Executive Summary
Empirical research has failed to consider fully the importance of aligning innovation and marketing strategies with external market characteristics. A key challenge is to develop an optimal level of innovation within a multiproduct portfolio that targets a multisegment market. As a result, there is little empirically based wisdom regarding the appropriate balance between exploration activities that target innovative customer segments that seek new-to-the-world products and exploitation activities that target less innovative segments that may prefer relational stability and incremental improvements.
To address this gap, the authors integrate theories of innovation diffusion, relational exchange behavior, and organizational learning to explain the roles that innovation, product exploration experience, promotion, and market sophistication play in determining firm performance. They test their research questions using objective measures of financial performance from a sample of 124 firms in the nonprofit professional theater industry. The findings lend empirical support to two theoretical perspectives that have received little prior empirical examination: (1) Innovation performance is determined by characteristics of the overall marketplace and target market segments, and (2) product exploration experience enhances organizational learning and performance.
On the basis of the results, the authors contend that relational customer segments seek out generalists that offer a balanced product portfolio and avoid firms with highly innovative portfolios. The implication is that close relationships with current customers may stifle firm innovation and that high levels of innovation may compromise a firm’s ability to develop and maintain close, ongoing customer relationships. The flip side is that firms competing in dynamic industries may be able to attenuate a competitor’s innovation advantage by building strong relationships with current customers. Close customer relationships may mitigate the tensions and uncertainty associated with directing an innovation strategy and simultaneously induce inertia and reduce risk for both sellers and buyers.
The overall sophistication of the market enhances transactional customers’ acceptance of innovative portfolios. Transactional segments in sophisticated markets favor specialists that exclusively feature innovative portfolios, whereas transactional segments in less sophisticated markets are indifferent to the level of innovativeness. If generalizable, this finding has widespread implications for the selection of markets for testing new product introductions and rollouts.
The results also show that prior product exploration experience enhances the association between current promotion expenditures and revenue for both transactional and relational segments. This finding suggests that exploration is a learning process that can complement exploitation and basic marketing activities. Intensive product exploration forces marketing personnel to develop creative promotional approaches and expertise because customers have few, if any, reference points for new-to-the-world products.
Biography
Glenn B. Voss (PhD, Texas A&M University) is currently a visiting associate professor in the Kenan-Flagler School of Business at University of North Carolina, Chapel Hill. His research interests include entrepreneurship and creativity, relationship marketing, and retail pricing strategies. His research has appeared in leading academic journals in marketing (e.g., Journal of Marketing), management (e.g., Organization Science), and the arts (e.g., International Journal of Arts Management). He is the recipient of competitive research grants awarded by the National Science Foundation, Marketing Science Institute, and Aspen Institute, among others. He is a member of the editorial review board for the Journal of Retailing, Journal of Service Research, and Journal of the Academy of Marketing Science, where he was recognized with an Outstanding Reviewer Award for 2000–2003.
Mitzi Montoya-Weiss (PhD, Michigan State University) is a Professor of Marketing and Innovation Management at North Carolina State University. Her research interests include innovation processes and strategies and the role of technology as an enabler of decision making in marketing and innovation. Her publications have appeared in Management Science, Marketing Science, Journal of the Academy of Marketing Science, and Academy of Management Journal, among others. She has been the recipient of competitive research grants from the National Science Foundation, Society of Information Management, and the Product Development and Management Association.
Zannie Giraud Voss (PhD, IAE-Aix-en-Provence) is Associate Professor of Theater Studies at Duke University and Producing Director of Theater Previews at Duke, a professional theater company that coproduces new works, including the recent Broadway production of Little Women. Her research interests include organizational identity management, entrepreneurship and creativity, organizational learning, and strategic orientation. Her research has appeared in leading academic journals in marketing (e.g., European Journal of Marketing, Journal of Marketing), management (e.g., Organization Science), and the arts (e.g., International Journal of Arts Management, American Theatre). She serves as a site visitor for the National Endowment for the Arts and as a consultant for Theatre Development Fund and for Theatre Communications Group, for whom she has coauthored the annual industry analysis, Theatre Facts, since 1998. Zannie is the corecipient of National Science Foundation and Aspen Institute Nonprofit Sector Research Fund grants, and she is a research associate with the French Centre d'Etudes et de Recherche sur les Organisations et la Gestion.
J Marketing Research, Volume 43, Number 2, May 2006
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