Measuring Perceived Service Innovation Typologies in Retail Industry

MEASURING PERCEIVED SERVICE INNOVATION TYPOLOGIES IN RETAIL INDUSTRY

                                                      Abstract

Purpose : The primary objective of this study is to develop a scale that can measure service innovation from customer perspective in retail industry and secondly, to find how the developed service innovation measurement scale has an effect on predicting customer’s word of mouth (WOM) followed by testing the mediation effect of corporate reputation between service innovation and word of mouth.

Methodology: The study followed the “integrated design approach” that included qualitative studies and quantitative studies in exploring and validating the measurement items for service innovation typologies. The codes that represent the typologies of service innovation were elicited through focus group discussions with customers and validated through in-depth interviews with decision maker/ managers of retail industry in different parts of south India. The validated codes were purified through two expert opinion surveys and further validated through quantitative approaches such as (a) EFA and (b) CFA with two different set of samples. Finally the predictive validity of the developed scale was tested on estimating its effect on Corporate Reputation and Word Of Mouth.

Findings: The developed service innovation scale can be adopted by both researchers and managers in measuring service innovation in retail industry. The path analysis results concluded that service innovation has positive impact on corporate reputation and WOM where the decision makers/managers can note that if they frequently bring service innovation that would make the firm reputed in the market and ultimately results in positive WOM from the customers. The mediation analysis result gives an insight that if the service innovation is introduced by a non-reputed retailer it still gets positive WOM from the customer.

Originality/value: The study contributes by providing a unique scale to measure service innovation from customer perspective in retail industry overcoming the existing G-D logic. Further by empirically testing nomological validity, the effect on non-financial performance is estimated to understand how innovation in services would build corporate reputation that ultimately results in customers’ positive WOM which is dearth in earlier service innovation literatures.

MEASURING PERCEIVED SERVICE INNOVATION TYPOLOGIES IN RETAIL INDUSTRY

1. INTRODUCTION

Innovation is an introduction of new product/service by a firm to its existing customer or new customer or providing the existing product or service to the new customer. The concept of innovation was first discussed by Schumpeter (1934) in his economic development literatures and most of the studies adopted Schumpeter’s definition of innovation and used in their study to test its effect on gaining higher performance (both financial and non-financial performance) or competitive advantage for the firm (Voss, 1992; Deshpande et al., 1993; Avlonitis et al., 2001; Damanpour et al., 2009). Until the study of Barras (1986), who coined the term service innovation, researchers in service marketing used the term innovation relating to product, where service was only considered as supportive element of a product delivery process. Menor et al. (2002) defined service innovation as “A contribution not previously available to a firm’s customer, ensuring the addition of a service offering or change in the service idea that allows the service offering to be made available.”

Researchers like Sirilli and Evangelista (1998), Janz et al. (2001) compared the studies related to product industries with respect to service industries, and found that the characteristics of service differentiate them from product and thus the measurement scale used for measuring product innovation in manufacturing sector must be modified and developed to measure services innovation. Similarly, Vargo and Morgan (2005) stressed the importance of Service-Dominant Logic (hereinafter S-D logic) and noted marketing literatures need to shift from Goods-Dominant Logic (hereinafter G-D logic) and involve in developing new approaches, theories and measurements specific to services.

Hertog (2000) measured service innovation based on dimensions like: (a) Service Concept, (b) Client Interface, (c) Service Delivery System and (d) Technology where the dimensions proposed by Hertog (2000) were widely accepted by many authors (Miles, 2008 and Lin, 2012). Though the dimension termed by Hertog (2000) seems similar to the typologies studied it majorly differed in the characteristics and nature of services. For example: The first dimension - the service concept may look similar to new product/service innovation typology but it actually differs in visibility and tangibility where service innovation is much more intangible. Unlike product innovation, which is mostly novel in the market, the key thing in service innovation is that it is novel to that particular market though it is familiar in other markets. Second - the client interfaces and third dimension - the service delivery system resembles process innovation that includes co-design and co-production with the customers and internal organizational arrangements. The major difference is that with product innovation the producer’s activity stops and consumer activity begins whereas in service innovation since consumer is also a part of the production         of service product the interaction it-self becomes an innovation. The final dimension - technology options though, it is not always a dimension to the author it plays either a facilitating or enabling factor for innovation. The difference is that for a company the product innovation is mostly supplier-dominated whereas service innovation is in their hand.

The innovation research studies emphasizes the three major differences between service innovation and product innovation and they are: (a) during service innovation, it is not only the service produced but also the pre-requisites for services, that is both the production and delivery process go together when customer demand for a service, which is not practiced in production of tangible items where the R&D and production go differently (Edvardsson & Olsson, 1996; Tatikonda & Zeithaml, 2001), (b) service innovation is majorly related to innovation in process of delivery, the firm must integrate service innovation with existing business activities, that is in service industries both the front office and back office must integrate together to overcome the difference in objectives and time horizon whereas in production industries the front office is framed to satisfy the customer needs and back office is designed to maximize the production and output (Menor et al., 2002) and (c) the third and the major difference is on the investment and expenditure, where the earlier studies on innovation (Barras, 1986; Brouwer & Kleinknecht, 1999; Preissl, 2000; Djellal & Gallouj, 2001) found that expenditure in production firm is higher than that of service industries. The manufacturing firm spends mainly on R&D, technology and production compared to development of new services. Atuahene‐Gima (1996) added that innovation in service industry is much faster than that of innovation in production firms and argued that the benefit of the product realized by the customer is clearly lower than that of the services.