Prior marketing literature offers a compelling theoretical rationale in support of two contradictory propositions, namely, that customer orientation is negatively related to (i.e., hinders) radical product innovation and that customer orientation is positively related to (i.e., helps) radical product innovation. In this research, the contextual conditions that determine the validity of these contradictory propositions are identified. Drawing from the literature on organizational rewards, two types of organizational rewards—outcome based and strategy based—are identified as being the key contextual conditions. It is hypothesized that when outcome‐based rewards are in effect, customer orientation is negatively related to radical positive innovation and, that when strategy‐based rewards are in effect, customer orientation is positively related to radical product innovation. Results from a survey of 156 manufacturing firms, and from a survey of 97 of their customers, provide support for these hypotheses. While prior research has attempted to explain the contradictory nature of the relationship between customer orientation and radical product innovation using typology‐based and mediator‐based approaches, the contextual condition‐based approach has not been well developed. This gap is addressed by the present research. From a practitioner perspective, the research is important because it identifies a concrete mechanism that new product development managers can deploy, in tandem with customer orientation, if they intend to generate radical product innovations. Given the potential gains that flow from radical product innovation, the research findings are expected to be of considerable interest to managers of new product development projects.