A groundbreaking study recently released in the Journal of Service Research, titled “Customer Perceptions of Firm Innovativeness and Market Performance: A Nation-level, Longitudinal, Cross-Industry Examination”, reveals a crucial link between customers’ perceptions of a firm’s innovativeness and its financial performance. This research, spanning 2018-2022 and covering 123 publicly traded firms across 20 industries, underscores the economic significance of customer viewpoints, often overlooked in traditional innovation measures.
In an era where service-dominant economies prevail, the study challenges the traditional, manufacturing-centric metrics of innovation such as patents and R&D activities. It presents a novel approach, focusing on how customers perceive firm innovativeness, a vital yet under-explored area in both the management and scientific literature.
The study’s analysis, based on data from the American Innovation Index (Aii), shows a strong, positive correlation between customer-perceived firm innovativeness and abnormal stock returns (i.e., the difference between a stock’s actual return and its expected return). For every five-point increase in a firm’s Aii score, there’s an associated average increase of $2.8 billion in shareholder wealth for the firms in the investigation. Additionally, it highlights a similar positive relationship between changes in customer satisfaction, as indicated by the American Customer Satisfaction Index (ACSI), and abnormal stock returns.
Need for New Metrics: Managers should broaden their focus beyond traditional innovation metrics to include customer perceptions of innovativeness.
Active Tracking and Response: Firms should actively track customer perceptions and respond with strategic innovations that resonate with consumers.
Marketing and Communication: Effective marketing strategies are necessary to showcase innovation efforts and to enhance customer perceptions of a firm’s innovativeness.
Investment in Innovation: Investing in innovative practices and customer co-creation has the potential to enhance customer perceptions and, consequently, firm performance.
Implications for Investors:
Investors are encouraged to include customer perceptions of innovation in their decision-making processes. This factor serves as a potential indicator of firms poised for superior financial performance.
This research is pioneering in its examination of the financial impact of customer perceptions of innovation. Future research should delve into the drivers of customer-perceived innovativeness, explore the role of cultural factors, and examine the interplay between innovation, environmental sustainability, and social outcomes.
The study presents a significant reorientation in understanding innovation’s role in driving economic growth and firm performance. By aligning managerial focus and investor analysis with customer perceptions of innovation, companies can unlock new avenues for growth and competitive advantage. This approach not only presents an opportunity for enhanced financial returns but should also foster a culture of customer-centric innovation, crucial for long-term success in today’s dynamic market landscape.
Read the entire article here: https://journals.sagepub.com/doi/10.1177/10946705231220463