Meet the new generation of frugal innovators
In recent years we’ve seen a number of high profile innovations that target middle- and lower-income customers in rapid-growth markets. Known as “frugal innovation,” this model casts a more local-focused eye on the market. In fact, the companies that are developing these lower-cost, high-profile products are, for the most part, actually headquartered in the markets they serve.
The Tata Nano car is probably the best-known example. Launched in 2009, Tata’s goal was to create a car that would sell for INR100,000, or around US$2,500, which is much cheaper than any other production car in the world. To bring down costs, Tata reengineered parts to save weight, reconfigured assembly methods and developed a complex network of third-party suppliers to increase efficiency. Although there have been teething problems with the Nano since it was launched, there is no doubt that this was a breakthrough innovation.
Innovating for the next three billion, Ernst & Young’s report on the rise of the global middle class, reflects the increasingly dominant role of markets in Africa, Asia, Latin America and the Middle East. Many of these economies are becoming major hubs of entrepreneurship. Take a look at more examples of low-cost innovation for middle- and lower-income customers.
- The Chinese company BYD has developed a very low-cost method for producing lithium-ion batteries. The company has reduced the cost of a battery from US$40 to less than US$5.
- China’s Zhongxing Medical has developed an X-ray machine that can produce digital images directly. It costs just one-tenth of the price Western multinationals charge for their specialized digital X-ray machines.
- GE, the US industrial giant, has produced a handheld electrocardiogram machine that costs a fraction of traditional EKGs. This innovative device has brought down the cost of testing a patient to just US$1.
- The Indian industrial group Godrej & Boyce has developed a US$69 fridge that runs on batteries, called the ChotuKool.
- India’s Tata Chemicals has developed a water purifier that uses a combination of rice husks and silver nanotechnology to filter out bacteria. The Tata Swach costs just US$20.
- Bharti Airtel, an Indian telecom company, has turned itself into one of the world’s most cost-efficient mobile service providers by creating innovative partnerships with suppliers and by sharing the costs of infrastructure with competitors.
- The Finnish telecom company Nokia has produced a handset that costs less than US$20. Its features include a dust-resistant case and a contacts book that can be used by up to five users, because many low income customers share a phone.