The CEO’s Frugal Innovation Agenda

CEOs of large companies face a conundrum: they are confronted with a growing number of frugal consumers clamoring for affordable solutions, yet their existing corporate culture and incentive systems are designed to support a "bigger is better" business model — not to deliver more with less. To meet this need, CEOs need a frugal innovation agenda.

Based on the research of the authors, it is suggested that CEOs eager to do more with less drive systemic changes across their entire organization — focusing their change management efforts on three functions: R&D, marketing, and sales. Specifically, CEOs must:

Challenge R&D teams to create “good enough” solutions: CEOs should encourage R&D teams to move away from pursuing over-engineered “perfect products” — which today’s thrifty customers find too expensive, hard to use, and eco-unfriendly — and focus instead on developing “good enough” solutions.

Create separate brands to sell the company’s less expensive offerings: Considering that they might already have well-established brands for higher-priced segments, to avoid brand dilution, marketing heads should develop distinctive new brands for their company’s affordable segments. Doing so will reduce the problems of brand dilution while ensuring greater market coverage.

Create incentive systems for salespeople to sell frugal products: Western companies must recognize that frugal innovation isn’t just about designing affordable products. It is also about successfully selling these frugal products in the marketplace. But successful selling won’t happen as long as salespeople have the incentive to sell only big-ticket items.

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