The impact of firm introductory strategies on consumers' perceptions of future product introductions and purchase decisions

In this research, we develop and test a model of the consumer's decision to immediately purchase a technologically advanced product or to delay such a purchase until a future generation of the product is released. We propose that for technologically advancing products, consumers consider both performance lag (how far behind am I now) and expected performance gain (how far ahead will I be if I wait to buy a future expected release) in their purchase decisions. Furthermore, we hypothesize that a firm's past product introductory strategy can significantly influence consumer perceptions of performance lag, performance gain, and the rate at which a product is advancing technologically. We also propose that these perceptions of lag, gain and rate of technological change influence purchase action and ultimately determine whether or not a consumer will delay or immediately purchase a firm's current technological offering. We investigate the above relationships by introducing a model of consumer purchase behavior that incorporates the effects of a firm's frequency and pattern of next generation product introduction, and test the impact of different introductory strategies on performance lag, gain, rate of change perceptions, and purchase action. In our first study we test our model in a monopolistic setting and show that, holding all else fixed, infrequent product upgrades and/or increasing intergenerational release times result in consumers perceiving larger performance lags and gains. We also show that, holding all else fixed, consumers with larger performance lags and/or gains are less likely to delay their purchases of the currently best available product. In our second study we test our model in a competitive setting and show that, holding all else fixed, a firm's past pattern of new product introduction can influence consumers' perceptions of the firm's product's rate of technological change. We also find that consumers are more likely to purchase products which they perceive to have higher rates of technological change. The key insight from this research is that firms have a strategic tool at their disposal that has been overlooked—the pattern of introduction of next generation products. Our findings suggest that a change in the frequency and/or pattern of introduction, in and of themselves, can influence consumers' perceptions of future product introductions, and ultimately influence their purchase actions. Specifically, we demonstrate that by better understanding consumers' purchase timing decisions, firms may be able to induce purchase on the basis of introductory frequency and pattern alone. Additionally, we demonstrate that by strategically managing consumer expectations of future product introductions, firms may be able to decrease the purchase likelihoods of competing products. Implications of our research and its application to the pattern and timing of preannouncements for new products are also explored.     

Seeking the Ideal Level of Design Newness: Consumer Response to Radical and Incremental Product Design

To develop successful new products, new product development managers need to have a thorough understanding of the consumer adoption process, specifically in how consumers evaluate new products. This research examines the value of product design for consumers' evaluation of radical and incremental innovations. The primary goal was to empirically test how design newness affects consumer response to product innovations. Design newness (also referred to as novelty or atypicality) is defined as the deviation in a product design from the current design state of a certain product category. Although prior research has suggested that higher levels of design newness may have a positive effect on consumers' evaluations of new products, higher levels of design newness may also have negative consequences for consumer response to radical innovations. An experimental context (n = 130) using systematically designed products for three product categories was used to test how consumers respond to high and low levels of design newness for both radical and incremental innovations. The findings show that for radical innovations, embodying the product in a design with a low (versus high) level of design newness led to more positive evaluations and less learning‐cost inferences. Because the functional attributes of a radical innovation are incongruent to existing products, consumers find it difficult to access the relevant product category schema in order to transfer knowledge to the new product. Because of this poor knowledge transfer, consumers may feel that they lack the ability to make effective use of the radical innovation, resulting in greater learning costs. In this case, a product design with a low level of design newness can provide consumers with a frame of reference for understanding the radical innovation. Contrasting this result, no difference was found between a low and a high level of design newness for incremental innovations. For incremental innovations, by definition the functional attributes characteristic to the innovation are highly comparable with those products that are already stored in consumers' memory. Thus, there is no need for an additional reconfirmation of the preexisting schema through product design, and consumers are able to access the relevant schema regardless of the level of design newness inherent in the product. These findings are integrated into a discussion of the managerial implications and the potential avenues for future research.     

Enhancing Concept Test Validity by Using Expert Consumers

In standard concept testing practice, consumers may be invited to participate in a test if they use or possess the product. However, merely using or possessing a product is no guarantee that a consumer has the level of product knowledge that is necessary for judging the concept. Conducting a concept test with consumers who lack the necessary product knowledge may jeopardize the validity of the test results. That is, the results of such a concept test may not accurately indicate how consumers will evaluate the real product. To ensure the validity of concept test results, Jan Schoormans, Roland Ortt, and Cees de Bont suggest that consumers who are invited to participate in a concept test should possess a degree of product knowledge. When a consumer is asked to evaluate a concept, their product expertise allows them to understand product information faster, fill in missing information, and learn more easily. Consumers with product expertise are better able to discriminate between important and unimportant aspects of a product. They are also better able to infer benefits from a product's physical attributes. To explore the effects of consumer expertise on the quality of the evaluations provided by concept tests, the authors conducted two experiments, both of which resemble actual concept tests. The first experiment examines the effect of consumer expertise on the results of a concept test for a major innovation, Videotext. This experiment tests the hypothesis that the similarity between the evaluations of a concept and an actual product will be greater for consumers with a high level of product-category expertise than for consumers with low product-category expertise. The results of the experiment clearly support the idea that product-category expertise enhances a respondent's ability to evaluate concepts in a test of major innovations. From this, it is concluded that only respondents with high product-category expertise should be used for concept tests of major innovations. The second experiment explores the effects of product expertise on consumers' evaluations of a minor innovation, a redesigned coffee maker. This experiment tests two hypotheses. First, it is proposed that consumers with high product expertise give more consistent evaluations in a concept test than consumers with low product expertise. Second, it is suggested that consumers with product expertise generate more stable evaluations over time than consumers without product expertise. The results of this experiment clearly indicate that using consumers with moderate to high levels of product expertise is beneficial to the validity of the results from concept tests of minor innovations.     

Competing with complementors: An empirical look at Amazon.com

Research Summary : Platform owners sometimes enter complementors' product spaces and compete against them. Using data from Amazon.com to study Amazon's entry pattern into third‐party sellers' product spaces, we find that Amazon is more likely to target successful product spaces. We also find that Amazon is less likely to enter product spaces that require greater seller efforts to grow, suggesting that complementors' platform‐specific investments influence platform owners' entry decisions. While Amazon's entry discourages affected third‐party sellers from subsequently pursuing growth on the platform, it increases product demand and reduces shipping costs for consumers. We consider the implications of these findings for complementors in platform‐based markets. Managerial Summary : Platform owners can exert considerable influence over their complementors' welfare. Many complementors with successful products are pushed out of markets because platform owners enter their product spaces and compete directly with them. To mitigate such risks, complementors could build their businesses by aggregating nonblockbuster products or focusing on products requiring significant platform‐specific investments to grow. They should also develop capabilities in new product discovery so that they could continually bring innovative products to their platforms.     

Commercializing new technologies: consumers' response to a new interface

Successful commercialization of new technologies is the riskiest and most rewarding form of new product development activity. New technologies are often commercialized using innovative interfaces that determine how consumers interact with a new product to obtain its functionality. Consumers' perception of uncertainty about the performance of a novel interface is a key issue in the acceptance of new products involving new interfaces. Specifically, when firms commercialize a new interface, they face two major challenges: First to identify the optimal functionality for the new interface, and second, to effectively communicate with consumers in order to reduce uncertainty about the performance of the new interface and increase adoption intentions. Despite the theoretical and managerial importance of research on consumers' response to a novel interface, very little empirical research has been conducted in this area. Building on prior research on new product development, human‐computer interaction, and consumer decision‐making, this article examines the factors that influence consumers' judgments of uncertainty about the performance of a new interface and consumers' adoption intentions. Specifically, we conducted an experiment to investigate the effect of the newness of the functionality of a new product and the effect of imagery on consumers' uncertainty about the performance of a novel interface and consumers' adoption intentions. Our results show that consumers perceive lower uncertainty about the performance of a new interface and higher intentions to adopt a new product when the new interface is introduced with a new (vs. pre‐existing) functionality. Furthermore, our results suggest that when a new interface is introduced with a new functionality, imagining the product in use increases consumers' uncertainty about the performance of the new interface and decreases their intention to adopt the new product. In contrast, when a new interface is introduced with a pre‐existing functionality, imagining the product in use decreases consumers' uncertainty about the performance of the new interface and increases their intention to adopt the new product. Our findings provide valuable guidelines for marketers in formulating new product development and communication strategies for new products involving a new interface. © 2002 Elsevier Science Inc. All rights reserved.     

Information Gathering Externalities for a Multi‐Attribute Good

Most goods and services vary in numerous dimensions. Customers choose to acquire information to assess some characteristics and not others. Their choices affect firms' incentives to invest in quality and so lead to indirect externalities in consumers' choices. We characterize a model in which a monopolist invests in the quality of a product with two characteristics, and consumers are heterogeneous ex‐ante. Consumers do not internalize their influence on the firm's investment incentives when choosing which information to acquire. Cheaper information affects consumers' information gathering and thereby firm investment. This can paradoxically reduce consumer surplus, profits, and welfare.     

The choice between uniqueness and conformity in mass customization

Extant research emphasizes that consumers use mass customization toolkits to create products they consider to be unique, and that perceived uniqueness is an important part of customer value. This research investigates the conditions of the customer's quest for uniqueness. It is motivated by the observation that decisions are often driven by others’ choices and a desire to fit in, rather than to be distinct. We hypothesize that consumers are more inclined to choose uniqueness for hedonic product attributes but tend toward conformity in utilitarian attributes, and that consumers’ need for uniqueness and product involvement moderate the choice. In a series of experiments, we find support for most hypotheses. We introduce conformity as a driver of choice behavior in mass customization toolkits and suggest that mass customization can best be seen as enabling consumers’ preferred mix of uniqueness and conformity. Our results also inform managerial practice, highlighting that mass customization toolkits should consider customers’ uniqueness and conformity requirements. We suggest reducing the number of utilitarian options while increasing the variety for hedonic attributes.     

Anti‐Competitive Interconnection: the effects of the elasticity of consumers' expectations and the shape of the network effects function

I find that interconnection might cause the market to be less competitive, and might lead to an increase in the price firms charge for their product. Absent interconnection, firms compete for a consumer for two reasons. The first reason is to obtain revenue from selling the product to a consumer (as in the case without network effects). The second reason is that by expanding the network by one more consumer, the product becomes more attractive to all other consumers. Interconnection eliminates the second reason—when firms interconnect, they are no longer concerned with consumers' following the crowd. I show that consumers and society might be worse off from interconnection. I focus on two factors that make the (post‐interconnection) price increase larger: consumer expectations that are highly sensitive to prices and consumers putting a high value on small increases in network size at the equilibrium market shares. Both of these factors make firms highly competitive, but only if the firms' products' networks are not interconnected.     

An Exploratory Study of the Innovation Evaluation Process

In their search for the keys to successful product innovation, product managers and researchers typically focus on trying to identify the most effective organizational processes, strategies, and structures. Surprisingly, little or no effort is directed toward understanding the process that consumers use for evaluating an innovation. By gaining insight into this evaluation process, a firm can present an innovative product in a more effective manner and thus increase the likelihood that consumers will respond favorably to the innovation. Richard W. Olshavsky and Richard A. Spreng provide insight into this process by describing the results of an experiment in which subjects were asked to evaluate several innovative concepts. From their observations, they develop a model of the detailed information-processing steps that these consumers employed in order to evaluate the new products. Consistent with previous research, they found that judgment was the predominant evaluation strategy, particularly for the most innovative concepts. Various subjects also used a categorization strategy, though none used categorization for more than four of the nine concepts that were evaluated. Contrary to expectations, none of the evaluations relied solely on the manufacturer's reputation or the recommendation of a friend. In a simplified model of the evaluation process, when presented with an innovative concept, consumers first attempt to categorize the product. In other words, an innovation may be rejected simply because consumers somehow link it to an existing category that has a negative connotation. If consumers cannot categorize the product, they then employ a judgment process based on some evaluative criteria. Based on the data collected in this study, this simplified model is extended to include four other cognitive processes that strongly influence the evaluation process: forming evaluative criteria, forming expectations about the innovative concept, assessing satisfaction with an old product, and comparing the new and old products. When faced with a highly innovative concept, consumers may find it difficult to form their own evaluative criteria and expectations concerning that innovation. Consequently, managers may have an opportunity to shape the judgment process by educating consumers about the appropriate evaluative criteria or by clearly communicating the product's attributes, benefits, and appropriate use.     

Consumer Response to Product Form in Technology‐Based Industries

Product design is a key driver of competitive advantage and new product success. Relative to its importance, product design remains an underresearched area. The authors address this issue by examining the moderating effects of consumer innovativeness and design acumen on consumer response to product form—i.e., the product's visual appearance. Using subjects from the United Kingdom, these effects were tested with a technology‐based product that is expected to be introduced to market in the near future. A technological innovation was chosen because such products are often characterized by an accelerating pace of innovation and shortening life cycles. In such contexts, the product's visual appearance is often critical to success because it drives inferences about the technical capabilities and functional novelty. Our findings indicate that for more innovative consumers, an innovative product form can further enhance perceived value, product liking, and purchase intention. Furthermore, for consumers who possess more design acumen, an innovative product form can increase perceived value and product liking. An innovative product form was not found to enhance purchase intention for consumers with higher levels of design acumen. A primary implication of the study is to consider target market characteristics such as consumer innovativeness and design acumen when selecting a product form strategy. Additional implications include involving consumer innovators in the development and evaluation of product forms and involving consumers with greater design acumen early in the product's introduction so that they may influence other buyers.     

The Effect of New Product Preannouncements on the Evaluation of Other Brand Products

Some firms preannounce new products long before they are actually available on the market. Previous research has investigated the effects of such new product preannouncements (NPPs) on consumer and competitor responses. This paper examines how NPPs affect consumers' construal of and preferences for the new product and, in turn, how these evaluations influence their preferences for the brands' other products. Specifically, the paper demonstrates that consumers' construal level of NPPs spills over to their construal of other products in the brand family, causing a positive, biased evaluation of these products. Three experimental studies reveal that the mere information about an NPP can shift evaluation of currently available brand products in a positive direction through construal‐level spillover and increased perceptions of similarity. The studies contrast NPPs to new product announcements (NPAs) and consistently find more positive results for the former. Moreover, the studies find that product newness has a moderating effect on the results, such that the positive spillover effects are more pronounced for really new products than for incrementally new products. The results also show that the effects are contingent on the credibility of the NPP: If consumers do not consider the NPPs credible, no positive spillover effects will materialize. Finally, the studies demonstrate that the positive evaluative spillover is specific to the products in the brand family and does not affect consumers' perceptions or choice of competitor products. Consumers actually rate the competing brand's remaining products lower when the focal brand engages in NPPs. The study has important implications for managers regarding how to use NPPs to influence consumers' construal and evaluations of brand products.     

Alcohol Prohibition and Pricing at the Pump*

Firms often sell a transparent base product and a valuable add-on. If only some consumers are aware of the latter, the add-on's effect on the base product's price will be ambiguous. Cross-subsidization between products to bait uninformed consumers might lower, intrinsic utility from the add-on for informed consumers might raise the price. We study this trade-off in the gasoline market by exploiting an alcohol sales prohibition at stations as an exogenous shifter of add-on availability. Gasoline margins drop by 5% during the prohibition. The effect is mediated by shop variety and competition. Using traffic data, we unveil sizeable consumer-side reactions.     

Being Innovative While Being Green: An Experimental Inquiry into How Consumers Respond to Eco‐Innovative Product Designs

Eco‐innovations are an effective way for companies to strategically align themselves with customers’ growing environmental concerns. Despite their crucial role, scant research has focused on eco‐innovative product designs. Drawing from the sustainability and innovation literature, this article proposes that in the design of an eco‐innovation, its degree of innovativeness, level of eco‐friendliness, and detachability significantly affect consumers' adoption intentions. This article develops various conceptual models tested through three independent online experiments with U.S. consumers. The findings support the hypotheses and provide useful insights into the underlying mechanisms of how and why consumers respond to eco‐innovative product designs across various high‐tech product categories. Specifically, the results show (1) a positive effect of innovativeness degrees of eco‐innovative attributes on consumers' perceptions of product eco‐friendliness and on their adoption intentions as well as a significant moderating role of consumers' need for cognition (Study 1); (2) a positive influence of eco‐friendliness levels of eco‐innovative attributes on consumer adoption intentions in the case of high‐complexity products but not for low‐complexity products, emphasizing the need to adopt different approaches when developing eco‐innovations to ensure favorable consumer reactions (Study 2); and (3) a significant impact of the detachability of eco‐innovative attributes on consumers' perceptions of trade‐offs between environmental benefits and product functionality and on their intentions to adopt eco‐innovations (Study 3). These findings add to existing theoretical knowledge, provide actionable managerial implications, and identify fruitful avenues for future research.     

MARKET SEGMENTATION STRATEGIES OF MULTIPRODUCT FIRMS*

We analyze a multiproduct duopoly and ask whether firms should offer general purpose products or tailor their offerings to fit specific consumer needs. Offering a targeted product has two effects: utility increases for some consumers due to increased fit, whereas utility decreases for others due to increased misfit. Previous work has not considered these two effects jointly and has therefore not been able to capture the tradeoff inherent in market segmentation. We show that in addition to the degree of fit and misfit, the intensity of competition and the fixed cost of offering an additional product determine firms' market segmentation strategies.     

The Different Roles of Product Appearance in Consumer Choice*

Product design has been recognized as an opportunity for differential advantage in the market place. The appearance of a product influences consumer product choice in several ways. To help product development managers in optimizing the appearance of products, the present study identified the different ways in which the appearance of a product plays a role in consumer product evaluation and, hence, choice. In addition, the implications for product design of each role are listed, and managerial recommendations for optimizing the appearance of products are given. Based on a literature review, six different roles of product appearance for consumers are identified: (1) communication of aesthetic, (2) symbolic, (3) functional, and (4) ergonomic information; (5) attention drawing; and (6) categorization. A product's appearance can have aesthetic and symbolic value for consumers, can communicate functional characteristics and give a quality impression (functional value), and can communicate ease of use (ergonomic value). In addition, it can draw attention and can influence the ease of categorization of the product. In a large qualitative study (N=142) it was tested whether these roles indeed exist in consumers' process of product choice and whether they are sufficient to describe the way in which product appearance plays a role for consumers. In addition, qualitative insight into these roles was gained. After making a choice between two answering machines, subjects were interviewed about the reasons for their choice and the product information they used to form the judgments underlying their choice reasons. The six appearance roles indeed proved relevant for consumers and were sufficient to describe the influence of product appearance on product choice. The number of ways in which appearance played a role for consumers differed between 0 and 5; most subjects mentioned two different ways in which appearance influenced their product choice. The aesthetic and symbolic roles were mentioned most often. The preferred shape (e.g., rounded or angular), color, or size were found to differ depending on the way in which product appearance played a role for subjects. For example, bright colors may be valued from an aesthetic point of view but may diminish the impression of quality (i.e., functional value). This makes it difficult to optimize all roles and illustrates that the product value that is most important for consumers when purchasing a specific kind of product should be the starting point in the design of the product appearance. Furthermore, the influence of shape, color, or size on a certain kind of product value—aesthetic, symbolic, ergonomic, or functional—differed between subjects. One person may like a rounded shape, while another may prefer a rectangular shape. This means that the value of guidelines indicating how the perception of a specific kind of product value can be engendered by means of shape, color, and size is limited. This is especially the case for aesthetic and symbolic product value, which are very personal. Therefore it is recommended to test the performance of the appearance of a newly developed product on these six roles with the target group of consumers. Insight into the different ways in which appearance characteristics, such as form and color, may influence consumer choice will increase managers' awareness about how to use product appearance as a marketing tool. In addition, distinguishing these six appearance roles will help product development managers to optimize the product appearance better to market needs, as the roles have different and sometimes even conflicting implications for the design of the product appearance.     

Complementarity,Compatibility, and Product Change: Breaking with the Past?

Product managers are caught between a rock and a cliche (or two). The market response to “new” Coke seems to support those who argue, “If it ain't broke, don't fix it.” On the other hand, rapidly shrinking product life-cycles lend credence to the notion that the only constant is change. Preserving the status quo places both the product and the company on a fast track to obsolescence. To remain competitive, companies need a structured approach to understanding and managing product change. Anirudh Dhebar offers such an approach by focusing on three interrelationships in which a product is involved. These interrelationships, or complementarities, are between a product and its users, other products with which the product is typically used, and databases that are created and repeatedly modified with the help of the product. These complementarities define the context in which the product is used. By understanding them, a company can better anticipate how a planned product change will affect consumers. In planning product changes, it is important to remember that effective use of the product requires compatibility between the product and its complements. A change that somehow disrupts the product's complementarities can be viewed as a break with the past. In other words, such a change creates a new version of the product which is incompatible with the old version. This type of change results in a switching cost for the consumer. That is, the consumer may have to invest time, money, and effort to reestablishing the complementarities that have been disrupted by the product change. For example, if a new software release includes significant changes to the user interface, consumers must weigh the potential benefits of any new features against the time and effort involved in relearning the interface. If these switching costs are too high, the new release will fail in the marketplace. When planning product changes, a company must recognize the extent of a product's complementarities, and assess how a break in any of them will affect consumers' switching costs. It is important to recognize that the switching costs and the perceived benefits of the new product version may not be the same for all consumers. Finally, careful consideration must be given to the implementation of the product change. For example, the company must decide whether to offer some sort of bridge that helps consumers make the break with the past. The company also needs to decide whether the change is implemented throughout the product line or only in selected models.     

How Do Consumer Characteristics Affect the Bias in Measuring Willingness to Pay for Innovative Products?

Getting the price right is essential for successful new product introductions. An accurate estimate of consumers' willingness to pay is a crucial part of this task. Measurement of willingness to pay for innovations, however, often yields biased results. In this paper, we investigate consumer‐related characteristics and motives that might underlie this bias. Drawing on the elaboration likelihood model, we develop a conceptual model to identify consumer characteristics relevant for preference measurement for innovative products. In doing so, two main factors that potentially influence hypothetical bias are distinguished: ability and motivation. Our conceptual discussion and empirical results demonstrate that the validity of willingness to pay statements is higher among consumers who show a high ability to assess the new product's utility and who are truly interested in purchasing the new product. Counter to intuition, willingness to pay statements from innovators, consumers with good product category knowledge, or consumers who perceive the new product to be highly innovative are relatively more biased and should be interpreted with caution. This research is among the first to look at consumer characteristics rather than methodological issues when it comes to measuring consumer willingness to pay for innovative products. Our conceptual discussion and empirical examination of the drivers of hypothetical bias can be used to refine the validity of the results of the direct willingness to pay approach. These findings should help improve new product pricing surveys and open new avenues for research in measuring consumer preferences.     

The Role of Product Originality,Usefulness and Motivated Consumer Innovativeness in New Product Adoption Intentions

Prior research has posited that product attributes are primary drivers of success that a firm must consider to develop a competitive advantage. Two product attributes, originality and usefulness, have been identified in the literature as significant dimensions of new product success. Customer demands differ, and more purchase intentions toward a new product depend on how consumers connect the product attributes to their own individual characteristics. Studying motivated consumer innovativeness as a personality trait may improve our understanding of the motivations for adopting innovations; however, questions remain regarding whether the effects of originality and usefulness on consumers' intentions to adopt are different when levels of these attributes are matching or dissimilar and what the relationship is between these effects and motivated consumer innovativeness. This study seeks to empirically investigate these effects and their relations by collecting data from 560 potential consumers in China. This paper uses hierarchical regression analysis to test hypotheses in four product domains as representative of higher or lower levels of usefulness and originality. The research shows that new product originality affects consumers' intentions to adopt new products only if it matches the level of new product usefulness. The results also reveal that motivated consumer innovativeness has a positive moderating role on the relationship between new product originality and consumers' new product adoption intentions when both attributes are at a lower level. The theoretical and practical implications for new product development and marketing communications are discussed.     

Manipulation Through Biased Product Reviews*

We study a signal-jamming model of product review manipulation in which rational consumers consult product reviews and price to better estimate a product's quality, and a firm, whose quality is either high or low, chooses its price and how much bias to insert into product reviews. We show that both firm types always exert positive effort to manipulate product reviews, and, depending on the equilibrium price level, one or both of them can increase its sales. When the high-type firm exerts more effort than the low-type, review manipulation benefits consumers by raising [lowering] their demand for the high-quality [low-quality] product.     

Moderating Effects of Nationality and Product Category on the Relationship between Innovation and Customer Equity in Korea and China

Innovation has become a key concept in recent decades. Truly innovative products can create value for consumers, extend the product category, generate higher margins, and strengthen the brand. Simply speaking, relationships may form between product innovation and each driver of customer equity. However, for different product categories and nationalities, this relationship may differ. This paper not only identifies the relationships between innovation and customer equity, but also examines the moderating effects of product category and nationality. In total, 409 consumers from Korea (n = 200) and China (n = 209) were surveyed by questionnaire in this study. The stimuli of the degree of innovation (i.e., radical or incremental) included Nike+Ipod and Adidas 1, and Nike Air Max and Adidas Team Series from the shoe industry, while H&M designer label and Nano material, and H&M seasonal collection and cycle material from the clothing industry. Structural equation modeling was used to test the hypotheses. The results show that the degree of innovation exerts positive influences on value equity and brand equity, which can be drivers of customer equity. Thus, the reason firms launch innovative products is not only to boost sales by increasing customer value, but also to improve brand image, which can influence the customers’ purchase decision. The relationship between innovation and customer equity can be moderated by product category and nationality. Managers should develop different innovation strategies based on different product categories and customer nationalities.