Customer Perception of Firm Innovation

Doubtless, innovation leads to changes in an existing service offering or the creation of new services. Due to the multifacetedness of services and innovation, customers can experience service innovation on different levels. Research has illustrated that the majority of innovations are rather incremental and therefore, focus on smaller scopes of the business (Berry et al., 2006).

To gain awareness of innovations, customers must perceive a change. Despite companies' extensive innovation efforts, customers may refuse to adapt an innovation "either because it

poses potential changes from a satisfactory status quo or because it conflicts with their belief structure" (Ram & Sheth, 1989, p.6). This phenomenon has been widely discussed in the literature under the term consumer resistance to innovations (e.g. Kleijnen et al., 2009; Ram, 1987). With this definition in mind, it follows that for consumers to resist or adapt an innovation, they have to perceive a deviation from the status quo - the service innovation.

3.2.1 Perception of a Servicescape Innovation

The servicescape functions as a vehicle of the image and relative quality of a service (Bitner, 1992) which is why it plays a crucial role in the customer innovation perception process.

According to Bitner (1992), consumers perceive a servicescape through ambient conditions, space and functions, as well as signs, symbols and artefacts. In other words, it refers to the environment of a service.

With the quickly progressing digitalisation, companies innovate by extending their servicescape from physical to digital, thereby significantly changing the interaction (Van Riel et al., 2004).

Traditional retailers such as Barnes & Noble, a book shop chain, for instance, started their e-commerce business in addition to their physical stores to keep up with competition. More recently, this development can also be observed in the opposite direction. Taking the example of Amazon into account, the virtual servicescape has recently been moved back to a traditional, physical service environment with the opening of the Amazon Go brick-and-mortar grocery store. Especially in the context of services, solely digital services or e-services, such as Airbnb and Uber have gained significant attention as well. Firms also innovate by expanding and modifying existing digital servicescapes by adding more functions and increasing user-friendliness of websites and applications as the e-scape is considered as a quality indicator for services (Ribbink, van Riel, Liljander & Streukens, 2004). Thus, a servicescape innovation is highly visible and easily perceivable. Hence, we expect that:

H2: A servicescape innovation leads to a perceived change in the servicescape.

A servicescape innovation aims to improve the effectiveness and quality of the service environment. Within this scope, it aims to create a pleasant and comfortable setting for the customers. To achieve this, various service providers modify and innovate their servicescapes.

One example is the introduction of complementary servicescapes. For instance, an increasing number of book retailers, such as Barnes & Noble, include coffee bars in addition to the regular book sales area (Barnes & Noble, 2017). Thereby, customers are incentivized to extend their

visits and to establish a deeper relationship with the respective store. The innovation creates a comfortable feeling and customers feel cared for. Based on this, we propose:

H3: A servicescape innovation leads to a perceived change in customer relations.

3.2.2 Perception of a Customer Relations Innovation

Establishing deep relationships with customers enables companies to gain valuable insights into the customer's mind and to facilitate customer retention. Loyalty programmes, as an example, serve as an instrument to create a bond between a firm and its customers (Berry, 1995; Hennig-Thurau & Klee, 1997). Through these programmes, firms are able to gather extensive data on their customers and purchasing patterns. Data is used to increase the level of personalisation in the service, for instance. As an example, airlines use gathered data to personally greet members of their loyalty program at check-in. Clearly, a customer relations innovation affects the customer journey directly and creates new touch points with the service provider. Thus, we expect the customer to perceive a change in the area of customer relations and propose the following hypotheses for an innovation in customer relations:

H4: A customer relations innovation leads to a perceived change in customer relations.

Many firms establish innovative loyalty clubs which enable the customer to enjoy a big range of benefits, such as discounts and exclusive promotions, or novel ways for customers to stay in touch with the firm, such as chatbots. The loyalty programmes require platforms, such as websites, apps or physical cards, with which the customer can access her benefits and make use of the range of offers within the programme. Taking the example of the Norwegian grocery chain Rema 1000 into the account, the company launched its benefit app "Æ" in 2017. The app brings a new, digital level to the grocery shopping experience by showing customers their personalised discounts in the store. Hereby, customers are incentivised to use their phone in the grocery stores as an additional shopping tool (Tønset, 2017). Hence, by creating a customer relations innovation, the company also made an impact on its servicescape through expanding into a digital sphere. Therefore, we posit:

H5: A customer relations innovation leads to a perceived change in servicescape.

3.2.3 Perception of Innovations in the Servicescape and Customer Relations

As argued above, we expect customers to perceive changes through innovations in the servicescape and in customer relations. But firms not only innovate in one area at a time and often either introduce innovations that cover multiple dimensions or release several service innovations simultaneously. Besides having opened brick-and-mortar stores, Amazon, for instance, constantly adds new innovative benefits to its loyalty program Amazon Prime (e.g.

Perez, 2016; Perez, 2017). Customers of firms which innovate in different areas, will perceive changes in multiple areas. We expect that customers perceive changes in the dimensions servicescape and customer relations even stronger through overlapping effects, when they are presented with two innovations from the areas servicescape and customer relations. Thus, we posit:

H6: The combination of a servicescape and a customer relations innovation leads to a higher perceived change in the servicescape than one innovation alone.

and

H7: The combination of a servicescape and a customer relations innovation leads to a higher perceived change in customer relations than one innovation alone.