The base of the pyramid encompasses the world's largest socio-economic group, struggling with poverty. Globally, over three billion individuals live on less than US$2.50 per day. The term 'bottom of the pyramid' is frequently used by forward-thinking businesses aiming to cater to this demographic, leveraging innovative technologies (explore Innovation in action below). Crafting no-frills products and services is not a novel concept, evident in sectors like airlines, retail, and automotive industries.
So, what exactly is frugal innovation? According to Navi Radjou and Jaideep Prabhu in their book 'Frugal Innovation' (2015), it involves streamlining the complexity and cost of a product and its production. This often entails removing non-essential features from durable goods like cars or phones to make them affordable for consumers in developing nations. Designing such products may require enhancing durability and exploring unconventional distribution channels.
This approach isn't entirely new, but the focus on reaching 'overlooked consumers,' where large volumes compensate for thin profit margins, is crucial. In many developing nations, rising incomes are driving frugal innovation. The goal is to offer products and services that are not inferior in quality but are affordable (Bhatti et al., 2013).
For example, Mahindra & Mahindra in India sells small tractors to hobby farmers in the USA, presenting a challenge to established tractor manufacturer John Deere. China's Haier has successfully undercut Western competitors across various product lines, from air conditioners to wine coolers. Several Western companies now initiate product development in emerging markets. Diagnostics for All, a start-up from Massachusetts, introduced small paper-based diagnostic tests, initially commercializing them in developing regions to bypass the USA's slow medical device approval process.
Other success stories abound. The chairman of Lenovo, a Chinese computer manufacturer, claims expertise in balancing innovation and efficiency, effectively capturing market share from Western rivals by managing costs. Lenovo's strategic cost management enabled it to surpass HP and become the global leader in desktop computers. While not a groundbreaking innovator like Apple, Lenovo excels in executing efficient design and innovation, embodying the essence of a frugal innovator.
Frugal innovation extends beyond the corporate sector and has found applications in public service design and delivery. In countries like India and other developing economies, frugal solutions have been pivotal in providing access to improved or previously unavailable public services to a broader audience.
Adapted from: Trott, P., 2008. Innovation management and new product development. Pearson education.