based on the exchange of
“goods,” which usually are manufactured output. The dominant logic focused on tangible resources, embedded
value, and transactions. Over the past several decades, new perspectives have emerged that have a revised logic
focused on intangible resources, the cocreation of value, and relationships. The authors believe that the new per-
spectives are converging to form a new dominant logic for marketing, one in which service provision rather than
goods is fundamental to economic exchange. The authors explore this evolving logic and the corresponding shift
in perspective for marketing scholars, marketing practitioners, and marketing educators.
Stephen L. Vargo is Visiting Professor of Marketing, Robert H. Smith
School of Business, University of Maryland (e-mail: svargo@rhsmith.umd.
edu). Robert F. Lusch is Dean and Distinguished University Professor, M.J.
Neeley School of Business, Texas Christian University, and Professor of
Marketing (on leave), Eller College of Business and Public Administration,
University of Arizona (e-mail: r.lusch@tcu.edu). The authors contributed
equally to this manuscript. The authors thank the anonymous JM review-
ers and Shelby Hunt, Gene Laczniak, Alan Malter, Fred Morgan, and
Matthew O’Brien for comments on various drafts of this manuscript.
T
he formal study of marketing focused at first on the
distribution and exchange of commodities and manu-
factured products and featured a foundation in eco-
nomics (Marshall 1927; Shaw 1912; Smith 1904). The first
marketing scholars directed their attention toward com-
modities exchange (Copeland 1920), the marketing institu-
tions that made goods available and arranged for possession
(Nystrom 1915; Weld 1916), and the functions that needed
to be performed to facilitate the exchange of goods through
marketing institutions (Cherington 1920; Weld 1917).
By the early 1950s, the functional school began to
morph into the marketing management school, which was
characterized by a decision-making approach to managing
the marketing functions and an overarching focus on the
customer (Drucker 1954; Levitt 1960; McKitterick 1957).
McCarthy (1960) and Kotler (1967) characterized marketing
as a decision-making activity directed at satisfying the cus-
tomer at a profit by targeting a market and then making opti-
mal decisions on the marketing mix, or the “4 P’s.” The fun-
damental foundation and the tie to the standard economic
model continued to be strong. The leading marketing man-
agement textbook in the 1970s (Kotler 1972, p. 42, empha-
sis in original) stated that “marketing management seeks to
determine the settings of the company’s marketing decision
variables that will maximize the company’s objective(s) in
the light of the expected behavior of noncontrollable
demand variables.”
Beginning in the 1980s, many new frames of reference
that were not based on the 4 P’s and were largely indepen-
dent of the standard microeconomic paradigm began to
emerge. What appeared to be separate lines of thought sur-
faced in relationship marketing, quality management, mar-
ket orientation, supply and value chain management,
resource management, and networks. Perhaps most notable
was the emergence of services marketing as a subdiscipline,
following scholars’ challenges to “break free” (Shostack
1977) from product marketing and recognize the inadequa-
cies of the dominant logic for dealing with services
marketing’s subject matter (Dixon 1990). Many scholars
believed that marketing thought was becoming more frag-
mented. On the surface, this appeared to be a reasonable
characterization.
In the early 1990s, Webster (1992, p. 1) argued, “The
historical marketing management function, based on the
microeconomic maximization paradigm, must be critically
examined for its relevance to marketing theory and prac-
tice.” At the end of the twentieth century, Day and Mont-
gomery (1999, p. 3) suggested that “with growing reserva-
tion about the validity or usefulness of the Four P’s concept
and its lack of recognition of marketing as an innovating or
adaptive force, the Four P’s now are regarded as merely a
handy framework.” At the same time, advocating a network
perspective, Achrol and Kotler (1999, p. 162) stated, “The
very nature of network organization, the kinds of theories
useful to its understanding, and the potential impact on the
organization of consumption all suggest that a paradigm
shift for marketing may not be far over the horizon.” Sheth
and Parvatiyar (2000, p. 140) suggested that “an alternative
paradigm of marketing is needed, a paradigm that can
account for the continuous nature of relationships among
marketing actors.” They went as far as stating (p. 140) that
the marketing discipline “give up the sacred cow of
exchange theory.” Other scholars, such as Rust (1998),
called for convergence among seemingly divergent views.
Fragmented thought, questions about the future of mar-
keting, calls for a paradigm shift, and controversy over ser-
vices marketing being a distinct area of study—are these
calls for alarm? Perhaps marketing thought is not so much
fragmented as it is evolving toward a new dominant logic.
Increasingly, marketing has shifted much of its dominant
logic away from the exchange of tangible goods (manufac-
tured things) and toward the exchange of intangibles, spe-
2/ Journal of Marketing, January 2004
1
Typical traditional definitions include those of Lovelock (1991,
p. 13), “services are deeds, processes, and performances”;
Solomon and colleagues (1985, p. 106), “services marketing refers
to the marketing of activities and processes rather than objects”;
and Zeithaml and Bitner (2000), “services are deeds, processes,
and performances.” For a definition consistent with the one we
adopt here, see Gronroos (2000).
cialized skills and knowledge, and processes (doing things
for and with), which we believe points marketing toward a
more comprehensive and inclusive dominant logic, one that
integrates goods with services and provides a richer founda-
tion for the development of marketing thought and practice.
Rust (1998, p. 107) underscores the importance of such
an integrative view of goods and services: “[T]he typical
service research article documented ways in which services
were different from goods.… It is time for a change. Service
research is not a niche field characterized by arcane points
of difference with the dominant goods management field.”
The dominant, goods-centered view of marketing not only
may hinder a full appreciation for the role of services but
also may partially block a complete understanding of mar-
keting in general (see, e.g., Gronroos 1994; Kotler 1997;
Normann and Ramirez 1993; Schlesinger and Heskett
1991). For example, Gummesson (1995, pp. 250–51,
emphasis added) states the following:
Customers do not buy goods or services: [T]hey buy offer-
ings which render services which create value.… The tra-
ditional division between goods and services is long out-
dated. It is not a matter of redefining services and seeing
them from a customer perspective; activities render ser-
vices, things render services. The shift in focus to services
is a shift from the means and the producer perspective to
the utilization and the customer perspective.
The purpose of this article is to illuminate the evolution
of marketing thought toward a new dominant logic. A sum-
mary of this evolution over the past 100 years is provided in
Table 1 and Figure 1. Briefly, marketing has moved from a
goods-dominant view, in which tangible output and discrete
transactions were central, to a service-dominant view, in
which intangibility, exchange processes, and relationships
are central. It is worthwhile to note that the service-centered
view should not be equated with (1) the restricted, tradi-
tional conceptualizations that often treat services as a resid-
ual (that which is not a tangible good; e.g., Rathmell 1966);
(2) something offered to enhance a good (value-added ser-
vices); or (3) what have become classified as services indus-
tries, such as health care, government, and education.
Rather, we define services as the application of specialized
competences (knowledge and skills) through deeds,
processes, and performances for the benefit of another entity
or the entity itself. Although our definition is compatible
with narrower, more traditional definitions, we argue that it
is more inclusive and that it captures the fundamental func-
tion of all business enterprises.
1
Thus, the service-centered
dominant logic represents a reoriented philosophy that is
applicable to all marketing offerings, including those that
involve tangible output (goods) in the process of service
provision.
A Fundamental Shift in Worldview
To unravel the changing worldview of marketing or its dom-
inant logic, we must see into, through, and beyond the extant
marketing literature. A worldview or dominant logic is never
clearly stated but more or less seeps into the individual and
collective mind-set of scientists in a discipline. Predictably,
this requires viewing the world at a highly abstract level. We
begin our discussion with the work of Thomas Malthus.
In his analysis of world resources, Thomas Malthus
(1798) concluded that with continued geometric population
growth, society would soon run out of resources. In a
Malthusian world, “resources” means natural resources that
humans draw on for support. Resources are essentially
“stuff” that is static and to be captured for advantage. In
Malthus’s time, much of the political and economic activity
involved individual people, organizations, and nations work-
ing toward and struggling and fighting over acquiring this
stuff. Over the past 50 years, resources have come to be
viewed not only as stuff but also as intangible and dynamic
functions of human ingenuity and appraisal, and thus they
are not static or fixed. Everything is neutral (or perhaps even
a resistance) until humankind learns what to do with it (Zim-
merman 1951). Essentially, resources are not; they become.
As we discuss, this change in perspective on resources helps
provide a framework for viewing the new dominant logic of
marketing.
Constantin and Lusch (1994) define operand resources
as resources on which an operation or act is performed to
produce an effect, and they compare operand resources with
operant resources, which are employed to act on operand
resources (and other operant recourses). During most of civ-
ilization, human activity has been concerned largely with
acting on the land, animal life, plant life, minerals, and other
natural resources. Because these resources are finite,
nations, clans, tribes, or other groups that possessed natural
resources were considered wealthy. A goods-centered dom-
inant logic developed in which the operand resources were
considered primary. A firm (or nation) had factors of pro-
duction (largely operand resources) and a technology (an
operant resource), which had value to the extent that the firm
could convert its operand resources into outputs at a low
cost. Customers, like resources, became something to be
captured or acted on, as English vocabulary would eventu-
ally suggest; we “segment” the market, “penetrate” the mar-
ket, and “promote to” the market all in hope of attracting
customers. Share of operand resources and share of (an
operand) market was the key to success.
Operant resources are resources that produce effects
(Constantin and Lusch 1994). The relative role of operant
resources began to shift in the late twentieth century as
humans began to realize that skills and knowledge were the
most important types of resources. Zimmermann (1951) and
Penrose (1959) were two of the first economists to recognize
the shifting role and view of resources. As Hunt (2000, p.
75) observes, Penrose did not use the popular term “factor of
production” but rather used the term “collection of produc-
tive resources.” Penrose suggested (pp. 24–25; emphasis in
original) that “it is never resources themselves that are the
A New Dominant Logic / 3
TABLE 1
Schools of Thought and Their Influence on Marketing Theory and Practice
Timeline and Stream of Literature Fundamental Ideas or Propositions
1800–1920: Classical and Neoclassical
Economics
Marshall (1890); Say (1821); Shaw (1912);
Smith (1776)
Economics became the first social science to reach the quantita-
tive sophistication of the natural sciences. Value is embedded in
matter through manufacturing (value-added, utility, value in
exchange); goods come to be viewed as standardized output
(commodities). Wealth in society is created by the acquisition of
tangible “stuff.” Marketing as matter in motion.
Early marketing thought was highly descriptive of commodities,
institutions, and marketing functions: commodity school (charac-
teristics of goods), institutional school (role of marketing institutions
in value-embedding process), and functional school (functions that
marketers perform). A major focus was on the transaction or output
and how institutions performing marketing functions added value to
commodities. Marketing primarily provided time and place utility,
and a major goal was possession utility (creating a transfer of title
and/or sale). However, a focus on functions is the beginning of the
recognition of operant resources.
1900–1950: Early/Formative Marketing
•Commodities (Copeland 1923)
•Institutions (Nystrom 1915; Weld 1916)
•Functional (Cherington 1920; Weld 1917)
1950–1980: Marketing Management
•Business should be customer focused (Drucker
1954; McKitterick 1957)
•Value “determined” in marketplace (Levitt 1960)
•Marketing is a decision-making and problem-
solving function (Kotler 1967; McCarthy 1960)
Firms can use analytical techniques (largely from microeconomics)
to try to define marketing mix for optimal firm performance. Value
“determined” in marketplace; “embedded” value must have useful-
ness. Customers do not buy things but need or want fulfillment.
Everyone in the firm must be focused on the customer because the
firm’s only purpose is to create a satisfied customer. Identification
of the functional responses to the changing environment that pro-
vide competitive advantage through differentiation begins to shift
toward value in use.
1980–2000 and Forward: Marketing as a Social
and Economic Process
•Market orientation (Kohli and Jaworski 1990;
Narver and Slater 1990)
•Services marketing (Gronroos 1984; Zeithaml,
Parasuraman, and Berry 1985)
•Relationship marketing (Berry 1983; Duncan and
Moriarty 1998; Gummesson 1994, 2002; Sheth
and Parvatiyar 2000)
•Quality management (Hauser and Clausing 1988;
Parasuraman, Zeithaml, and Berry 1988)
•Value and supply chain management (Normann
and Ramirez 1993; Srivastava, Shervani, and
Fahey 1999)
•Resource management (Constantin and Lusch
1994; Day 1994; Dickson 1992; Hunt 2000; Hunt
and Morgan 1995)
•Network analysis (Achrol 1991; Achrol and Kotler
1999; Webster 1992)
A dominant logic begins to emerge that largely views marketing as
a continuous social and economic process in which operant
resources are paramount. This logic views financial results not as
an end result but as a test of a market hypothesis about a value
proposition. The marketplace can falsify market hypotheses, which
enables entities to learn about their actions and find ways to better
serve their customers and to improve financial performance.
This paradigm begins to unify disparate literature streams in major
areas such as customer and market orientation, services market-
ing, relationship marketing, quality management, value and supply
chain management, resource management, and network analysis.
The foundational premises of the emerging paradigm are (1) skills
and knowledge are the fundamental unit of exchange, (2) indirect
exchange masks the fundamental unit of exchange, (3) goods are
distribution mechanisms for service provision, (4) knowledge is the
fundamental source of competitive advantage, (5) all economies
are services economies, (6) the customer is always a coproducer,
(7) the enterprise can only make value propositions, and (8) a ser-
vice-centered view is inherently customer oriented and relational.
‘inputs’ to the production process, but only the services that
the resources can render.”
Operant resources are often invisible and intangible;
often they are core competences or organizational processes.
They are likely to be dynamic and infinite and not static and
finite, as is usually the case with operand resources. Because
operant resources produce effects, they enable humans both
to multiply the value of natural resources and to create addi-
tional operant resources. A well-known illustration of oper-
ant resources is the microprocessor: Human ingenuity and
skills took one of the most plentiful natural resources on
Earth (silica) and embedded it with knowledge. As
Copeland (qtd. in Gilder 1984) has observed, in the end the
microprocessor is pure idea. As we noted previously,
resources are not; they become (Zimmermann 1951). The
service-centered dominant logic perceives operant resources
as primary, because they are the producers of effects. This
shift in the primacy of resources has implications for how
exchange processes, markets, and customers are perceived
and approached.
4/ Journal of Marketing, January 2004
FIGURE 1
Evolving to a New Dominant Logic for Marketing
Pre-1900 Twenty-first Century
Goods-Centered Model of Exchange Service-Centered Model of Exchange
(Concepts: tangibles, statics, (Concepts: intangibles, competences,
discrete transactions, and operand dynamics, exchange processes and
resources) relationships, and operant resources)
Classical and Neoclassical Economics (1800–1920)
Formative Marketing Thought (Descriptive: 1900–1950)
•Commodities
•Marketing institutions
•Marketing functions
Marketing Management School of Thought (1950–2000)
•Customer orientation and marketing concept
•Value determined in marketplace
•Manage marketing functions to achieve optimal output
•Marketing science emerges and emphasizes use of optimization techniques
Marketing as a Social and Economic Process (Emerging Paradigm: 1980–2000 and forward)
•Market orientation processes
•Services marketing processes
•Relationship marketing processes
•Quality management processes
•Value and supply management processes
•Resource management and competitive processes
•Network mana
g
ement
p
rocesses
Thought leaders in marketing continually move away from
tangible output with embedded value in which the focus was on
activities directed at discrete or static transactions. In turn, they
move toward dynamic exchange relationships that involve
performing processes and exchanging skills and/or services in
which value is cocreated with the consumer. The worldview
changes from a focus on resources on which an operation or
act is performed (operand resources) to resources that produce
effects (operant resources).
A New Dominant Logic / 5
Goods Versus Services: Rethinking
the Orientation
Viewed in its traditional sense, marketing focuses largely on
operand resources, primarily goods, as the unit of exchange.
In its most rudimentary form, the goods-centered view pos-
tulates the following:
1. The purpose of economic activity is to make and distribute
things that can be sold.
2. To be sold, these things must be embedded with utility and
value during the production and distribution processes and
must offer to the consumer superior value in relation to
competitors’ offerings.
3. The firm should set all decision variables at a level that
enables it to maximize the profit from the sale of output.
4. For both maximum production control and efficiency, the
good should be standardized and produced away from the
market.
5. The good can then be inventoried until it is demanded and
then delivered to the consumer at a profit.
Because early marketing thought was concerned with
agricultural products and then with other physical goods, it
was compatible with this rudimentary view. Before 1960,
marketing was viewed as a transfer of ownership of goods
and their physical distribution (Savitt 1990); it was viewed
as the “application of motion to matter” (Shaw 1912, p.
764). The marketing literature rarely mentioned “immaterial
products” or “services,” and when it did, it mentioned them
only as “aids to the production and marketing of goods”
(Converse 1921, p. vi; see Fisk, Brown, and Bitner 1993).
An early fragmentation in the marketing literature occurred
when Shostack (1977, p. 73) noted, “The classical ‘market-
ing mix,’ the seminal literature, and the language of market-
ing all derive from the manufacture of physical-goods.”
Marketing inherited the view that value (utility) was
embedded in a product from economics. One of the first
debates in the fledgling discipline of marketing centered on
the question, If value was something added to goods, did
marketing contribute to value? Shaw (1912, p. 12; see also
Shaw 1994) argued that “Industry is concerned with the
application of motion to matter to change its form and place.
The change in form we term production; the change in
place, distribution.” Weld (1916) more formally defined
marketing’s role in production as the creation of the time,
place, and possession utilities, which is the classification
found in current marketing literature.
The general concept of utility has been broadly accepted
in marketing, but its meaning has been interpreted differ-
ently. For example, discussing Beckman’s (1957) and Alder-
son’s (1957) treatments of utility, Dixon (1990, pp. 337–38,
emphasis in original) argues that “each writer uses a differ-
ent concept of value. Beckman is arguing in terms of value-
in-exchange, basing his calculation on value-added, upon
‘the selling value’ of products.... Alderson is reasoning in
terms of value-in-use.” Drawing on Cox (1965), Dixon
(1990, p. 342) believes the following:
The “conventional view” of marketing as adding proper-
ties to matter caused a problem for Alderson and “makes
more difficult a disinterested evaluation of what marketing
is and does” (Cox 1965). This view also underlies the dis-
satisfaction with marketing theory that led to the services
marketing literature. If marketing is the process that adds
properties to matter, then it can not contribute to the pro-
duction of “immaterial goods.”
Alderson (1957, p. 69) advised, “What is needed is not
an interpretation of the utility created by marketing, but a
marketing interpretation of the whole process of creating
utility.” Dixon (1990, p. 342) suggests that “the task of
responding to Alderson’s challenge remains.”
The service-centered view of marketing implies that
marketing is a continuous series of social and economic
processes that is largely focused on operant resources with
which the firm is constantly striving to make better value
propositions than its competitors. In a free enterprise sys-
tem, the firm primarily knows whether it is making better
value propositions from the feedback it receives from the
marketplace in terms of firm financial performance.
Because firms can always do better at serving customers and
improving financial performance, the service-centered view
of marketing perceives marketing as a continuous learning
process (directed at improving operant resources). The
service-centered view can be stated as follows:
1. Identify or develop core competences, the fundamental
knowledge and skills of an economic entity that represent
potential competitive advantage.
2. Identify other entities (potential customers) that could bene-
fit from these competences.
3. Cultivate relationships that involve the customers in devel-
oping customized, competitively compelling value proposi-
tions to meet specific needs.
4. Gauge marketplace feedback by analyzing financial perfor-
mance from exchange to learn how to improve the firm’s
offering to customers and improve firm performance.
This view is grounded in and largely consistent with
resource advantage theory (Conner and Prahalad 1996; Hunt
2000; Srivastava, Fahey, and Christensen 2001) and core
competency theory (Day 1994; Prahalad and Hamel 1990).
Core competences are not physical assets but intangible
processes; they are “bundles of skills and technologies”
(Hamel and Prahalad 1994, p. 202) and are often routines,
actions, or operations that are tacit, causally ambiguous, and
idiosyncratic (Nelson and Winter 1982; Polanyi 1966). Hunt
(2000, p. 24) refers to core competences as higher-order
resources because they are bundles of basic resources. Teece
and Pisano (1994, p. 537) suggest that “the competitive
advantage of firms stems from dynamic capabilities rooted
in high performance routines operating inside the firm,
embedded in the firm’s processes, and conditioned by its
history.” Hamel and Prahalad (pp. 202, 204) discuss “com-
petition for competence,” or competitive advantage resulting
from competence making a “disproportionate contribution
to customer-perceived value.”
The focus of marketing on core competences inherently
places marketing at the center of the integration of business
functions and disciplines. As Prahalad and Hamel (1990, p.
82) suggest, “core competence is communication, involve-
ment, and a deep commitment to working across organiza-
tional boundaries.” In addition, they state (p. 82) that core
competences are “collective learning in the organization,
especially [about] how to coordinate diverse production
skills.” This cross-functional, intraorganizational boundary-
