Adoption of frugal innovation in Water sector: A quantitative study for Kenya, Rwanda & Uganda

Resource and cost-efficient innovations that are designed to address the needs of the low-income markets focused on “value for money’ are termed as frugal innovations. Frugal innovation aims to provide financially poor consumers with economically effective solutions in order to deal with their problems. The idea of bringing business to the low-income groups with the intention of providing social benefits and at the same time, making profits was proposed by Prahalad. Identifying the factors responsible for the adoption of frugal innovation and understanding a consumer’s behavior is necessary for doing business in the Bottom of Pyramid (BoP) markets. The available literature on frugal innovation is majorly focused on conceptual discussions and case studies. On the other hand, there is limited empirical data and quantitative work conducted in interpreting a consumer’s behavior at BoP. Thus, the research objective is, understanding the consumer behavior for the adoption of frugal innovation and therefore this paper will address the question of “what are the factors responsible for adoption of frugal innovation in water sector at BoP?” Three countries of East Africa were chosen to study and understand the factors that had an impact on the successful adoption of a frugal innovation. In addition to having a scarcity of safe drinking water, a considerable number of the population is at the BoP in Africa. This fact serves as a suitable market for the introduction of a frugal innovation among the masses.The water sector, is an area often seen by companies as a potential area for entering BoP markets with the aim of selling safe and affordable drinking water. In developed countries, clean drinking water is mostly provided by the public sector. However, this may not always be the case in developing countries where people may lack access to safe drinking water due to infrastructural deficiencies. Looking at two cases of companies providing drinking water in East Africa (Kenya, Uganda, and Rwanda), it is one of the areas where they have filled a gap left by infrastructure deficiencies by providing a frugal innovation in the form of low cost reusable bottled drinking water. In the first case, the water is purified at the central facility and the distribution occurs through the local shops in the region and the second case employs a franchise model where water is purified at the franchise location and the distributional costs are reduced by the presence of the large number of franchise and micro-franchise. Most frugal innovation focuses predominantly on the cost cutting aspect of the innovative product but in this case the two water companies fit more with the Bhatti (2012)’s definition of the frugality in all the aspects of the production and the distribution process. To understand the consumer behavior, a theoretical model is developed in this research which consists of Demographics factors (Age, Gender, Household Income, Household size), Organoleptic factors (Color and taste, Psychological factors (Beliefs and perception), Marketing factors (Brand awareness and Convenience), Experience of a free trial and role of household financial decision making, that affects the adoption of bottled drinking water. These factors give an insight about the consumer decision making process which is often considered as a black box and helps to understand the consumer behavior in a better way. Factors mentioned in the theoretical model are empirically tested for the adoption of bottled drinking water in the three east African countries Kenya, Rwanda and Uganda. The method used for data analysis is Binary Output Logistic Regression using IBM SPSS Statistics software. Additionally, Spearman correlation is used to understand the correlation in-between various factors. Results from the binary output regression indicates, that the experience of receiving free sample of bottled drinking water had a significant impact on the adoption of bottled drinking water in Kenya and Rwanda. In other words, the experience gained from a free sample of bottled drinking water had a positive impact on the consumer’s bottled water consumption characteristics in Kenya and Rwanda, whereas this was not the same case in Uganda. In Uganda demographic factors like household income, house size and brand awareness had a significant impact on the adoption of bottled drinking water.Management of Technology (MoT