The economic rise in emerging markets – especially in China and India – has created a new market segment, variously referred to as the ‘middle’ market and sometimes the ‘good-enough’ market. However, there are some misconceptions around the different innovation types in this area which may limit the ability to derive informed implications for strategy and operations. This is discussed in the following paper:
From Cost to Frugal and Reverse Innovation: Mapping the Field and Implications for Global Competitiveness – Zenschky, Winterhalter, Gassmann
Despite increasing incomes in new markets such as China and India, the emerging middle-class consumers still have little excess income compared to Western consumers and often suffer from additional constraints including poor public and private infrastructure or poor service availability.
In response to this companies have started to develop market-specific solutions which are characterised by high value and low costs.
The aim of this study was to highlight and identify the differences between the various types of resource-constrained innovation to provide a framework for managers as well as providing the conceptual grounds for further systematic research.
The researchers analysed extant literature on innovation for resource-constrained consumers in emerging markets and then constructed a database of cases of resource-constrained innovations. The database had 85 cases collected between 2009 and 2013 characterised by drastically lower prices or operating costs compared to Western products.
Three types of cost restrained innovation
The Ansoff matrix was employed to classify the cases – according to their technical and market novelty.
The researchers defined three types of resource-constrained innovation based on their analysis of the case studies:
1. Cost innovations – Solutions or products which scored low on both the market and technical novelty dimensions
2. Good enough innovations – Products which scored low to medium on both dimensions
3. Frugal innovations – Solutions which scored medium to high on both dimensions
Entering resource-constrained markets with a simple set of cost innovations offers different competitive advantages and strategic options than altering products – the researchers argue that the three types of resource-constrained innovation differ from each other with respect to their technology and market novelty and significantly affect how firms approach, develop and position these solutions.
Therefore a sound conceptualisation of the different innovation types is essential for management practice and research to move forward in a systematic and fruitful manner.
Read the paper: From Cost to Frugal and Reverse Innovation: Mapping the Field and Implications for Global Competitiveness – Marco B Zenschky, Stephan Winterhalter and Oliver Gassmann, Research-Technology Management, Volume 57, July-August 2014 – Issue 4 pages 20-27
Review by R&D Today editor