This is the ninth installment of my Service Management learning series. This time, I explore Service-Dominant Logic (SDL) and how a well-known personal training company puts “value co-creation” into practice.
- 1 From “Product-Dominant” to “Service-Dominant”
- 2 Every Service Is Built on “Value Co-Creation”
- 3 Behind the Business of Selling “Results”
- 4 Designing for “Drop-Off Points” in the Customer Journey
- 5 The 7Ps of Service Marketing
- 6 The Clarity of the Value Line
- 7 The Lens of Adaptive Leadership
- 8 “Value Co-Creation” in IT Projects
- 9 Recommended Reading for This Session
- 10 Next Up
From “Product-Dominant” to “Service-Dominant”
Under the traditional business mindset, companies create value and customers consume it. Products are manufactured in factories and sold in stores. Value resides in “things” — this is Goods-Dominant Logic (G-D Logic). In this framework, companies are the creators of value and customers are positioned as consumers (or destroyers) of that value. The moment a product leaves the factory line, its “exchange value” is fixed, and all that remains is for customers to consume it — a strictly one-directional flow.
In 2004, marketing researchers Vargo and Lusch published a paper that fundamentally overturned this assumption. That was Service-Dominant Logic (S-D Logic, or SDL).
Value is not created unilaterally by companies — it is “co-created” through the process of customers using the service. Customers are not passive consumers but partners in value co-creation.
The core of SDL lies in the shift from “exchange value” to “use value.” For example, when you purchase a smartphone, only “exchange value” has been established. It is only when you use that smartphone to access information, connect with people, or streamline your work that “use value” emerges. In other words, value does not reside within the product itself — it manifests only within the context of the customer’s use.
This shift dramatically changes how we view business. The role of a company is not to “create and deliver value” but to “create an environment where value can emerge and co-create that value with customers.”
Every Service Is Built on “Value Co-Creation”
Through the SDL lens, you realize that every service is fundamentally about “co-creation.”
Consider education. No matter how brilliantly a teacher designs a class, if students just sit passively, “learning” never happens. Only when students prepare in advance, ask questions, participate in discussions, and review afterward does knowledge truly take root. What a teacher provides is “the opportunity and environment for learning” — the learning itself is co-created between teacher and student.
Healthcare works the same way. No matter how accurate a doctor’s diagnosis or how optimal the prescribed treatment, if the patient doesn’t take their medication, doesn’t change their lifestyle, or skips follow-up visits, the value of “health” is never realized. What a doctor provides is “the possibility of health recovery” — health as a value is co-created between doctor and patient.
Buying a gym membership alone doesn’t transform your body. Only when members actually train, manage their diet, and change their lifestyle habits does the value of “fitness” emerge. What companies provide is not “value itself” but “an environment where value can be born.”
Behind the Business of Selling “Results”
The case discussed in our lecture was a personal training company that achieved rapid growth with its “committed to results” catchphrase.
What this company sells is not “training.” It sells “results (body transformation).” But achieving results requires the client’s own effort. Daily meal management, regular training, lifestyle improvements — the company alone can never deliver the outcome.
This is a textbook example of SDL. Value is born from “co-creation” between the company and the customer. And this company’s brilliance lies in having designed every aspect of the co-creation process. Rather than simply “providing a place to train,” it has designed interventions at every touchpoint to ensure customers function as effective partners in value co-creation.
Designing for “Drop-Off Points” in the Customer Journey
To co-create value, you need to support customers so they don’t drop off along the way. This company had designed meticulous interventions for each drop-off point in the customer journey.
Drop-Off Point 1: Pre-Enrollment Anxiety
“Can I really do this?” “Is it worth such a significant investment?” — these anxieties are addressed through thorough counseling sessions focused on listening and goal-setting. The counselors help customers dig into their fundamental motivation: “Why do you want to change?”
What matters here is not merely removing anxiety, but helping customers articulate their own “reason to change.” From an SDL perspective, the process of actively engaging customers as “partners in value co-creation” has already begun at this stage. Customers with clear motivation show significantly lower drop-off rates in subsequent phases.
Drop-Off Point 2: Early-Stage Frustration
You’ve started, but it’s tough and hard to keep going. What matters during this period is for the trainer to become “someone you can’t bear to let down.” Not just an instructor, but a partner who understands and supports you — that’s the relationship being built.
This is an application of behavioral economics’ “commitment device.” Humans are better at maintaining behavior driven by specific personal relationships (“my promise to that trainer”) than by abstract goals (“I want to lose weight”). By building strong trust between trainer and client, this company psychologically raises the cost of dropping out.
Drop-Off Point 3: The Mid-Program Plateau
After a few weeks, as clients get used to the routine, motivation tends to dip. This is where daily three-meal food reporting kicks in. By intervening in daily life, the company extends its support beyond training sessions to encompass the client’s entire lifestyle.
What makes this design brilliant is that it’s framed as “accompaniment” rather than “surveillance.” When clients send photos of their meals, the trainer provides specific feedback: “That was a great choice” or “If you adjust this part, it’ll be even more effective.” This ongoing exchange itself serves as a mechanism that continuously draws customers back into the value co-creation process.
Drop-Off Point 4: Post-Goal Achievement
Once the goal is reached, clients tend to think “I’m done” and disengage. Here, the company maintains ongoing relationships through new goal-setting and community connections. It shares the joy of achievement and explores together: “What kind of person do you want to become next?” This is where the shift to a long-term partnership that encompasses the client’s entire lifestyle takes place.
The 7Ps of Service Marketing
As a framework for analyzing this company, the lecture introduced the 7Ps of Service Marketing.
In addition to the traditional marketing 4Ps (Product, Price, Place, Promotion), three additional Ps are critical for services:
- People: An acceptance rate of just a few percent, followed by hundreds of hours of training. The quality of trainers determines the quality of the service. Because services are delivered through people, the quality of human capital directly translates into competitive advantage
- Physical Evidence: Upscale interiors, immaculate facilities. These give customers tangible cues that an intangible service can be “trusted.” For clients making a significant financial investment, these cues create the reassurance that “I’m in the right place”
- Process: Individualized programs based on scientific evidence, quality reproducibility through data utilization. Rather than relying on the intuition of a “star trainer,” the service is designed as a reproducible process
Viewed through the 7Ps lens, it becomes clear that this company’s marketing extends far beyond advertising. The service delivery system itself functions as marketing. Investment in people, training programs, interior design — all of it constitutes part of the customer value proposition.
The importance of Process, in particular, connects directly to the “replication capability” we discussed in a previous session. Having one outstanding trainer isn’t enough to scale a service. Because the process is standardized, the company can guarantee consistent quality across all locations. The 7Ps is not merely a checklist — it’s a framework for structurally designing the competitive power of a service.
The Clarity of the Value Line
Another thing that impressed me was this company’s deliberate choice of what to “discard.”
A wide variety of machines in a large gym, 24/7 access, prime station-front locations — the company deliberately doesn’t offer these. Instead, it overwhelmingly excels in weight-loss accuracy, thorough dietary guidance, and fully personalized attention.
This is the same structure as the restaurant case we studied previously. Rather than trying to appeal to everyone, the company breaks through on specific dimensions of value. “What to offer” matters less than “what to discard” in defining a service’s positioning.
The Lens of Adaptive Leadership
Another concept this lecture prompted me to think about was “adaptive leadership.” Leadership theory distinguishes between “technical challenges” and “adaptive challenges.”
Technical challenges are problems that experts can solve using existing knowledge and skills. Repairing a broken machine, implementing a new system — the answers are clear, and experts can solve them unilaterally.
Adaptive challenges are problems that cannot be solved unless the people involved change their own thinking and behavior. “Getting healthy,” “changing an organizational culture,” “transforming a customer’s business operations” — these cannot be solved by experts alone. The people involved must actively change themselves.
The “value co-creation” that SDL assumes is precisely an adaptive challenge approach. The personal training company has designed a system to support customers’ own transformation in response to the adaptive challenge of “changing your body.” It achieves “results” precisely because it goes beyond providing technical solutions (correct training methods) and tackles the adaptive challenge (lifestyle changes, mindset shifts).
“Value Co-Creation” in IT Projects
The SDL framework applies directly to IT projects.
Simply delivering a system doesn’t create value. Value is only realized when customers use it effectively, improve their operations, and produce results. In other words, an IT vendor’s job is not “to build a system” but “to support customers in achieving outcomes.”
Dig into the customer’s core motivations during requirements definition. Provide robust post-implementation adoption support. Prevent the ultimate drop-off — “a system that no one uses.” This is precisely the approach of designing for drop-off points in the customer journey.
As an IT delivery manager, I keenly feel that many projects are treated solely as “technical challenges,” while the “adaptive challenge” dimension is overlooked. Introducing a new system often entails transforming the customer organization’s business processes and ways of working. But with the focus on technical implementation, support for human and organizational change gets pushed to the back burner. The SDL perspective offers a catalyst for fundamentally rethinking how IT projects are designed.
Recommended Reading for This Session
“Service-Dominant Logic: Premises, Perspectives, Possibilities” by Robert F. Lusch and Stephen L. Vargo — an introductory work by the founders of SDL themselves. It provides a solid understanding of the theoretical foundation of value co-creation, systematically explaining why the shift from G-D Logic is necessary and how the theory applies to practice.
Next Up
This time we discussed “co-creating value with customers.” Next, we’ll go a step further and explore “deliberately showing customers the downsides” — a paradoxical approach. We’ll examine why a major bank considered an experiment to disclose its own products’ drawbacks, and debate whether it was the right call.
