Service innovation is a key driver of service infusion for manufacturers. Although service innovation is widely researched for service firms, it is less explored for service infusion in manufacturers. Existing research about service infusion considers developing customer knowledge in sales and service delivery, but there is scarce research about how manufacturers develop customer knowledge during new service development (NSD). This study investigates customer knowledge development within manufacturers and considers how it differs between the development of incremental and radical service innovations. A study was undertaken with 239 European manufacturers which revealed multiple drivers of customer knowledge development, service innovation performance, and firm performance. Developing incremental service innovations are more successful when customers participate in NSD teams while developing radical service innovations leads manufacturers to higher firm performance.