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Frugal Innovation: Context, Theory, and Practice  

Lukas Neumann and Oliver Gassmann

Frugal innovation as a concept was initially sparked by a groundbreaking article published in The Economist in 2010. In it, the conception and application of a handheld electrocardiogram (ECG), the Mac 400, specifically designed to serve the rural population in India, was introduced. Every aspect of this product and its ecosystem was designed to serve the customer at less than 25% of the original cost. Since this publication, a lively discussion around this concept has developed in academia as well as in the industry. As a term, “frugal innovation” refers to solutions (products or services), methods, or designs that focus on serving new customers in resource-constrained contexts at the bottom of the pyramid (BoP) and/or emerging and developing markets. This understanding has broadened somewhat as such innovations gain increasing attention and relevance throughout all customer segments across the globe. What remains consistent is that frugal innovation is based on a new type of value architecture that is specifically developed to serve customers’ needs in the respective context by utilizing as few resources as possible. This approach leads to many cases where frugal innovations are novel and disruptive to their market environment. Research shows that for firms, especially traditional “Western” ones, these innovations require significant changes in firms’ activities along the entire value chain.