Redefining Business Success: Customer Perceptions of Innovation
In the current business landscape, generating innovative and original ideas is essential for any company to thrive and achieve economic growth.
In a groundbreaking study, “Customer Perceptions of Firm Innovativeness and Market Performance: A Nation-Level, Longitudinal, Cross-Industry Examination,” Timothy L. Keiningham, Ph.D., J. Donald Kennedy Endowed Chair in E-Commerce and Professor, Department of Marketing, The Peter J. Tobin College of Business, and Alexander J. Buoye, Ph.D., Associate Professor, Department of Marketing, The Peter J. Tobin College of Business, St. John’s University, delve into the profound connection between customer perceptions of innovation and business success.
The study, published in the Journal of Service Research by Sage Publishing, challenges conventional methods of measuring innovation by emphasizing the often-overlooked impact of customer opinions. The research spanned 123 companies across 20 industries from 2018 to 2022, revealing that companies perceived as innovative by customers witness substantial benefits to their stock value.
The research utilized data from the American Innovation Index (Aii), the American Customer Satisfaction Index (ACSI), and one-year, buy-and-hold abnormal stock returns. The study surveyed more than 7,000 US adults, covering more than 30,000 customer relationships over five years. The methodology assessed firm innovativeness based on customer responses to questions about innovation, creativity, market change, and pioneering status.
Aii scores in this study ranged from 39 to 85.4, suggesting significant upside potential for firms to improve their innovation perception. While common, traditional metrics like patents and research and development expenditures may only capture part of the spectrum of innovation potential, as highlighted by this research.
For every five-point increase in customer perceptions of firm innovativeness, companies observed an average increase of $2.8 billion in shareholder wealth. This indicates the tangible financial impact that positive customer perceptions of innovation can have on a company.
Implications for Investors
This study challenges investors to expand their focus beyond traditional innovation metrics and consider customer perceptions of innovation in their investment decisions. The findings suggest that understanding how customers perceive a company’s innovation is a valuable indicator of its potential for financial success.
Beyond Traditional Metrics
While traditional measures of innovation fall short in today’s diverse economic landscape, incorporating customer perceptions of innovation can provide a more comprehensive understanding of a company’s innovative prowess.
Takeaways for Business Leaders
For business leaders, the message is clear: understanding what customers think about your company’s innovation is crucial. The study emphasizes the importance of knowing where your company stands in innovation compared to competitors, as this insight is essential for driving effective innovation strategies.
Grasping customer views on firm innovativeness can unlock growth opportunities and market leadership. It’s not just about discovering the next big thing; it’s about creating an environment where managers and investors succeed by prioritizing innovation that sets a firm apart in the eyes of its customers, benefiting all stakeholders.
Behind the Research: A Quick Chat with Timothy L. Keiningham, Ph.D., and Alexander J. Buoye, Ph.D.
What initially sparked your interest in researching the link between customer perceptions and innovation?
Our research is driven by a fascination with customer experience, inspired by the idea that the customer is the true boss who can influence a company’s success through their choices. While companies often measure innovation by patents or expert opinions, we noticed a gap: they weren’t asking the real judges of innovation—the customers. This curiosity led us to explore how customers’ perceptions of innovation impact a company’s success, moving beyond traditional indicators to understand innovation through the eyes of those it’s meant to serve.
What surprised you most about the findings of the study, and why?
Two unexpected findings stood out. Firstly, we were surprised to find a connection between customer perceptions of innovation and a company’s abnormal stock market performance, as abnormal stock prices typically react to unforeseen news. Secondly, the financial impact of these perceptions was staggering—small changes in how customers viewed a company’s innovation could influence billions in shareholder value. These findings underscore customer opinions’ significant, often underestimated, power on a company’s financial health.
Can you give an example of a company you admire for its innovative approach and how it cultivates a positive customer perception?
John Deere exemplifies a company that fosters positive perceptions of innovation among its customers. It stands out because of its technological advancements and commitment to solving real-world problems. The company’s focus on creating meaningful, purpose-driven technology resonates with customers, demonstrating innovation that goes beyond gadgets to improve lives genuinely. This approach, coupled with clear communication about the purpose behind its innovations, builds a strong connection with customers.
What can companies do to improve customer perceptions of their innovation efforts?
To enhance how customers view their innovation efforts, companies should closely monitor what customers think about their innovativeness. This means looking more profound than just asking if they find the company innovative, but understanding the why behind their perceptions. Additionally, companies should communicate the real-world benefits of their innovations, ensuring customers understand how these advancements make a difference in their lives. It’s about making innovation relatable and tangible, using marketing and service experiences to bring the value of new ideas closer to the customer. By focusing on the customer’s perspective and making innovation meaningful to them, companies can strengthen their innovative image and foster a more loyal customer base.
About the Authors
Timothy L. Keiningham, Ph.D., is the J. Donald Kennedy Endowed Chair in E-Commerce and Professor of Marketing, while Alexander J. Buoye, Ph.D., serves as an Associate Professor of Marketing, both at The Peter J. Tobin College of Business, St. John’s University.
The research is co-authored by Lerzan Aksoy, The George N. Jean Ph.D. Chair in Business and Professor of Marketing, and An Yan, The Robert Bendheim Chair Professor in Economics and Financial Policy and Professor of Finance, both at the Gabelli School of Business, Fordham University.
Joining them are Forrest Morgeson, Associate Professor of Marketing at the Eli Broad College of Business, Michigan State University; Gina Woodall, Vice President of Client Services and Group Director at Illuminas; and Bart Larivière, Professor of Marketing at KU Leuven and Research Fellow at the Center for Service Intelligence, Ghent University.
Redefining Innovation: The Customer's Perspective
This study redefines how we measure and value innovation in the modern economy. It underscores the power of customer perception as a crucial indicator of a company’s innovative prowess and subsequent financial success.