“Same or more for less”
Cost innovation occurs when changes in the product design, production or delivery process, technology or materials result in a reduction in production or delivery costs.
In contrast to ordinary products where cost cutting is typically attempted over the life of the product, here cost cutting is built into the initial design process, making cost innovations cheaper than the cheapest ordinary products.
“Tailored for less”
Improved processes and re-engineered product features
The starting point for this category of innovation is an existing durable good, such as a phone or a motorbike, with a successful sales history in the rich world.
Product developers face the challenge of reducing the complexity and cost of the product, which is usually achieved through removal of non-essential features, and by possible reduction in the cost of production, to make it affordable to emerging markets.
Key to good-enough innovation are the adaptation or re-engineering of an existing product to fit the specific use requirements of the target market.
“New for less”
Engineered from scratch – “clean slate”
A frugal innovation fulfils the same basic purpose as an existing first-world product but is engineered, from scratch, specifically for resource-constrained consumers in emerging markets.
To achieve this frugal innovations often utilise new technology platforms and product architectures and hence are offered at a much lower price, typically 10 to 20% of the equivalent premium product.
Frugal innovations may sacrifice somewhat in terms of performance when compared to the premium product, but will always meet the acceptable use requirements of the target market.