296 © 2006, American Marketing Association ISSN: 0022-2437 (print), 1547-7193 (electronic) Journal of Marketing Research Vol. XLIII (May 2006), 296–302 *Glenn B. Voss is a visiting associate professor, Kenan-Flagler Business School, University of North Carolina, Chapel Hill (e-mail: Glenn_Voss@ unc.edu). Mitzi Montoya-Weiss is a professor, College of Management, North Carolina State University (e-mail: montoya@ncsu.edu). Zannie Giraud Voss is an associate professor, Department of Theater Studies, Duke University (e-mail: zannie@duke.edu). This material is based on work supported by the National Science Foundation (Grant No. SES0217874). The authors also thank Theatre Communications Group for its support. GLENN B.VOSS, MITZI MONTOYA-WEISS, and ZANNIE GIRAUD VOSS* In this study, the authors integrate theories of innovation diffusion, relational exchange behavior, and organizational learning to explain the roles of innovation, product exploration experience, promotion, and market sophistication in determining firm performance. They test the research questions using objective measures of financial performance from a sample of 124 firms in the nonprofit professional theater industry. The results suggest that the independent variables interact in systematic ways to influence firm performance across two different customer segments: relational and transactional. The findings lend empirical support to two theoretical perspectives that have received little prior empirical examination: (1) Innovation performance is determined by characteristics of the overall marketplace and target market segments, and (2) product exploration experience enhances organizational learning and performance. Aligning Innovation with Market Characteristics in the Nonprofit Professional Theater Industry Research suggests that innovative firms outperform their competitors in terms of market share and profitability (Leonard-Barton 1992), but empirical research to date has failed to consider fully the importance of aligning innova- tion and marketing strategies with external market charac- teristics. A key challenge is to develop an optimal level of innovation within a multiproduct portfolio that targets a multisegment market. From the firm’s perspective, the port- folio should balance exploration of new competencies with the exploitation of current competencies. From the market’s perspective, the portfolio should provide distinct and varied offerings that satisfy dynamic and heterogeneous markets. Achieving the appropriate balance of innovation within the product portfolio can influence firm performance directly and indirectly. A direct and immediate impact arises from matching the innovativeness of the firm’s cur- rent product portfolio with the characteristics of the market- place and the firm’s target market segments. Product explo- ration activities also produce intangible learning outcomes that may have future, indirect effects on firm performance (Leonard-Barton 1992). Although theory links cumulative organizational exploration and knowledge accrual to com- petitive advantage and superior performance, to date, little research has successfully operationalized and tested this link. We address these issues by examining the impact of inno- vativeness on firm performance in the context of the overall product portfolio. To explore strategic fit between innova- tiveness and the marketplace, we incorporate the overall level of market sophistication and performance in two dis- tinct customer segments: relational and transactional. We extend prior research by examining indirect learning effects associated with product exploration. The resulting model captures curvilinear and moderated relationships between market segment revenues and the level of product portfolio innovativeness, promotion expenditures, and product explo- ration experience. In the following sections, we present the conceptual model, describe an empirical study that features objective, firm-level data for 124 firms in a creative industry marked by dynamic and perishable products, and discuss the theoretical and practical implications of our findings. CONCEPTUAL FRAMEWORK By integrating theories of innovation diffusion, relational exchange behavior, and organizational learning, we propose that performance is influenced by the fit among the product