Abstract This study examines how market orientation affects a company's service innovation and, consequently, the company's business and financial performance. business. The results indicate that if firms use customer orientation, they are more likely to adopt incremental service innovation, while if a firm uses competitor orientation, it is more likely to adopt radical service innovation. services. Finally, incremental and radical service innovations lead to better market performance and, therefore, better financial performance.1 IntroductionThe way in which service firms use market orientation has attracted much attention in the literature on innovation (Agarwal et al. 2003; Manzano et al. 2005). Market orientation refers to “the organizational culture that most effectively creates the behavior necessary to create superior value for buyers and thus continued superior performance for the company” (Narver and Slater 1990). . A market-oriented service firm can better understand customers' needs and wants in order to satisfy them more effectively than its competitors (Zhou et al 2009). For example, a company called Cinedigm, which launched a digital cinema distribution network in 2005, is a good example of a new market-oriented service provider. With this new service, filmmakers can deliver films to theaters via a network, rather than the traditional method of sending film reels. This implies that to meet the customer's unmet needs (e.g. saving time), Cinedigm creates a new service. Meanwhile, to provide better service to Cinedigm, network providers can focus on the actions of their competitors. However, empirical evidence of the link between market orientation and new service performance...... middle of article...... 2006) Meanwhile, improving market performance of service companies will have a positive impact on their financial performance. Indeed, higher levels of new service quality and customer satisfaction increase customer loyalty. Thus, because loyal customers are less sensitive to price changes, service firms can offer higher prices, resulting in higher profit or market share (Prince and Simon 2009). Furthermore, the positive reputation that results from higher levels of market performance allows the company to attract new customers and, therefore, increase its profits (Prince and Simon 2009). Thus, H3a: the greater the incremental innovation of a company's services, the higher its market performance. H3b: The greater a firm's radical service innovation, the higher its market performance. H3c: The higher a company's market performance, the higher its financial performance..