India's claim to fame: Frugal innovation

India's claim to fame: Frugal innovation

Portrait of Wilfried Aulbur
Senior Partner, Member of Supervisory Board
Chicago Office, North America
February 23, 2017

Technological breakthroughs via structured R&D are not India's current forte. As a consequence, many company executives have come to think of India in terms of "jugaad," i.e., quick-fix solutions that address acute customer needs. Examples of jugaad abound; a plastic water bottle used as a gas tank for a modified motorized bicycle, using a motorcycle to drive a pump in the fields, modifying a tractor to turn it into a road roller, etc. All of these examples can be photographed and these photos tend to stick in the minds of executives who are less aware of the realities in the country.

While jugaad is a reflection of innovative capability in India, India's real breakthrough innovations have been brought about by "frugal innovation". Frugal innovation is a structured innovation process that clearly focuses on delivering customer value at predetermined price points. The basic driver of frugal innovation is the old adage, "necessity is the mother of innovation". Resource constraints and the desire to open untapped markets to products and services via adequate price points and acceptable value-for-money propositions are at the heart of the frugal innovation movement.

What is the basic functionality that the customer needs?
What is the basic functionality that the customer needs?

Frugal markets are driven by the customer and the market rather than by technology. The key questions are: What is the basic functionality that the customer needs? What is the money that he or she may be willing to spend on this functionality? What is the value that convinces the customer to actually buy the product vs. continuing with non-consumption? As many of the markets that frugal products target are bottom-of-the-pyramid markets, non-consumption is the main competitor for frugal products. This approach is indeed very different from the technology-focused approach of innovation in developed markets, where "more complex" and "more expensive" is often equated with better.

Frugal innovation is not about de-contenting products and reducing quality levels. In some cases, frugal products may have materials and components that cost more than what was commonly used in the original products. This seemingly paradoxical situation is resolved by remembering that frugal products focus on providing exactly the value that is needed. Costly bells and whistles driven by tech-savvy engineers are eliminated in frugal products. This creates cost savings that can be partially reinvested in providing the desired functionality with adequate quality.

Global trends support frugal innovation. As much as 95% of global population growth and 70% of real GDP growth will happen in emerging markets. Asia (excluding Japan) is the main driver, contributing 54% of population growth and 46% of real GDP growth. Developing products and services for the emerging middle class in these countries, slated to constitute around 70% of the global middle class by 2030, is crucial for all players. Frugal products also lead to sustainable development through process optimization and use of environmentally friendly methods. Optimized manufacturing processes and reduced product complexity save valuable resources and energy. Reusable and recyclable products bring down ownership cost due to residual values and have a positive impact on the environment. Sustainability is inherent in frugal products.