It used to be only companies in developing countries that had to find new ways to create high-quality products with limited resources. Today, businesses in both established and emerging markets are honing strategies based on the concept of ‘frugal innovation’, which involves stripping away complexity to enable more value with less investment. And often it is marketers who are best placed to lead the discussions on how to innovate faster, more effectively and with sustainably front-of-mind.
Navi Radjou, co-author of the book ‘Frugal Innovation: How to do better with less’, is adamant marketers must take the subject more seriously. Based in California’s Silicon Valley, Radjou says customers are clamouring for frugal products that deliver greater value at lower cost.
“Established brands across finance, electronics, energy and transport are facing growing competition from frugal rivals,” he says. “These include digital platforms such as peer-to-peer lending company Zopa, Airbnb and car-sharing service BlaBlaCar, as well low-cost companies based in India and China.”
Radjou says social media provides marketers with a platform to build customer intimacy at a lower cost than using traditional marketing tools, adding that “social platforms are a prudent way to co-create new products and services”. He highlights toy company Hasbro, which invited customers on Facebook to vote on new house rules for its Monopoly game. The chosen rules were included in the game guide in 2015.
“Brands can also facilitate networks of loyal customers who provide customer service to each other for free,” he says. “Mobile virtual network operator giffgaff crowdsources its entire customer service from its own community of engaged users.”
Reviving stagnant markets
By making the best use of time or financial resources, businesses can improve their bottom line by helping companies generate new revenue streams in stagnant markets, for example.
In the automotive sector, Carlos Ghosn, chairman and CEO of the Renault-Nissan Alliance, is a huge supporter of frugal innovation. He says it has been practised in developing nations out of necessity for years and is now becoming a strategic business imperative in developed economies.
For example, Renault has a centre for frugal engineering in India where it focuses on designing no-frills cars such as those manufactured under the Dacia brand, which it acquired in 1999. Cars are built in low-cost countries such as Romania, with sales from entry-level vehicles such as Dacia models now accounting for over 40% of Renault’s total revenue.
Frugal innovation is enabling other companies to shift their business model from selling expensive products to providing affordable services. Philips offers ‘lighting as a service’ to business customers that sign a multi-year performance-based contract, for example. Clients get access to the latest lighting technologies at no up-front fee and can lower their lighting costs, while Philips gets paid from the annual energy savings achieved by the customer each year.
Radjou accepts there are challenges for marketers who worry that consumers will equate frugal solutions with poor quality but that is not necessarily the case.
“Marketers must recognise that value-conscious consumers are eschewing complex and sophisticated products in favour of simple and frugal solutions that make their lives easier,” he says. “While digital tools such as social media offer a cost-effective way to engage and collaborate with customers, marketers continue to engage customers in a monologue, pushing messages rather than engaging them in a conversation.”
He adds: “It is important marketers first unlearn old habits and use frugal techniques and tools to keep customers, especially millennials, engaged at every stage of the product or service lifecycle.”
Do more with less
Of course, there are marketing directors who argue that frugal innovation should not be a special strategy and that marketers should always be looking to work smarter and do more with less.
One such voice is Transport for London’s (TfL) marketing director Chris Macleod, who says the debate is more about prioritising resources and making the most of them so the organisation and its customers benefit.
TfL is under constant pressure to be frugal and innovative because of the strain on its finances as a public body, with 30 million people a day accessing its travel network.
“Being able to make decisions relatively quickly is vital to frugal innovation,” says Macleod. “This is about being agile so you can respond quickly to changes in market conditions and customer expectations.”
“Look at how small changes to your service can improve the customer experience and brand reputation at relatively little cost”
Chris MacLeod, TfL
For Macleod this increasingly means making full use of digital technology. One example is its open data strategy through which it makes its vast amount of transport information available for free to third-party companies that develop travel apps.
TfL is also using social media to provide real-time travel updates to customers, as well as encouraging its staff to pass on information by word of mouth at stations.
In June, TfL joined forces with Twitter to provide live notifications of severe delays direct to customers’ mobiles or computers so they are alerted faster, which is the first time Twitter has partnered with a transport authority in this way.
Previous examples of TfL’s frugal innovation include the introduction of the Oyster card to speed up travel and reduce ticket office costs, and contactless payment, which allows people to travel without cash or Oyster card credit.
“You must also look at how small changes to your service can improve the customer experience and brand reputation at relatively little cost,” says Macleod. “For instance, we set a maximum fare on Oyster cards if people forget to touch out. This shows that TfL can be caring and helpful while the marketing activity keeps reminding people to top up their Oyster card.”
Another brand making effective use of social media to work smarter and keep marketing costs down is the Post Office. It used the social media management tool Lithium Reach to manage the content of its #LoveSundays campaign when it launched its Sunday trading hours.
There was no need to pay for a promoted tweet because #LoveSundays trended on Twitter organically, creating more than two million impressions and an average engagement rate of 6%. This increased visits to its branch finder web page by 866%.
The Post Office’s social media manager Darren Jones says this was a tricky campaign because it had to be conducted on a small budget and not affect the workload of the established customer service team too much, which had its own key performance indicators.
“This was about linking technology with improving customer service to get a brand message across,” says Jones. “We could bring rich social data to the surface to know when to schedule a post and which topics to mention. The marketing and customer service departments and our third-party agencies were using the same tool.”
Although organisations such as TfL and the Post Office are making the most of new technology, research from digital software provider Bizagi reveals many others are not keeping up with digital transformations as customer expectations change.
The Bizagi Agility Trap report finds 73% of companies globally, including those in the
UK, admit that failure to keep up with digital advances will affect them commercially.
Four in five respondents believe they will obtain a competitive advantage in the future only if they can respond innovatively to the immediate needs of individual customers. Unfortunately, many organisations accept that their operations are not agile enough to promote a culture of innovation.
Disruptors need to be frugal
For challenger brands frugal innovation is essential. In the satellite TV market, Freesat competes with Sky and BT and their much larger marketing budgets.
Freesat director of marketing and communications Jennifer Elworthy says the free-to-air service takes a frugal approach to everything it does. This includes encouraging its marketing agencies to share knowledge from working with other brands, investing more in programmatic advertising and testing creative with consumer groups on social media.
The company also has a network of retail partners that provide valuable consumer insight, which fuels the overall marketing strategy. “When it comes to new product development, we have a test group of consumers who receive software releases first. We adapt and roll out a product based on their responses,” says Elworthy.
One product that has been developed in this way and improved the customer experience is Freesat’s mobile app. Customers can browse Freesat’s TV guide using their smartphone or tablet, which can also be used as a TV remote control.
Customers require an ID code to pair their device with the box and this provides the brand with more insight into how the service is being used, driving future innovation. The app has received more than 700,000 downloads.
“It is effective to use our customers as part of our research team because they can find any bugs in the system while using it at home,” says Elworthy.
She adds that Freesat is attracting marketers who have the skills to work in a frugal way. Many of its team have trained at larger brands but prefer the culture of a smaller company where they can make a difference. Elworthy is a former marketing manager at The Times and The Sunday Times and former brand executive at the BBC.
“We need people who are flexible, can work as part of a broad team and are robust and curious when testing and learning about different products,” she says.
Focus on sustainability
The need for companies to show they are sustainable is also driving the frugal innovation agenda.
Charlotte West, marketplace director at the Prince of Wales’ Business in the Community initiative, says companies can grow by creating and marketing products that make them money but which also make the world a better place.
“This includes taking frugal approaches to new product development and involving employees because they can spot new markets and product opportunities,” says West.
“Companies should encourage all their staff to meet the people who buy their products. They can then go back to the business and see how existing products and services can be improved. This can be the most powerful and cost-effective research.”
Forming partnerships can also help companies meet their corporate social responsibility commitments, as well as their frugal innovation aims.
Nationwide Building Society, which has collaborated with charity Macmillan Cancer Support, has been shortlisted by the Business in the Community’s Responsible Business of the Year award. The company has created a specialist support service for customers who face personal challenges, such as cancer.
Macmillan has trained the team to provide free, tailored and confidential support when explaining Nationwide’s products and services. Nationwide is extending the service to other vulnerable customers, including those with heart disease and mental incapacity.
Elsewhere, Sainsbury’s has joined forces with the food waste reduction app Olio because it knows its customers worry about the amount of food they throw away. It is one of the initiatives within the supermarket’s wider ‘Waste Less, Save More’ scheme.
A £1m Olio trial is taking place in the town of Swadlincote in South Derbyshire where residents can post details and photos of surplus food they want to offer to others. There is real-time messaging and drop boxes are located in local businesses and Sainsbury’s stores.
Frugal innovation is not just about finding ways to save money; it is about improving the customer experience by working smarter and doing the right thing. When this happens well, there are benefits for all involved.
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