Saturday, January 4, 2014

The future of Marketing

Creative Commons (BY NC CA) licence granted by the author(s)

By Yasir Siddiqui

Industrialization was concerned with the production of good as the primary source of economic growth and hence the marketing followed Goods dominant-logic (GDL). In other words, in GDL, “goods are embedded with value, produced away from the market or consumer, and sold through the manipulation of marketing-mix [(including advertising)] decisions that will maximize firm profit. Under this logic, the market and the customer are things to act upon: to segment, to target, to penetrate, to manipulate, and to control.” (Lusch et al., 2006) [i]

Currently, we are seeing the trend moving away from economies of scale to economies of scope in which the major focus is on customization and services than optimal production of goods. Whereas, Services is defined as, “the use of human resources for the benefit of another party.” Fundamentally, this exchange of service for service means that “(1) all humans (and human organizations) have to exchange is their ability to serve other human entities, and (2) even when goods are involved, they are just mechanisms for service provision” (Lusch et al., 2006.) This new trend is defined by Service dominant-logic (SDL) that could provide some insights on the future of marketing.

In SDL, the organizations sell services through goods. For example, Lulu-lemons does not just sell clothing, it offers the experience of Yoga. Ikea does not sell furniture but rather offers well-designed functional homes at an affordable price. This mentality encourages organizations to shift from the manufacturing-first (cost-based) approach to a customer-first (value-based) approach. Yet, the future of SDL would goes beyond advertising to creating new business models around services.

Owyang et al. (2013) presents the modes of value creation in this service-based economy, also called the post-industrialization economy, the collaborative economy or the sharing economy. The modes of value creation or value-chain are: Product-as-a-service, Market-as-a-service, and Platform-as-a-service.[ii]

The basic principle behind product-as-a-service (closely related to Servicizing) is that the customers do not necessarily care about the ownership of the product but rather value (functionality, cost, experience, image, etc.) that they receive from it. Hence, rather than selling the products, the organizations need to create relationships with the customers in order to understand their needs and design solutions that meet these need.

For example, Xerox no longer sells printers to organizations but rather printing services. Xerox engages in services contracts whereby Xerox maintains ownership of the printers but it lends (often for free), installs, maintains and upgrades printers for the clients. Moreover, Xerox reuses and recycles the discarded parts back into the next generation of manufacturing to maximize the lifecycle of the equipment. [iii] Besides the direct solution for a problem, the constant relationship and conversation with the customer has the advantage of recognizing and understanding other opportunities that the organization could satisfy in the future. For example, Xerox successfully expanded its offering to its existing clientele to networking and computer services along with printing services since it already had "a foot in the door." 

The next element of the value-chain in the collaborative economy value-chain is market-as-a-service in which the organizations reach customers beyond the first point of sale by enabling its customers to share value in their network and with the organization. For example, Airbnb allows customers to share their houses for rents. However, there is a tremendous opportunity for organization engaging in Servicizing to also engage in market-as-a-service model. For example, Patagonia, an outdoor clothing and gear company, encourages its customers to buy and sell used clothing produced by Patagonia directly from other customers. From a value perspective, the move by Patagonia creates a longer-term relationship with the customers beyond the first point-of-sale and the lifecycle of the product. In fact, by enabling its customers to buy and sell used Patagonia products, the firm increases its brand-value and outreach to new potential customers. [iv] From financial perspective, the cost of cannibalization incurred due to loss of potential sales could be offset by the reduction in the cost of advertising.   

The last piece in the collaborative economy value-chain is product-as-a-service in which the customers become a part of the organization. CrowdsourcingCrowdfundng and crowd-innovation are examples where customers create value (ideas, content, services, finance, etc) with the organization. For example, Quirky engages with crowd to invent new products. The idea is generated and rated by the crowd, whereas, Quirky engineers, manufactures and sells the products while constantly engagement with the crowd. Moreover, Quirky also shares a small portion of the revenue to the participants to incentivize the crowd. In another example, Nokia allows their customers to 3D print their own cases and hence the company shares the manufacturing responsibility with its customers. Arduino co-innovates electronics with the crowd by allowing the innovation to be open-sourced, however, the manufacturing and distribution is done by the private partners of Arduino such as Sparkfun.

SDL is creating new value chains in the business and integrating all three aspects of these value chain would create a strong and lasting brand-value or reputation (ted talk), which is postulated to be the most prominent source of advantage in the post-industrial collaborative economy. While organizations are starting to adopt this new value chain, so far, no one has prominently integrated the three links of the value chain of the collaborative economy. This lack of integration could be primarily attributed to the change in mentality towards SDL that requires fundamental changes to the processes behind value creation.

First, organizations would need to focus on intangibles (services, experience, image) offer through the tangibles (specific product). Second, the process efficiencies need to be focused on the delivery of the services rather than manufacturing. Third, long-term customer relationships in order to truly understand the customer needs become more important than advertising. Fourth, human resources become more than tools to create products or goods to providing services and hence, human capital becomes valuable in itself and is rewarded as per the value provided (rather than human "resources" in which it is treated as fixed costs i.e. salaries). Fifth, customer-first mentality requires thinking in terms of value proposition - end-to-end experience of the customer with an enterprise as well as cradle to grave view of all the resources utilized in the product. Sixth, rather than maximizing profits through higher number of product sales, the financial transactions become signals on the value that the organization provides to its customers and the market in general. Finally, sharing and enabling flow of information (openness and transparency) becomes a source of competitive advantage instead of the protection of information.

It should be noted, however, that just like industrialization did not remove the need for agriculture, post-industrialization would also not remove the need for industrialization. In essence, the GDL would still make sense for basic components (ex: raw materials). Organizations involved in this sector would likely continue to engage in economies of scale and GDL over economies of scope and SDL. Nevertheless, SDL adds a new dimension of value on top of industrialization within the post-industrialization economy.

[i] Lusch, Robert F., Stephen L. Vargo, and Alan J. Malter. "Marketing as service-exchange:: Taking a leadership role in global marketing management." Organizational Dynamics 35.3 (2006): 264-278.
[ii] Owyand, J, Tran C., and Silva C. "The collaborative economy value chain", Altimeter Research Group, June 4th, 2013 <>
[iii] Rotherberd, S. "Sustainability through servicizing." MIT Sloan Management Review 48.2 (2012).

[iv] Reinhardt, F., Ramon C., and HyunJin K., "Pantagonia." Harvard Business School Strategy Unit Case 711-020 (2010).


  1. I enjoyed reading the text. Some points could be further elaborated. I will focus on those below.

    I believe the text could be more future oriented than it is right now, as it mainly reads as a review of current best marketing practices. Most of what you mention as the future of marketing are practices that have been around for over 30 years, in one way or another (more specfically, your last paragraph). Perhaps how these are bundled is the novelty? Perhaps customer relationship will be different than what it is today? Or perhaps marketing will remain pretty much the same, after all? In short, I would like to see a stronger and more detailed leap into the future.

  2. The point on transparency (last sentence) is indeed one I see as a future one, there are trends in that direction but is so far from being the orientation of most organizations (as the 6 previous points) today, at least not in its fullest. Maybe you could focus on that.

  3. Thank Fernando. The above blog does not point out practices since they would change with time but perhaps, I could have used an example to explain better.

    The main point is to explain the change in mentality: "Product and physical assets are the vehicles through which service is offered." What is important is the service and the solution that the user receives and not the product they receive. In essence, the culture must be to serve the customer. I suppose the futurist aspect would be on how you serve the customer but I think the onus of futurism is on the innovation in (p2p) processes behind services (including how R&D is done since the product is the vehicle to serve the customer, etc.). The futurist message in this post is that the business models need to be build around services and not products

    1. *correction*
      The futurist message in this post is that the business models need to be build around eco-system of services and not the products

      for example: In the open-game, products become so cheap (free) that even producing and/or customizing the product for someone becomes a service since not everyone would do it.

  4. "the business models need to be build around eco-system of services and not the products": that's a very good point, indeed, and a tendency. I wonder though if it would only apply to specific types of businesses, or it would be more general. The amount of products that would actually need customization or allow for an eco-system of services is relatively small, it seems to me. For example, if you buy are refrigerator you actually do not want any service, you just want it to work without problems and actually do not want any other interaction (and I don't know how to build an eco-system around it. The same for most products I own (Google would be an exception).

    I am not sure I understood the other point but the corporate model as it is today is quite efficient in coordinating R&D to serve the customer (Apple, Samsung, Sony, etc.). Apple has an extremely high mark-up based on their sexyiness and appeal to consumers. Engineers and artists (and everyone else) in the organizations have to work based on top-down customer demands whether or not they think it follows their creative calling...

    1. I think the mindset in service is thinking in terms of value (needs and wants). What is the value that the customer receives from Refrigerator? This is where understanding the customer (and having an honest, transparent and continuous relationship) becomes important.

      Let's brainstorm your refrigerator example. Customers need could be 1) fresh access to food. 2) storing food for emergency purposes, customer's wants could be 1) Easy and 2) "Stylish" 3) convenient

      (I am brainstorming ideas here to prove a point without feasibility analysis)
      We could design two different solutions: a) a service around always fresh food available when you want it (like hotels) b) the emergency food storage is available for a community rather than an individual through a centralized cooling mechanism. Now you can design tools to make service of providing fresh efficient by a "central" refrigeration for the community for the summer since you may not need it in winter. At this point, you can charge the fee per meal, etc.

      The point is that target is thinking in terms of needs and wants and finding solutions to meet those needs rather than "which product characteristics are necessary." This mentality could be very disruptive since it would require changes to the entire value-chain. (for example: the way food is produced and delivered to ensure always fresh food service could be provided)

      Corporations tend not to look at the entire eco-system since they are in "refrigeration" or "electronics" industry. This mentality of service needs to break down this isolation mentality to associated with the "health" needs and wants or the "nutrition" needs and wants of people. Since the structure of Corporations tends not be as flexible, they tend to exploit a certain need (let's need for status) to sell their product rather than addressing the need for "health" or "fresh food" or "nutrition", etc.
      (The above is rationale of economies of scale vs. economies of scope - for more information: read: "Scope, not scale" by Michel Bauwens on Al-Jazeera )

      An existing example is Relayrides. The idea is to have transportation solution and not a car (ownership) solution. Hence, "we are in the transportation business and not car business." Better yet, what if the public transport provided a "service" and not a "ghetto" metro product - example, clean bathroom, more comfortable seats, higher and frequent access, I think there would be even lower need for cars. What if instead of metro we installed Gondola to Mont Royal (in Montreal) to provide access and make it so that it is safe, convenient, efficient, reliable, easy, comfortable, etc? and I think there is an opportunity to think in systems and services in the context of these systems rather than in isolation to replace a particular action.

      Why Open? Because it is not isolated and heavily structured. The flexible structure of Open-value networks allow for this change in mentality. OVN needs to live to serve the needs and wants to customer and not be limited by the sunk cost of manufacturing capability. In fact, the idea is to minimize the capital expenditure so that an OVN does not get "locked-in" to these sunk costs. This would permit systems thinking.

    2. Thanks, it is more elaborate and clear to me now. I like to see where it is going.

      "The point is that target is thinking in terms of needs and wants and finding solutions to meet those needs rather than "which product characteristics are necessary." I am not sure this is new or that corporations do not do this. In fact, I rather see organizations like Linux, Arduino, or Wikispeed focused more on technicalities than on the consumer, while Apple, Nike (and others), do not sell computers or shoes but an experience, a lifestyle, and ultimately an identity.

      As in the case of developing a relationship with the refrigerator people (or a dishwasher, or a hammer), I am not so convinced. Particularly, for this type of product that is more of the functional people are looking primarily for the quality of the products itself (durability, etc.) and price rather than developing some kind of relationship. Maybe there could be some extras that are offered that could be attractive, but they still appear to be secondary. (I am thinking of myself here if I were to buy a refrigerator).

      While corporations today may not think in terms of an eco-system, I do not see why they couldn't. Google is a striking example. Airline companies also try to match hotels and car rentals, addressing the need for "travel" or "vacation" for example. I do not see why one has to be open to be able to do this (or yet, if a consumer would want to spend their time knowing everything about and collaborating with everyone they buy something from). In fact, I rather see that the top-down coordination that is typical to the corporate model may be faster to address customer wants. For example, Windows 8.1 as an upgrade to Windows 8 was designed to meet the most popular consumer demands, people who voiced their concerns regarding Windows 8.