You gotta serve somebody: the effects of firm innovation on customer satisfaction and firm value

Abstract

Marketing actions must create value for two key stakeholders: customers and investors. Nevertheless, these two stakeholders differ in their evaluations of firm actions in critical ways. As a result, most managers believe that there is a critical trade-off between serving customers and shareholders. Drawing upon the marketing–finance interface, the authors investigate how this trade-off unfolds to impact customer satisfaction and firm value in the context of innovation. Specifically, the present study demonstrates that creating value for customers and shareholders are not two completely distinct goals, as the business press and managers fear; innovation can create value for shareholders by satisfying customers. However, results also indicate that a crucial trade-off between satisfying consumers and creating value for investors is indeed present, as those same factors (i.e., firm’s branding strategy and level of market dominance, industry-level competitive intensity) that enhance the effects of innovation on customer satisfaction depress the effects of innovation on firm value, and vice versa. The authors discuss the implications of these important findings for research and practice.