Disentangling the interplay between customer orientation and innovation. A qualitative study from small independent retailers

Small independent retailers are having to cope with an increasingly hostile environment, and the sector is experiencing numerous challenges in terms of customer needs, technological advancements, and intensifying competition from large retailers and e-commerce platforms. This study explores how small retailers implement customer orientation to generate innovation, adopting a micro-foundational perspective within the dynamic capabilities approach. The focus of the research is on how the interaction between customer orientation and innovation is put into practice in small independent retailers through concrete behaviours, repeated actions, and operational choices. We conducted a multi-case study involving a sample of 15 small retailers, with the results revealing how different dimensions of innovation, including retailing mix levers, relationship-oriented, technological, and sustainability, are simultaneously customer-driven and -oriented due to their micro-foundations of sensing, seizing, and transforming. By identifying micro-organizational practices through which customer orientation and innovation influence each other, the study develops a framework that advances a micro-foundational perspective within the dynamic capabilities approach. The final section of the paper presents theoretical and practical implications with a view to improving the competitiveness of small retail businesses in the current hostile and challenging environment.