Leveraging frugal innovation in micro- and small enterprises at the base of the pyramid in Brazil: an analysis through the lens of dynamic capabilities

Purpose This paper aims to analyse the factors that influence frugal innovation (FI) in micro- and small enterprises (MSEs) at the base of the pyramid (BOP) through the theoretical lens of dynamic capabilities. The input-process-output (I-P-O) framework was used as a tool to support the analysis of FI as a process. Design/methodology/approach A multiple case study was performed with 25 MSEs at the BOP in Brazil, all of which were in the food industry. Findings This study indicates that dynamic capabilities are present in enterprises that are migrating to low income and middle-class consumers, which influences their FI practices. To analyse FI in the context of MSEs at the BOP, the I-P-O framework was adapted. Enterprises that have focussed on extremely poor and subsistence markets develop more disruptive innovation, aiming to reduce the final prices they charge consumers. The primary focus of these enterprises is on maintaining ordinary capabilities. Enterprises that have focussed on low income and middle-class customers have implemented incremental innovation, adding value based on colonial tastes and close relationships with their consumers. Such a strategy demands changes in the physical facilities, use of social media and investment in quality control of these enterprises. Considerations for policymakers and institutions are also presented. Originality/value The use of a dynamic capabilities lens in such a context is a new approach and provides a relevant basis for further studies. The study has identified different approaches to FI and different sets of barriers and successful practices, both related to the target market segment, that could leverage FI. This study contributes to case studies from Brazil, spreading the research context beyond Asia.