A Systematic Review on Low-cost Innovation Value Creation and Value Capture Capabilities

Abstract

Low-cost innovations, defined as new products or services that organizations direct at consumers who have a lower willingness-to-pay, enable firm growth and help drive societies’ prosperity. However, research has generated a plethora of different theories and frameworks to investigate low-cost innovation (e.g., disruptive innovation, Bottom of the Pyramid innovation, frugal innovation, inclusive innovation). The variety of different perspectives creates a Babylonian confusion that impedes progress and has inhibited a comprehensive understanding of firms’ low-cost innovation capabilities. Therefore, using the different sub-fields of low-cost innovation as inputs, this study conducts a systematic review, which analyses 97 peer-reviewed journal articles. First, these studies are analyzed using network analysis to obtain an overview of the field. Second, the review uses content analysis methods to aggregate the findings of previous research, which contributes to a comprehensive understanding of low-cost innovation. The results describe a model of contextual antecedents of low-cost innovation capabilities for both value creation and value capture. According to the model, firms need the capability to reduce new product costs by recognizing the most important performance dimension as well as by innovating inputs and processes. In addition, the capability to innovate auxiliary performance dimensions that are important to low-cost consumers contributes to a firm’s low-cost innovation capability for value creation. In an emerging market context, firms also need the capability to create access to low-cost innovation. To capture value, all firms need economies of scale capabilities as well as a low-cost culture and commitment. Incumbents require high-cost/low-cost ambidexterity and emerging markets require business model and value network capabilities as well as flexible and iterative innovation processes to develop low-cost innovation value capture capabilities. The study discusses the implications of the low-cost innovation capabilities framework for theory and practice and provides avenues for further research opportunities.