Innovating into trouble: When innovation leads to customer complaints

Abstract

This paper examines the unintended consequences of innovation. We show that innovative activity can have adverse outcomes in the form of increased customer complaints with the potential for reputational and financial damage. Complaints may arise directly from adverse reactions to innovative services or indirectly from service failures where firms over-prioritise innovation. Our empirical analysis focuses on legal services in England and Wales. Survey data on innovation by legal service providers is matched with complaints data from the Legal Ombudsman for England and Wales. This allows us to identify the links between innovation activity and subsequent customer complaints. Our analysis reveals that higher levels of innovation activity increase the probability and number of consumer complaints. We identify how firms can reduce the potential for consumer complaints by adopting collaborative innovation strategies. In addition, firms with international competitors are less likely to face complaints. Our results have strategic, regulatory and policy implications.

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