Disruptive Innovation Frugal Innovation

Document Type:Thesis

Subject Area:Business

Document 1

With regard to consumer preferences, there are low-end consumers who do not mind using products that are simple and inexpensive. This may be due to financial capability or may simply be a preference. On the other hand, there are the high-end consumers who prefer to consume products that are expensive and of high quality. Such consumers do not mind how expensive the products but instead look at the quality. Frugal and Disruptive innovation Frugal innovation is designed for emerging markets whereby it is aimed at the production of new services and products for markets that are developing. Figure 1: Frugal innovation Disruptive innovation comprises of four main elements or assumptions regarding incumbents who are also the manufacturers or producers of the products in question.

Sign up to view the full document!

These elements are; first, the incumbents are involved in a market that improves along a trajectory dictated by sustaining innovation. Second, the incumbents overshoot the needs of their customers. Third, the incumbents have the ability to be responsive to threats caused by a disruption. Fourth, a disruption leads to floundering of the incumbents. Market perspective This form of innovation is keen on the market whereby production is directed at emerging markets which have not been exploited. According to Berger (2013), frugal is directed at markets that have economies of scale. Such markets have large populations with a high potential consumer base but is faced with a scarcity of resources and low affordability power by the consumers. Frugal innovation therefore targets markets with scarcity and analyzes the needs of consumers in this niche.

Sign up to view the full document!

The innovation of products and services in this market is directed at meeting the needs of markets with low-end consumers. Cost reduction that leans on the manufacturer’s side is not sufficient because fugal innovation is directed at affordability. This innovation requires that cost reduction must be substantial and this can only be achieved from the consumer perspective (Ramdorai & Herstatt, 2015). Although not many written literature lays emphasis on a total reduction of ownership, it is clear that substantial cost reduction requires a combination of both low-cost ownership and low purchase price. A definition by Rao states that frugal is “scarcity-induced minimalist or reversal innovation” (Weyrauch & Herstatt, 2016). From this short but precise definition, it is evident that the extent of cost reduction must be significant.

Sign up to view the full document!

A reduction in the cost of raw materials leads to a reduction in the price thus making frugal products more affordable. In addition, when a product is stripped and left with only the essential parts brings about the aspect of simplicity. Such a product has a reduced impact on the environment and is designed to meet specific requirements of a given type of consumer in this case low-end consumers. The optimum level of performance To obtain the criterion necessary for an innovation to be considered frugal, core functionality and substantial cost reduction alone are not enough. There is need to consider the performance level. It entails the designing of products in such a manner that there is room for changing the size of the same.

Sign up to view the full document!

Frugal products have reduced prices due to their nature thus the profit margins tend to be lower compared to other products manufactured using other innovations. To counter this effect on the profit margins, it is necessary for a higher quantity of frugal products to be sold to achieve a similar profit margin with other products. However, scalability is among the key factors that lead to cost production. Scalability is also a driving force to achieving sustainability in this form of innovation. Through SELCO, low end Indians are able to access other products such as cook stoves that adopt the low smoke technology. Automobile giant Renault made use of frugal innovation to build “Logan” in 2004 which consumers could purchase with only 5,000 euros.

Sign up to view the full document!

This low-cost vehicle has stood through economic recessions and has enabled the company to maintain financial stability while at the same time supplying consumers with what they need. The Logan is well-designed, affordable and robust. Other companies such as Siemens have collaborated with German engineers to target the Indian market through the development of a Fetal Heart Monitor which is quite affordable to consumers. As a result, frugal innovation becomes more pronounced and widely adopted by other firms. An instance of reverse innovation is the move by Tata Motors to manufacture Tata Nano which is an up-scaled version targeted at the European market. The automobile company intends to introduce the products in Europe under the brand name “Tata Europa”. Catalytic and frugal innovation Catalytic innovation is a form of disruptive innovation which is intended to create social change.

Sign up to view the full document!

This form of the innovation process is best suited for organizations that are in the social sector and are on the verge of facing sector problems (Cooke & Ashein, 2011). Global value chains have different stakeholders. Production of products targeting low-end users may only attract the interest of low-cost producers and suppliers which does not guarantee sustainable development requirement of triple bottom line. According to Hyvärinen, Keskinen & Varis (2016), “extraction of raw materials is often water intensive and takes place in already water scarce areas. ” Frugal innovation is targeted at developing countries such as China which is faced with challenges such as environmental regulations, inadequate social regulations and rapid industrialization. These factors pose a significant hindrance to sustainability. L. , Ackers-Johnson, J. , Chatwin, J.

Sign up to view the full document!

From $10 to earn access

Only on Studyloop

Original template

Downloadable