Abstract
Are heterogenous customers really good for iterative innovation? To address this question, building on the knowledge-based view and cognitive load theory, we investigate the impact of customer heterogeneity on iterative innovation and how such relationship changes with firms’ absorptive capability. Using a sample of publicly listed firms in China from 2007 to 2019, the findings support our prediction that iterative innovation follows an inverted U-shape as customer heterogeneity increases, which indicates that a high level of customer heterogeneity impedes iterative innovation. Absorptive capability strengthens the positive effect of customer heterogeneity on iterative innovation, such that firms with greater absorptive capacity are able to overcome the cognitive load caused by customer heterogeneity and enjoy more benefits from it. We discuss the implications of these findings for research on customer heterogeneity and iterative innovation.
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