Competing through innovation: Let the customer judge!

Abstract

Although customers are the final judges of innovations, their opinions on firms’ innovations are rarely listened to. In this article, we developed a novel model for examining the antecedents and consequences of perceived firm innovativeness. We argue that when customers cognitively register changes in the value creation introduced by a firm, they perceive the firm as more innovative and, consequently, more attractive than its competitors. Using two waves of data from nationally representative samples (1,293 and 1,583 responses), we developed measures for examining changes in value creation that firms introduce and customers can perceive. We tested our theory by applying structural equation modeling to data from a nationally representative sample (5,812 responses). We found that firms that introduced changes affecting value proposition, value actualization, and interaction space were perceived as more innovative and more attractive than their competitors. Surprisingly, changes in relationship experience are negatively associated with perceived innovativeness and contribute to lower relative attractiveness in the market. One explanation is that firms introduce relationship innovations to safeguard future cash flows, which customers do not necessarily see as innovative.