Purpose – the purpose of this paper is to map out the current state of customer-based innovation through digital tools in small and medium-sized enterprises (SMEs), highlighting advantages but also challenges, tools, methods and procedures involved.

Research methodology – a twofold methodology comprising desk research and literature review is drawn upon.

Findings – the authors conclude that customer-based innovation can be crucial for the success and resilience of SMEs and thus, the European economy. In order to provide SMEs with practical advice, further empirical research on the use of digital tools for customer-based innovation in SMEs is needed.

Research limitations – this research paper is limited to a theoretical scope and serves as a preparatory research for quantitative and qualitative surveys that will be run in various EU countries after the publication of this paper.

Practical implications – this research paper is relevant for SME managers, advisors and researchers that are interested in digital customer-based innovation in companies. Based on the theoretical framework provided in this paper, concrete training and education measures in the field will be developed.

Originality/Value – the assessment of feasible customer-based innovation measures in SMEs is crucial in order to se-cure their competitiveness and productivity, especially for companies in north-eastern Europe that are competing with low-wage countries. Based on this paper, further concrete empirical research, training and education measures will be developed.

DOI: https://doi.org/10.3846/cibmee.2021.634