Abstract: Innovation is one of the main sources for long-term economic growth and structural change, and has always driven economic progress. It involves the creation of new designs and ways of doing things, their commercial exploitation, and subsequent diffusion through the rest of the economy and society. Innovation must increase value for the company, the consumer or the producer. For consumers, innovation means higher quality and better value goods, more efficient services, and a higher standard of living. The crucial condition for the innovation to happen is the implementation stage. Implementation means the exploitation and the use of the innovative product. That distinguishes innovation from invention. A new or improved product can be called an innovation when it is used by the customers and satisfies their needs. Companies need to take steps to ensure that the created innovation meets their customers’ needs. Understanding customer needs plays a central role in the process of creating an innovation. This paper presents different concepts for understanding customer needs and gives different interpretation of the meaning of “customer need”. The paper presents an empirical research of how software companies in Bulgaria understand their customers’ needs, how important they think that process is for the success of the software innovations. Based on the results of the conducted research, a new model for understanding customer needs is proposed to the innovative companies in the software industry. Its aims to help them develop innovation that customers want to buy and use.
Keywords: understanding customer needs, traditional methods, job to be done theory, software industry