by Line Lervik-Olsen, Seidali Kurtmollaiev, and Tor Wallin Andreassen. If you are also interested in the field of company innovativeness, please consider submitting to the upcoming special issue in the Journal of Service Management (JOSM).
Innovation is of interest to many: customers demand better solutions, politicians strive for a dynamic private sector and an efficient public sector, managers aim to enhance competitiveness and increase the value of their companies, and employees want a secure and profitable workplace. Although innovation is crucial for growth and prosperity across contexts and interest groups, the failure rate is very high. Despite the good intentions, research shows that 40-90% of innovation projects end up in a complete or partial failure (Chatterjee et al., 2023), with up to 70–90% of newly launched fast-moving consumer goods failing to remain on the market for more than a year (Gourville, 2006). The risks associated with innovation failures can trigger a wave of negative reactions and significant losses, including harm to companies’ reputation (Barone & Jewell, 2013). Although it might be tempting to justify innovation failures by blaming consumers for their lacking demand for new products and services (Eurostat, 2022), our research indicates that the actual reason is the mismatch between how managers and consumers interpret innovations. We hold that the purpose of innovation is to contribute directly or indirectly to the increase of customer value—which in turn leads to financial benefits for the company as well in terms of strengthening the company’s brand , growth, and even the attractiveness to prospective employees. This would require that both the customers experience and the company’s intentions behind the innovation coincide – but to what extent is this the case?
To identify the degree of match between consumers’ and managers’ understanding of innovations, we conducted a qualitative study using data from the Norwegian Innovation Index collected in 2016 and 2017 (Kurtmollaiev et al., 2018). Following a carefully designed procedure (Kurtmollaiev et al., 2018), the Norwegian Innovation Index captures firms’ innovations and customers’ perceptions of changes in value co-creation resulting from these innovations across four dimensions: value proposition, value actualization, relationship experience and interaction space. We examined nine major players across three industries: airlines, banking, and grocery stores. In each industry, we interviewed both managers and the consumers. Our analysis included feedback from 1,255 airline passengers, 1,229 banking consumers, and 1,683 retail consumers, alongside one marketing director from each company. Our findings have demonstrated that there are clear perceptual differences between customers’ experience and the management’s intentions behind the innovations, some examples are listed in the table below.
Table 1: what companies do and what customers see
| Industry | What companies do | What customers see | |
| Value proposition | Bank | Mutual fund/stock trading was upgraded | “The bank’s new solution for buying/selling stocks was very poor at the beginning. It has improved.” “Stock trading on tablets has become too complicated.” |
| Grocery store | Changed product assortments in stores. | “Larger selection of vegetarian and healthy foods.” “Vegan options.” “They have expanded their vegetarian and vegan offerings significantly.'” | |
| Airline | New destinations. | “New flight routes, but also the cancelled some existing routes.” “They have flight routes to destinations I want to travel to. It is possible that I will adjust my travel plans to those with direct flights.” | |
| Value actualization | Bank | Upgrading and streamlining of processes, removal of several manual processes, and increased efficiency. | “They are faceless to me, and we do most of the work ourselves.” “The services ‘run by themselves.'” |
| Grocery store | Online ordering and home delivery, self-service checkouts. | “New self-service checkouts. Online store.” “I have started shopping a lot online.” “They have implemented a self-service payment solution, which means they will gradually reduce the number of employees. Many young people have gained work and work experience by working in stores. I would rather pay a little extra than eliminate jobs for young people in stores.” | |
| Airline | Digitalization, automation, more online self-service, and streamlining of the complaint process. | “Little progress in online solutions. Poor feedback on complaints.” “Easier and more intuitive online solutions.” “Better and faster solutions for expense reimbursements in case of cancellations.” | |
| Relationship experience | Bank | New segmentation (from younger to older, from those with a lot of money to those with little), changed service delivery at the physical branches. | “I will leave the bank that is not interested in having me as a customer.” “The customer service representative did not treat me as a very loyal customer.” “They have introduced ‘office hours.’ This frustrates me immensely. After all, without their customers, the bank can take a hike!!” “Closed doors and appointment bookings to enter the bank.” |
| Grocery store | Change in existing communication methods, bonus solutions for users, greater interaction online. | “The app’s offered are changed.” “Coupons, deals in the app.” “Overly polite staff who say ‘goodbye’ before I have even packed my groceries.” | |
| Airline | Transition to operational CRM for all salespeople, support, and customer service – everything is consolidated into one system. | “The amazing chat function that is available 24/7 and from anywhere in the world.” “Service and security, good communication with customers and with other airlines.” | |
| Interaction space | Bank | Reduction in the number of physical branches. | “Closure of local offices.” “They have moved out of downtown.” “They are closing local offices at an alarming rate.” “Closed premises, and therefore they are bankrupt in my eyes.” |
| Grocery store | The app received a new structure and menu solution, and the stores are continuously being upgraded. | “The store has changed a lot, and the app has been upgraded.” | |
| Airline | The website has received a new design and better and smarter solutions. | “The horrible, ugly, and useless new website.” “They have gotten a significantly worse websites and online solutions!!” “The websites. They are absolutely tragic. Went from bad to worse!” |
Based on the data from these three industries, we see that that the companies’ intentions behind an innovation do not always match the actual perception and experience by the customers. Interestingly, the deviations can be both negative and positive, even for the same innovation. We identified five potential reasons causing the mismatch between managers’ and customers’ interpretations of innovations.
Perception of the changes boundaries
Unless an entire business model is altered, companies often implement specific innovations, such as eliminating manual processes or launching new websites, to address existing problems or enhance current offerings. Customers typically perceive these changes as integrated into their overall experience rather than evaluating individual changes themselves. Ultimately, their assessment depends on whether the “job-to-be-done” (Christensen et al., 2016) is being performed better or worse than before, which significantly influences their perception of the company’s creativity and innovativeness.
Emotional reactions to change
Often, innovations do not only lead customers to register changes cognitively but can trigger strong emotional reactions. Interestingly, while various customers may cognitively perceive the type and extent of changes similarly, their emotional responses can differ completely; for example, increased self-service may empower some customers while making others feel uncomfortable and disconnected from the company. Furthermore, emotions can vary in terms of both valence and degree of activation or arousal. While some customers remain calm and see changes as logical, others may become extremely irritated and decide to end their relationship with their service provider.
Duration of change’s effect on customer perceptions and emotions
Looking at customer reactions over time (we collect rolling data over a one-year period), we observe that the valence and activation of emotions tend to decrease and become neutralized over time. One of the most well-known examples from 2017 is one of Norway’s largest grocery store’s launch of a new app in January 2017, which led to a wave of negative reactions from customers. Although nearly all respondents expressed dissatisfaction and anger immediately after the launch, we could see that the number of app-related comments gradually diminished throughout the year, eventually being replaced by comments about the company’s offerings, store environments, pricing, and customer service. Another example with a similar effect is a Scandinavian airline’s launch of new websites in the spring of 2017. Initially, the websites were discussed negatively, but over time, the focus shifted to other aspects of the airline’s offerings.
Differences in interpretations between companies and customers
There is also a certain variation in perceptions and emotions between the company on one side and the customers on the other. Here, the difference primarily lies not in valence and activation but in how the change is interpreted. For example, companies may feel that automation and digitalization represent optimization, while customers may interpret this as cost-cutting, using customers as free labor, and even as a development of a culture of greed. The company might view new segmentation as the opening of a new market, while customers might see this as discrimination or neglecting them as customers, disrespecting their loyalty. In addition to such qualitative differences in interpretations, we also observe differences in how companies and customers perceive the extent of the changes. Often, the company believes it is introducing several innovations, while customers claim that the company’s attempts at changes are too few.
The importance of context
The differences discussed above reflect a larger issue: how context influences the perception of changes. For companies, the innovations are primarily tied to a single context—their operations and sales— which is the same context affecting employees in forming their opinions and attitudes. Customers, on the other hand, find themselves in a very different situations and engage with the company’s services from various starting points. For older customers, meeting the employees in the physical grocery store and possibly having a chat can be of significant importance, whereas the younger generation may prefer minimal interaction and digital tools or even online stores. Moreover, when evaluating a company’s innovation efforts, customers often combine their assessment of the changes with the consequences those changes create. This overall evaluation is influenced by customers’ backgrounds and social factors. Changes in value propositions (for example, the introduction of new groceries or new flight routes) can be associated with either resistance or support from the local population and community. Changes in value delivery (such as the implementation of self-service solutions) are often interpreted based on conditions in the labor market and levels of unemployment. Changes in relational experiences (for example, new forms of communication) are often viewed through the lens of shared assumptions about the company’s goals and management’s intentions, while changes in the interaction spaces (such as new website designs) are naturally assessed based on contemporary aesthetic norms and expectations regarding functionality.
Implications for managers
Our findings have several implications for managers who want to strengthen the likelihood of making successful changes that customers perceive as valuable.
- Innovation perception: Companies engaged in multiple innovation initiatives may not necessarily be perceived as innovative by customers; the specific impact of the introduced changes on customer value is what matters.
- Customer experience focus: It’s essential to understand customer experiences and needs to identify areas for innovation activities, ensuring that changes enhance the overall customer experience.
- Communication is key: Effective communication about changes is crucial; customers need not only information but also “training” to realize the added value of new solutions.
- Manage emotional reactions: Be aware that innovations can evoke strong emotional responses; the alignment between management and customer perceptions and emotion management are vital to avoid negative feelings.
- Contextual understanding: Success in innovation relies on a deep understanding of customer attitudes and contexts, which can be achieved through direct observation and empathy.
- Gradual implementation: In cases with diverse customer bases, consider a gradual rollout of changes to minimize potential negative emotional responses.
If you are also interested in the field of company innovativeness, we would like you to consider submitting to the upcoming special issue in the Journal of Service Management (JOSM). More information here.
Line Lervik-Olsen, BI Norwegian Business School and Norwegian School of Economics,
Seidali Kurtmollaiev, Kristiania University of Applied Sciences, Norwegian School of Economics and University of South-Eastern Norway and
Tor Wallin Andreassen, Norwegian School of Economics
References:
Barone, M. J., & Jewell, R. (2013). The innovator’s license: A latitude to deviate from category norms. Journal of Marketing, 77(1), 120–134.
Christensen, C., Hall, T., Dillon, K., Duncan, D. (2016), Know Your Customers’ ‘Jobs to Be Done. Harvard Business Review, 94, 54-62.
Chatterjee, S., Chaudhuri, R., Mariani, M., & Wamba, S. F. (2023). The consequences of innovation failure: An innovation capabilities and dynamic capabilities perspective. Technovation, 128, 102858.
Eurostat (2022). Community Innovation Survey. https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Community_Innovation_Survey_2022_-_key_indicators
Gourville, J. T. (2006). Eager sellers and stony buyers: Understanding the psychology of new product adoption. Harvard Business Review.
Kurtmollaiev, S., Lervik-Olsen, L., & Andreassen, T. (2018). Innovasjon: Det du gjør er ikke det de ser (Innovation: What you do is not what they see). Magma, 21–28.
