The Antecedents and Consequences of Affordable Value Innovations for Emerging Markets

Emerging markets offer tremendous growth opportunities for firms. While established multinational firms typically focus on premium segments in emerging markets, they often fail to leverage additional growth opportunities in so-called good enough or low-income segments in emerging markets. Customers in these low-income markets have substantially different requirements and are very price sensitive. Theoretical and case-based research suggests that innovating for these low-income segments in emerging markets differs significantly from innovating for premium or traditional Western markets. We argue that tapping successfully into low-income segments in emerging markets requires the development of new products that meet the low price expectations while at the same time offering also value to customers in these segments. We refer to these new products as affordable value innovations. We analyze the antecedents of affordable value innovation for emerging markets. We draw on institutional theory to derive three potentially relevant antecedents of affordable value innovation for emerging markets. These are bricolage, local embeddedness, and standardization. We test our hypotheses using multiple informant data from 47 multinational corporations involving 103 innovation projects that target low-income customers in emerging markets. Our empirical analysis shows that all three antecedents have significant effects on the level of affordable value innovation: while bricolage and local embeddedness are positively related to the level of affordable value innovation, standardization has a negative impact. We also examine the relationship between the level of affordable value innovation and performance. We find evidence for our basic assumption that a firm's capability to develop and launch affordable value innovations is key to success in emerging markets. It indicates that a firm's investments in affordable value innovations for emerging markets pay off financially. Finally, a cross-regional comparison of our data shows that the key findings on antecedents of affordable value innovation and its impact on performance do not vary across various emerging markets. Overall, our findings offer important implications for research on and the practice of innovation for low-income segments in emerging markets.

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