Frugal innovation is often defined as a behaviour which develops out of necessity and resource constraint. India is rooted with such type of innovations which often referred as ‘Jugaad’ in Hindi language. Furthermore, frugal innovation in market is defined as new or significantly improved products (both goods and services), processes, or marketing and organizational methods that seek to minimize the use of material and financial resources in the complete value chain (development, manufacturing, distribution, consumption, and disposal) with the objective of significantly reducing the total cost of ownership and/or usage while fulfilling or even exceeding certain pre-defined criteria of acceptable quality standards (proposed by Tiwari and Herstatt (2014: 30)). Frugal innovation is also referred as ‘affordable excellence’ because of its unique value proposition for diffusing in such economies which are as follows (Tiwari and Herstatt, 2014):
(a) Reduced overall cost of ownership: It is not just the price point at the time of purchase, which is a crucial success factor for frugal innovations. Rather, it is the significantly reduced total cost of ownership that is achieved by the low costs of usage, maintenance and repair from acquisition till disposal. For example, in terms of the automobile industry it is not just the low price of a vehicle but also the high mileage and the low costs of repair that positively affect a purchasing decision in the price-sensitive segments of small cars.
(b) Robustness: Frugal innovations are often targeted at customers living in rural and semi-urban areas in developing economies. The products need to cope with various infrastructural shortcomings like voltage fluctuations, abrupt power-cuts, dust, and extreme temperatures. Practices of planned obsolescence that seek to intentionally limit the lifespan of a product without simultaneously reducing the associated costs for the customer are incompatible with frugal innovations.
(c) User friendliness: Many (potential) buyers of frugal products have no prior, first-hand experience of using similar products. Companies cannot presume a significant level of familiarity on the consumer side in dealing with their products. Frugal products, therefore, need to be easy-to-use and fault-resistant.
(d) Economies of Scale: Finally, the need for significant cost reduction, and the thin profit margins almost necessarily associated with frugal products necessitate access to voluminous business to reduce unit costs of development and production.
The prominent examples of frugal innovation across different growing markets:
1. Nokia 1100, a low-cost mobile phone
2. Tata Nano for providing lower priced car
3. Siemens Multix Select DR (X-Ray Machine), one third of the price of the comparable products within Siemens portfolio
4. M-Pesa providing mobile banking services in African countries
Because of their robust functionalities, these products have attracted customers in the past and came out has winners in global market. The ideology of frugality is not new to the world, it is deeply rooted in the history of mankind, however, Covid-19 crisis has woken up the world again. So, the concept of frugal innovation is coming as survival mechanism for many companies as well as startups.
In a recent published conversation, Sabrina Helm, Associate Professor in the Norton School of Family and Consumer Sciences at the University of Arizona said that because of Covid-19 and its effect on market, many consumers will get affected financially. These financial implications will require many to change their buying habits as customers in coming years.
This will simultaneously result in a decrease of luxury products market while spending on cost-effective products will show a huge increase. Thus, to meet requirement of their consumers and to prevent themselves of getting out of business, there will be a pressure on global industries to opt for new innovative measures for reaching out to the masses. Therefore, businesses should learn frugality not to decrease the price but to develop sustainability from acquisition to disposal.
With recent developments due to COVID-19, various business models are on high stakes, about to lose their businesses because of their unsustainable preferences in the past. Henceforth, the companies should start innovating frugally as early as possible with a more user-centric mindset for developing a product with low resource consumption, affordable, and wider knowledge transfer.
This blog is authored by Prakarsh Mishra.