Business models for sustainable innovation – an empirical analysis of frugal products and services

Abstract

Sustainable innovations are inventions providing an essential progress concerning social, economic and ecological concerns. The emergence of Base of the Pyramid markets and the growing importance of the developing economies as new sources of frugal innovations has attracted the interest of scholars and practitioners. Frugal innovation is an inclusive approach to innovation that maximizes value for customers, shareholders, and society – while significantly reducing the use of financial and natural resources in developing countries. Reverse innovations are frugal products and services successful in developing markets that make their way back to industrialized countries by creating new market segments. Therefore, both concepts are crucial for facing sustainability challenges in developing countries and may also lend insights to business models in industrialized countries. As the relationship between frugal and reverse innovation and sustainability remains largely unexplored in the literature, this study aims to fill in this gap and answer the research question: How can frugal and reverse innovation strengthen sustainable development, and how can business models in this context be systemized and described? Employing a multiple case study design, a total of 59 frugal products and services were investigated from a business models and sustainability strategy perspective from June 2014 until June 2015. The direction of innovation was distinguished between (a) from developing countries to developing countries, (b) from industrialized countries to developing countries, (c) from industrialized countries to industrialized countries, and (d) from developing countries to industrialized countries with the purpose to find differences between different directions of innovation and economies. Findings show that entrepreneurs and companies offering frugal and reverse products and services manage to combine the business model elements in an insightful manner and create economic, social and environmental value.