Service Innovations, Customer Satisfaction, and Firm Value: Asymmetries between Internet-Enabled and Non-Internet-Enabled Service Innovations

Abstract

As economies in developed and developing countries are increasingly driven by services, the introduction of new services to satisfy customers and improve firm value is becoming a critical issue for managers in both services- and goods-dominant firms. However, prior research on innovation has primarily focused on goods, leaving open important research questions relating to service innovations. We empirically investigate the determinants of the number of service innovations and their interrelationship with customer satisfaction and firm value, while controlling for both firm- and market-specific factors. Furthermore, we examine how these effects differ between Internet-Enabled Service Innovations (IESIs) and Non-Internet-Enabled Service Innovations (NIESIs). We develop a conceptual model and a system of equations that link service innovations, customer satisfaction and firm value. We model the determinants of the number of service innovations, using a zero-inflated Poisson (ZIP) model. We estimate our model on a unique panel data set that we assembled from multiple data sources across multiple industries, using a seemingly unrelated regression (SUR) approach and controlling for unobserved heterogeneity through fixed effects. Our results reveal important insights. IESIs are more strongly influenced by financial resources of the firm and by market growth than NIESIs are. Surprisingly, neither IESIs nor NIESIs have a significant direct effect on customer satisfaction. However, IESIs have a positive and significant effect on firm value.