At the outset, the question looks quite easy and simple to answer. However, when one starts thinking more about it, one would find it quite complex. This is something that is often debated: DO WE CREATE A PRODUCT TO SATISFY THE NEED(S) OF THE CUSTOMER OR DO WE CREATE A NEED FOR THE PRODUCT?
Essentially, any product should be developed/created to meet the needs of the customer; the point to be noted here is the existence of the need. As cited in the question above, do customers always know what they want? The answer would be quite simple: No.
While most products in the market are usually made to meet the customers' existing needs, there are also several products that the customers do not they need at all. Adequate research, innovative thinking and proper marketing, along with timing, play a key roll in the success of a product. I mention timing because there have been several products that were way ahead of their time and quite obviously were rejected by the people. To cite an example, I would like to talk about Western Electric Picturephone. Video calling is very popular these days. There are umpteen number of applications that people use for this purpose. But did you know that the concept of video calling goes back to the 60's? Western Electric introduced Picturephone in the market in 1970; people just didn't buy it. The product was a flop just because of bad(?) timing. Batter-powered car, and talking dolls are few more examples of the products that were innovative but failed to attract buyers.
Technological advancements have given scope to innovative products being made and introduced in the market these days. And, people, though there is no real need, are going for those products.
On the other hand, products that customers really need, like food, clothing, etc., have always been in existence and will continue to be so forever.
To answer the question, I would go with a blend/hybrid of both the schools of thought. My needs should be met; on the other hand, I don't mind having some innovative product even if I don't need it.
Imagine this: You are very hungry and food is being prepared; it is going to take a while before it is ready. What you need in this situation is food, which will satisfy your hunger, but wouldn't it be okay if you have a TV to watch or a mobile to play a game while you wait? A TV or a mobile that you actually don't need in that situation will help you take your mind of your problem - hunger.