ASSESSING THE ADOPTION OF FRUGAL INNOVATION USING SEM FROM CUSTOMERS’ AND FIRM’S PERSPECTIVES

Abstract

This study assesses the adoption of frugal innovation from customers’ and firms’ perspectives using Structural Equation Modelling (SEM). Three measures of frugal innovation were considered including cost reduction, core functionalities, and performance level. Then, measurement and structural models were developed with three latent, frugal innovations, firm performance, and customer acceptance. Data were collected from 40 Jordanian firms and 200 customers. In total, 300 surveys were distributed. The response rate was 75%. Results indicated that cost reduction, core functionalities, and product performance were mostly affected by used material, functional aspects, and quality of innovative products, respectively. Further, revenues and meeting requirements had the largest impacts on firm performance and customer acceptance, respectively. Finally, frugal innovation significantly impacts firm performance directly and indirectly through customer acceptance. However, the impacts of customer acceptance on firm performance were found insignificant. In conclusion, frugal innovation can enhance firms’ performance and hence firms should offer customers affordable and good enough low-cost, simple, and robust innovative products to have a successful adoption of frugal innovation.