This study explores the idea of frugal business model innovation, with a particular emphasis on the Aravind Eye Care System in Indian emerging market as an excellent case study. The creation of affordable solutions that address the needs of marginalised communities is referred to as frugal innovation. Aravind Eye Care System, well-known for its accomplishments in offering premium eye care services at reasonable costs, has attained outstanding results by virtue of its creative and long-lasting business model. This book chapter looks at the essential elements of Aravind's frugal business model innovation, investigates the reasons behind its success, and provides analysis of the implications for other companies looking to use comparable strategy.
Top1. Introduction
Emerging markets economic growth, particularly that of the BRICS countries (Brazil, Russia, India, Indonesia, China, and South Africa), has had a significant impact on the global business landscape. These economies have grown at a much faster rate than Western markets, making them strategic growth markets (Drummond, 2012). The middle and low-end segments of these emerging markets have quickly become some of the fastest-growing customer bases globally (Kravets and Sandikci, 2014). To compete effectively in these segments, businesses must offer “resource-constrained” innovations and business models that provide significant value at a low cost (George et al., 2012). This type of innovation, also known as cost innovation, good-enough innovation, or frugal innovation, allows businesses to enter previously untapped market segments, resulting in unprecedented growth opportunities.
Obtaining resource-constrained innovations, on the other hand, is difficult for firms that have traditionally focused on high-tech products and advanced business models (Halme et al., 2012). To enter new markets in the middle or lower end, these firms must develop capabilities for resource-constrained innovation and business models (George et al., 2012; Mudambi, 2011; Zeschky et al., 2014; Winterhalter et al., 2016). This book chapter investigates how firms can create and implement business models that are tailored to emerging markets.
Frugal innovation (FI) has emerged as a transformative approach to serving developing-country low-income consumers (Hossain, 2018). It addresses these customers' needs in a sustainable manner and is particularly relevant as a method of serving low-income customers. While there are various interpretations of frugal innovation, it essentially involves developing affordable and acceptable solutions while working with limited resources to serve customers who cannot afford conventional alternatives (Hossain et al., 2016; Zeschky, 2011). India is a hotbed of frugal innovation, known locally as “Jugaad” (Rao, 2013; Shepherd et al., 2020).
Scholars argue that because of their inherent integration of sustainability elements, frugal innovations have significant potential for sustainable development (Lev et al., 2016). Sustainable development, broadly defined as balancing economic, social, and environmental concerns, is consistent with frugal innovation principles (Hopwood et al., 2005). It is critical to serve underserved customers with affordable products, but it is also critical to develop sustainable business models to effectively cater to these customers (Bucherer et al., 2012; Dembek et al., 2018). Customers and society benefit from the incorporation of frugal innovation into business models (Abdelkafi and Auscher, 2016). Frugal innovations differ from traditional innovations in products and business models in particular (Child and Tsai, 2005), and existing research indicates their promise for long-term development (Rosca et al., 2017). Developing countries are ideal for frugal innovation and long-term development (Rosca et al., 2017). Tata's Nano, GE's MAC 400 ECG machine, Narayana's heart surgery, and Aravind Eye Hospitals' cataract surgery are all examples of frugal innovation (Hossain, 2018).
It is critical to understand how firms create and capture value through novel propositions that reach customers in remote areas (Winterhalter et al., 2017). While the importance of business models in deploying solutions in BOP markets is recognised in the literature, empirical attention to frugal business model innovation—how corporations develop new business models tailored for such markets and how these models evolve—is relatively limited (Gupta and Thomke, 2018). Furthermore, much of the literature on frugal innovation, BOP contexts, and business models is cross-sectional, which often overlooks the dynamic nature of business models. This research gap raises the following concerns: What drives frugal business model innovation in resource-constrained environments? How do different business model components change, and what impact do these changes have on value creation and value capture?