Frugal Innovation: The Key to Penetrating Emerging Markets

Many companies want to enter emerging markets, but this requires changing their approach to innovation. Rather than innovating for Western consumers who want advanced product features, here they must innovate for the bottom of the pyramid. The first key factor in frugal innovation is affordability, and many firms have turned profits even when selling products at a fraction of normal prices. A second major success factor is understanding target customers’ circumstances, such as Nokia did in designing phones for the Indian market that withstood exposure to dust and high variations in ambient temperatures, or when the telecom firm Safaricom realized that many Africans, though using mobile phones, were not using traditional banking services and so introduced fund transfers through text messaging. A third key factor is flexible value chains, meaning firms are often required to tweak their value chains at both ends — suppliers/vendors and distributors/channels. GE showed a strong distribution model when it partnered with the State Bank of India to provide no-interest loans to rural Indian doctors in order to sell its ECG device. This article provides an analysis of and framework for these three key factors in frugal innovation.