The nonlinear payoff of innovativeness under globalization: Environmental innovation, legitimacy, and customer loyalty

Abstract

How does firm innovativeness translate into customer loyalty under globalization, when customer evaluations are nonlinear and shaped by legitimacy asymmetries? Prior research largely assumes linear innovation payoffs, overlooking how customers in globally competitive and institutionally uneven markets interpret and learn from innovation signals under uncertainty. This study examines whether, how, and for whom customer-perceived innovativeness (CPI) generates customer loyalty in a globalized emerging-market context. Drawing on prospect theory, signaling theory, and legitimacy and catch-up perspectives, we conceptualize innovativeness as a credibility-accumulating signal whose marginal effect on loyalty varies across its distribution. More specifically, the study pursues three objectives: to test whether CPI has a nonlinear relationship with customer loyalty, to examine whether trust, environmental innovation, and customer co-creation help explain this relationship, and to assess whether these mechanisms differ between local firms and multinational corporations in Vietnam. We argue that environmental innovation functions as a globalization-relevant legitimacy signal, strengthening trust formation and enabling local firms to partially mitigate inherited loyalty disadvantages relative to multinational competitors. Using 12,757 customer evaluations of 43 firms across eight industries in Vietnam, nonlinear analyses reveal smooth amplification effects rather than constant marginal returns to innovativeness. The findings show that environmental innovation enhances the indirect effect of CPI on loyalty through trust, while customer co-creation further strengthens this relational pathway. Rather than directly measuring legitimacy, the study treats legitimacy as a theoretical lens for interpreting how customers respond to innovation-related signals under uncertainty. By uncovering the nonlinear micro-level mechanisms through which innovation and sustainability shape customer responses under global competitive asymmetries, this study contributes to research on innovation payoff, signaling-based legitimation mechanisms, and firm-customer relations in emerging markets. The findings are context dependent and should be interpreted with reference to Vietnam's institutional environment and globalizing market conditions.