Deconstructing Frugal Innovation

As a business grows, there’s a natural tendency to move up-market by delivering more quality, better services, and features while building stronger revenues. Today, we're going to look at Frugal Innovation and show how moving down market and simplifying a product or service can also lead to revenue opportunities.

Reminder: Disruptive Innovation results in the tendency to leave some customers behind while the incumbent moves up market, thereby creating a down market blindspot.

Many times situations call for pursuing growth by selling more of the existing product the same target customer yet in a different geographical area. For instance, the Apple iPhone was first sold in the US and only after the first release was it released in globally. Regardless of the timing, the same product was being released to the various geographical markets but the target customer was the same.

So how does a business avoid leaving a blind spot in the wake of going up-market? One approach that is increasingly interesting is known as Frugal Innovation, so let’s take a look at what makes it unique in the innovation space.

Deconstructing Frugal Innovation

The basic inputs of this approach will seem quite familiar;

  • Leverage resource limitations as a method for turning these constraints into an advantage
  • Reduce complexity and the cost of a product, service or production process
  • Target developing markets
  • Leverage unconventional distribution channels to gain a foothold

Critical Thoughts

You may be thinking that by definition, Frugal Innovation sounds a lot like an approach that a startup company would use to disrupt an established market and you wouldn’t be entirely wrong. However, Frugal Innovations' point of origin is typically an existing product, service or business serving the upper-end of a market. For example, the consumer banking industry has grown ever more advanced in the United States with online options, mobile applications, optional integrations with accounting and tax services. The banking industry caters to an increasingly specific customer and therein lies the challenge. In order to address the needs of a market, the bank must segment the broader population into viable customer profiles. It’s during the segmentation that the bank then establishes certain assumptions and expectations that must exist in order for them to service their target customer.

In the case of a developed banking industry, the entire ecosystem supports their service offering. Things like debit cards, online banking, business merchant accounts, monthly statements, computers, even physical bank branches are all part of the known assumptions and expectations that must be met in order to align the customer and service offering. But what if the ecosystem doesn’t exist or would take a generation to recreate? What is a bank to do when their services and minimum requirements no longer match the needs of vast portions of the market? Those are a few of the questions that may drive an organization to take a closer look at how Frugal Innovation could help support their overarching strategy.

Frugal Innovation: The process by which an organization  addresses an overlooked or underserved market by understanding the unique needs of that market and then creating a stripped down product, service, business or entire ecosystem to address those unique needs.

On the surface, it may not sound groundbreaking but in practice, the unique needs of the market are what demand a different approach that could drastically alter the overarching way business is conducted. In the right environment, Frugal Innovation can prove to be a powerful approach to identify and delivering in markets that are not immediately obvious.

If you’re interested in having a conversation about Frugal Innovation, drop us a note, we’d love to hear what you have to say.

photo credit: Chris Potter CC license