Innovation has long been viewed as a way to achieve competitive advantage but new research suggests it may be an asset for brand building too.
As staff opened the doors of Brisbane’s Apple store on the morning of Saturday, 19 September, they found a 400m-long line of eager customers waiting to greet them. From students and professionals to parents with kids in tow, the Apple enthusiasts were amongst the thousands worldwide queuing to buy the new iPhone 6.
As the company which revolutionised the computing, phone and music industries, Apple is renowned as one of the world’s most innovative brands and has built a customer base so loyal that it has been compared to a cult following.
But is its success due to its reputation for innovation or other, more subtle factors? And can innovation by itself drive customer loyalty and repeat sales? That is the billion dollar question for marketers.
Most of the world’s top 100 brands including Coca Cola, Disney, Microsoft, Nike and Porsche describe themselves as innovative, and spend huge amounts on advertising and promotions trying to persuade consumers of the fact.
However until now it has been unclear what impact innovation has on customer loyalty, and research into whether there is a direct link between the two has come up with mixed results. Now a study by UQ Business School marketing expert Dr Ravi Pappu and Professor Pascale Quester from the University of Adelaide has cast new light on the subject.
“Brand loyalty is the holy grail for marketers as it means customers will make repeat purchases or make the brand a primary choice. Given the huge investments made to project innovativeness, it is important to understand how this may affect loyalty,” Dr Pappu explains.
The study explored brand innovativeness – the extent to which consumers see brands as being able to provide new and useful solutions to their needs. To be viewed as innovative, a brand must offer more than just a novel product but be seen as capable of generating such products.
Brand innovativeness is distinct from firm innovativeness, as one company may have a range of differently positioned brands – for example, Ariel washing powder may be viewed as more innovative than Tide, even though both are made by Proctor and Gamble.
The researchers then looked at how this related to customer loyalty. Dr Pappu found that previous studies exploring the connections between them had largely ignored customers’ perceptions of quality.
“We focused on perceived quality as customers don’t always have the expertise to make accurate judgements,” says Dr Pappu. “For example even though the actual quality of the android phones was considered to be superior by technical experts, consumers perceived Apple’s iPhone to be of superior quality in the early stages.
“Perceived quality is important for a firm to achieve a competitive advantage and there is evidence that it plays a pivotal role in determining consumer loyalty. We felt that this could be the missing link.”
Perceptions of quality change in response to marketing actions and consumers often infer it from other ‘signals’, such as price – hence the view that ‘you pay for what you get’. According to marketing academics, firms give out signals to the market via the advertising, brand name, price or warranty – this view is based on ‘signaling theory’. Dr Pappu believes innovativeness could well serve as another signal.
To explore their ideas, the author team surveyed over 1,000 consumers in shopping and business precincts to ask their views on three global consumer electronics brands - Sony, LG and Samsung. In the first study, which involved over 350 people, some were told to imagine they were considering a mobile phone, and others a television.
They were then asked to evaluate the innovativeness of each of the three brands, as well as complete questions on brand awareness, perceived quality and brand loyalty. In the second study, only those who had used products were surveyed. They were also asked about how they rated them to identify the effect that customer satisfaction might have.
The results showed that, while there was no direct link between brand innovativeness and customer loyalty, the two were indirectly linked, with perceived quality as the mediating factor. In other words, innovativeness had a significant positive effect on perceived quality, which in turn affected customer loyalty.
The research was one of the first to rely on consumers to measure brand innovativeness – previously studies have relied solely on managers’ ratings. In fact, according to Professor Quester, surprisingly few studies have examined its effect on branding.
Dr Pappu and Professor Quester believe there are a number of key implications for managers: “Our results show that consumers are more likely to be loyal to a brand they view as innovative, but only because they see it as offering better quality products. A reputation for innovation by itself will not boost customer loyalty,” says Dr Pappu.
“These results should motivate managers to do more to project their brand as innovative. Firms that invest heavily in innovation should also invest in enhancing quality and communicate this to develop a reputation as quality producers. Marketers should promote innovativeness and quality simultaneously and reinforce the connections.
“Innovation is often touted as a source of competitive advantage, by helping to develop new products, but our research suggests it may be a valuable attribute for brands too.”