Customer heterogeneity and innovation-based competitive strategy: a review, synthesis, and research agenda

Abstract

Managing customer heterogeneity (CH), that is, differences among customers (e.g., consumers, business firms) is an important, yet challenging consideration for firms seeking innovation-based competitive advantage. To facilitate better understanding of the opportunities and challenges that CH presents, we conducted a systematic review of the literature linking CH with innovation-based competitive advantage. Initially, we synthesize extant CH literature to propose a multidimensional conceptualization and definition of the CH construct comprising three dimensions: customer need heterogeneity, customer knowledge heterogeneity, and customer relationship heterogeneity. Customer need heterogeneity refers to the extent to which customers’ needs/preferences for a product offering differ from each other, customer knowledge heterogeneity indicates the degree to which customers have different knowledge levels regarding how their needs can be satisfied, and customer relationship heterogeneity indicates the extent to which customers have different preferences toward engaging in relationships with the firm. Next, we present an integrative summary of the empirically tested as well as theoretically proposed links between each CH dimension and its antecedents/outcomes. Finally, we draw upon the paradox literature to identify specific tensions associated with each CH dimension and rely on the dynamic capabilities literature to suggest how these tensions can be effectively managed. Collectively, we contribute to the emerging resource-based perspective of CH by offering a propositional model of how CH can be managed for innovation-based competitive advantage.