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Roland Berger Strategy ConsultantsDeveloping frugal products step by step –the Roland Berger approachUnlike advanced economy products, which frequently differentiateacross an array of distinctive features, frugal products competeon very rigorous performance/cost criteria. But frugal productinnovation is more than cost reduction. To deliver superior, costeffectiveperformance over a limited set of functions, businessmodels often need to be reconfigured to create entirelynew production processes and supply chains.Holistic methods are very much in vogue today and for goodreason. Holistic analysis is particularly appropriate for globalcompanies looking to enter emerging markets. And developingfrugal products is a case in point. To bring out successfulfrugal products, management should review the entire spectrumof business and manufacturing activities – from the business caseand product design, value chain configuration and manufacturingprocess through risk monitoring and marketing. Frugal productinnovations originate in emerging markets and the most nimblepractitioners today work in these countries. Many companiesfrom developed nations will need new corporate policies to enableemerging country engineers and managers to design, developand manufacture competitive frugal products from the bottom up.Local personnel will mostly use local or regional resources,coordinating where and when appropriate with corporate assets,skills and capabilities.A very promising and potentially profitable way to leveragecorporate assets is "reverse" or "transnational" innovation, whena multinational distributes emerging country frugal productsacross the home and other global markets.But more on that later. First, let's review the basic steps.For a German engineered product company we developed a frugalproduct concept for the Chinese market. Rising competition dueto customer consolidation and Chinese machine copies wasincreasing cost pressures and misaligning products to customerrequirements. A new strategy focusing on the low/mediumsegment and adapting sourcing to a novel production conceptreversed declining sales by earning additional revenue of EUR 50million.But how did we achieve this impressive business potential? Tohelp companies assess and execute the many business,engineering and manufacturing steps that comprise frugal productdesign and production – and see how these activities can bef8 integrated into the larger corporate organization – Roland Bergerdesigned a comprehensive six-step framework to plan andmanage the entire frugal product development process.We'll quickly look at each step:1 Readiness assessmentThis initial phase reviews how well the company's current productline corresponds with the target markets and customer segments,and identifies other potential products that would better satisfycustomer requirements.2 Market analysisIn-depth profiles of the target markets/customer segments, buyerneeds and specifications are used to build pricing and revenuemodels. This phase defines the frugal products' functions andcompetitive advantages, discovered through expert interviews,cross-functional workshops and extensive market research.3 Frugal product designA three-phase process identifies necessary and non-essentialfunctions to satisfy customer requirements, estimates costsusing different technical and engineering approaches to producethe components, then uses a cost/performance matrix to derivedesign options.
Study 29F8Roland Berger's frugalproducts framework1 ReadinessAssessment2 MarketAnalysis3 ProductDesign4 Value ChainConfiguration5 RoadmapRoughly define targetmarkets/customersegments anddevelopment strategyDetail target markets/customer segmentsSystematicallydevelop the conceptfor the technicalsolutionSystematicallydevelop the valuechain conceptSummarize conceptand define next stepsWhat are customerrequirements(high level)?What developmentalternativesdo we have?Which alternative ismost suitable (adaptan existing product vs.develop from scratch)?What is the marketvolume /expectedgrowth?What are customerrequirements(in detail)?What is the targetprice /price range andthe revenue model?What are requiredproduct features?What productfeatures are NOTrequired?What are theproduct costs?Development: MoB?Partnerships? etc.Procurement: MoB?Share of BCCS? etc.Production/logistics:Footprint? Etc.Marketing/saleschannels? etc.Technical concept andvalue chain conceptBusiness caseRisk managementImplementationplanningand monitoring1-4 weeks approx. 3 months6 Change Management4 Value chain configurationBecause cost is a major competitive factor, it is essential whendesigning a value chain to improve the efficiency of development,procurement, production footprint, logistics, marketing and sales.Various analytical methods consider make vs. buy decisions,sourcing and quality control to create a lean logistics model withfast throughput.5 RoadmapThe previous design phase findings, analysis andrecommendations are integrated into a comprehensiveimplementation plan to cover the business case, riskmanagement, as well as execution and monitoring roll-out.6 Change managementAs previously discussed in Chapter 2, to compete successfullyin new emerging markets many European companies shouldencourage corporate cultural diversity and greater autonomy foremerging market subsidiaries. Frugal product developmentencourages this evolution because low- to mid-end products willgenerate the majority of emerging market revenue for mostcompanies.Some multinationals will need to consider revising relevantcorporate policies and organizational procedures. Different changemanagement techniques and programs can be adapted to suit acompany's particular situation.
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