Frugal innovation: balancing between value capture and value creation

Significant discussion within frugal innovation literature has focused on how frugality can be achieved through the design process, and how frugal innovations can reach low income consumers profitably. However, overcoming the tension for firms trying to reach low-income consumers and achieve development impact (value creation) while making profits (value capture) creates the need for appropriately designed business models. Through the exploration of two case studies of companies seeking to provide low-cost reusable bottled drinking water in Kenya and Rwanda, the role of the business model in balancing the tension between value creation and value capture was explored. It was found that it is challenging to reach the very low income group but a flexible and decentralized business model may allow for faster scale up and adaptation to institutional uncertainties such as changes in taxes. Although reusable bottled drinking water provided by the two companies is more sustainable and lower cost than many traditional bottled water brands, the cases show that small-scale solutions like these may merely be stop-gap solutions to infrastructure deficiencies. Future research should examine how the business model can be used to reach the new middle class and take a more macro-level view on business strategy in order to move frugal innovations beyond stop-gap measures to more systems-level solutions.