The case studies entail some potentially crucial implications for firms that intend to serve markets for frugal products. First, serving price-sensitive customers in developing or developed markets is not feasible by stripping down the existing products to a bare minimum in order to reduce costs/price. Customer perception of cheap quality can create a major hurdle in product success. It is important to match the customer aspirations in terms of aesthetics, quality and perceived brand.
Second, affordable price is a necessary but insufficient condition. The study discovered that it is the overall value proposition of a product, which is the key to success. It is not the cheapest product, which is likely to succeed. Rather, a product that offers a quality level at least comparable to the standard entry-level products, combined with a positive social image and available for an attractive cost of ownership across its whole life span.
Third, companies need to work with a “clean slate” approach while devising frugal innovations. Functionalities and technologies should not be incorporated purely on account of their legacy value (Arthur, 2000). The case studies showed that the absence of any legacy system created clarity about features that were necessary, nice to have, and not needed.
This however does not mean that firms should discard existing technologies. On the contrary, once the product features are identified, a proactive attempt should be made to identify existing technologies/analogies that can fulfil the requirements so that costs of developments can be reduced while market and technology uncertainties can be avoided to the greatest extent possible. To achieve this objective, firms should look beyond the traditional boundaries of firms, industries and nations. The “not-invented-here-syndrome” is not compatible with the idea of frugal innovations.
Fourth, identifying suitable product-specific lead markets and locating at least parts of the innovation value chain there may enable a crucial competitive advantage to achieve this goal. On this score, India can have a signalling function for potential customers in many regions of the world, where the level of economic development is comparable or even lagging behind India’s. Technologies that are able to function under given infrastructural deficits in India should normally be able to cope with similar challenges in other developing economies of Asia, Africa or Latin America. Of course, product-specific lead markets can also emerge in countries other than India.
Fifth, developing (affordability-driven) frugal innovations seems to require a high degree of embeddedness in the social context of the potential consumers to understand their needs, wishes, mind-set, cultural preferences, and not the least, infrastructural shortcomings.
Offshore development without substantial local development capacities is not expected to function well. As Table 3 intriguingly reveals, in all cases, the most extensive work (related to conception and implementation) was located in the domestic settings, even though it involved both domestic partners and affiliates of MNCs. At the same time the level of contribution from firms’ own in-house offshore subsidiaries, or also from other offshore partners, was somewhat limited and rather focused on technical implementation and/or commercialization. The most important impulses regarding conceptualization seem to have been generated in the embedded social context of the lead market for frugal innovations.
Finally, it is expected that the increasing environmental concerns, scarcity of resources, and the continuing financial distress in some developed economies would increase demand for frugal innovations also in price-sensitive and/or environment-conscious consumer groups in the industrialized economies (Gibbert et al., 2007, Cappelli et al., 2010, Economist, 2010, Kus et al., 2011, Economist, 2012, Sharma and Iyer, 2012). Early experiences with frugal innovations could help firms prepare for a (probably prolonged) period of austerity.
Since the research is of an exploratory/indicative nature based on a small sample of case studies, it would be useful to conduct more in-depth case studies to generate insights into mechanisms of collaboration spanning across the whole innovation value chain. A need for more academic/theory-building research is also found to be caused by an increasingly complex and globalized world. The traditional classifications of firm and national boundaries are becoming obsolete as firms invest abroad and have associates and affiliates in many parts of the world. Existing categorizations may be creating a “blind spot” that make it difficult identify real life instances of open innovations.
6. Conclusions
Our research indicates that while the paradigm of creating “low cost” innovations to tap new sources of revenue continues to hold true, there is need for a substantial re-alignment.
Purely cost driven innovations targeted at “the poorest of the poor” seem to have so far failed to fulfil the very high expectations imposed in them. While the social stigma attached to purely functional and “cheap” products has created (in some instances, an imaginary) perception of flawed quality in the minds of those very consumers that are supposed to be the intended beneficiary, many firms have been struggling to offer quality products at sustainable price points owing to the consumers’ lack of real purchasing power (at market exchange rates) in fragmented markets.
The analysis of six relatively successful affordability-driven product innovations (“frugal innovations”) from various firms and industries indicates that firms can increase the probability of commercial success if they adopt the process of collaborative development in open global innovation networks. Such networks enable access to new and existing technologies, combine new ideas and by joining forces firms may be able to master the challenges of a fragmented customer base. A possible solution lies in creating products that are not necessarily targeted at “the poor” but rather at price-sensitive customers, that by choice or otherwise, purchase products that reduce the cost of ownership while matching the aspirations for individual and family welfare, economic progress and social recognition.
There is a need for reversing the mind-set that feels more at ease at creating high-end products and then to strip them down for the poor. Rather, we need a new way of thinking that creates attractive, good-enough products that can be offered in basic versions and
“stripped up” to match individual wishes of the customer depending on his willingness to spend. OGINs with their know-how, resources and market access to different customer segments can act as key enablers in implementing this paradigm shift.
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