All Innovations Are Not Created Equal: Don’t Leave the Customer out of the Equation

Recent research has revealed some surprising insights about service innovations: They don’t always translate into customer delight. 

We developed the Norwegian Innovation Index (NII) (Andreassen, Lervik-Olsen, and Kurtmollaiev 2017) to measure customers’ perceptions about firm service innovations. After numerous conversations with consumers, we identified four areas where customers were capable of noticing changes that providers make:

• Core service: For example, perceived changes in Starbucks’ beverages or food
• Service delivery: For example, perceived changes in how baristas deliver a Starbucks coffee order or in how the Starbucks app completed an order
• Customer relationships: For example, perceived changes in how Starbucks establishes, maintains, or deepens its relationship with its customers through its loyalty program
• Servicescape: Any perceived change in the “theater” where the service provision takes place—for Starbucks, the interior design of it restaurants.

In the NII model, these four areas are correlated with perceived innovativeness and emotional response. If customers become aware of a change (positive or negative) in any of the four innovation areas, their perception of the firm’s innovativeness, their emotions, and, ultimately, their loyalty is affected.

We collected data from 58 companies in 19 industries and 5,812 of their current customers. While the findings differed among industries and firms, the effect of one innovation investment was constant over all industries and firms: perceived changes in customer relationships were negatively correlated with perceived innovativeness and emotions. This is striking and surprising.

In short, the finding implies that the efforts firms make to innovate how they develop, maintain, or deepen relationships with customers in fact reduce customers’ perception of the firms’ innovativeness. This is worrying because perceived innovativeness is linked to customer loyalty through perceived attractiveness in the marketplace, and it implies the opposite of what firms want to achieve. 

The bottom line is that firms should prioritize serving and co-creating value with the principal—that is, becoming more customer oriented in their innovation thinking. The key question to ask when deciding whether to innovate is this: How does this innovation improve customer value-add? Results from the NII show that customers are telling firms that they need to rethink how they approach customer relationship innovations.

References

Andreassen, Tor W., Line Lervik-Olsen, and Seidali Kurtmollaiev (2017), “Firms’ Investments in Customer Relationships Reduce Perceived Innovativeness!” 
http://www.servsig.org/wordpress/2017/09/firms-investments-in-customer-relationships-reduce-perceived-innovativeness/.

Jensen, Michael C., and William H. Meckling (1976), “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics, 3 (4), 305-360.

For more service research content from the AMA’s Service Research Community Special Interest Group, visit servsig.org.