Frugal brands – the advent of the $2,000 car and the $200 lap top

Reverse innovation is the term used to describe low costs products, often skimmed down versions of products we know, launched in developing countries with a view to a global play.

Take for instance Tata motors, $2,000 Nano car, launched in India, with aspirations of  the US market. Tata motors who own Rolls Royce and Land Rover,  designed the minimalist Nano  to appeal to those Indian families currently travelling by motor cycle. In India motor cycles outsell cars 7 to 1.

The Nano is a two cylinder engine car with no air conditioning and no radio, and a maximum speed of 65kms an hour. The Nano has proven to be a cat amongst the pigeons, with  Nissan and Toyota  already talking about models to compete.

The XO  lap top for $200 is another example of  the  reverse innovation storm that is sweeping the world, but it is not just the “vanilla” version of products we know that characterise reverse innovation. The high penetration of mobile technologies in developing nations,  have provided an opportunity for reverse innovation to tap into service and solution innovation.

In South Africa, where 50% of health care workers are community workers, mobile phones are used to upload and exchange clinical information in a pilot program sponsored by Vodafone’s Social Investment Fund. The pilot is looking to ways  to innovate the management of patient records and a provide a standardisation of care across a fragmented workforce.

Reverse Innovation is reminsicent  of the old marketing strategy of the “fighting brand”.  In the “fighting brand” strategy, leading brands rather than spend all of their money on advertising, set up a “no frills” competitor to themselves to block the path of competition. A premium canned soup company in Australia, whipped the competition, when they set up a fighting brand of just one flavour of soup. Using the benefits of marginal costings and scale they were able to offer discounts that side swiped the competition.

Reverse Innovation is also, in some ways, simply an extension of the wave of mass customisation, where the manufacturing and technology innovations are opening up opportunities to meet the needs of more diverse segments. In line with the “Coke with Kevin” micro segments, competitive advantage is increasingly gained “when you get it right, just for me”.

Louise Kelly

Managing Director

Hearts and Minds

Thought Leader – Vijay Govindarajan, expert on Reverse Innovation

Vijay Govindarajan is the Earl C. Daum 1924 Professor of International Business at the Tuck School of Business at Dartmouth. He is coauthor of Reverse Innovation (HBR Press, April 2012).

3 thoughts on “Frugal brands – the advent of the $2,000 car and the $200 lap top

  1. Sort of reminiscent of Honda’s entry into the US market. Writing from the US, I look at the car and at first think it’s too small for the demands. However, with a slightly larger frame, it could appeal to a segment of car buyers. Great post.

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