New frugal innovation

If you’re wondering how to increase your brand’s appeal to your most profitable customers – the ones who opt for the premium lines, the ones who don’t give an involuntary gasp when they see the price tag – here’s how to go about it. Start with the customers at the opposite end of the spectrum – the ones who can afford the least, the ones who opt for the basics – and dramatically improve your brand’s offer for them.

Sir Tim Clark, president of Emirates, has long shown the power of this kind of counterintuitive thinking in the rise of one of the world’s most valuable airline brands. And he has long relished open articulation of his brand’s resolute bottom-up approach.

The voluble Clark was in full flow at an industry conference earlier this month, in which he declared that airlines don’t do enough for the economy passenger: “They don’t invest.”

Clark does. Thirty years ago, on his watch, Emirates was the first airline in the world to introduce personal video systems in economy, at a time when every other long-haul carrier reserved them as a privilege for business class and first. In the intervening years the airline has won a truckload of awards for the food, entertainment and service in its economy cabin.

Now, Clark is looking at revolutionising the basic economy seat to give much more comfort to passengers at the back of the bus. He wants dramatic improvements in recline, pitch and ergonomics to make things more tolerable for customers spending up to 16 hours on a flight, and is deep in deliberations with manufacturers and regulators to achieve it.

Innovating for entry-level customers

This sets up two fundamental questions, the first of which is ‘why?’. Why invest in innovation for the value-seeking customer at the back when all the profit is garnered from the better-heeled cohort at the front? This isn’t even premium economy we’re talking about here. It’s economy economy, often chosen by people so determined to find the lowest fare they’d sit all the way from Heathrow to Kuala Lumpur on a pogo stick if they had to. Why focus your time, money and brand love on them?

There is a simple answer to that, and it’s one that should shame us out of our segmentation pen-portraits of customers who seem to reside immutably in one single state or another. In the real world, people are nuanced. They can be one thing today and another tomorrow. The bottom-tier and the top-tier customer can be embodied within the same individual. And how you treat them at one end can have an effect on whether or not they even care to try what you offer at the other.

So, a customer in row 54 today might be there because they are traveling with a friend whose budget won’t stretch further forward. But a week, a month or a year from now they might be reviewing their options for a business class flight on the same route. They’ll remember how your last experience made them feel, even though they were paying much less.

Open up the temporal lens a bit and the point becomes even more obvious. A young person on the first rung of their career will fly the cheapest option on leisure trips. But a few years from now, when they’re earning a good deal more, they’ll perhaps consider moving forward down the cabins. The airline that made them feel that just little bit more cared for in economy now has a chance to show them how much more special they’ll feel in the higher-fare seats.

There is a principle at work here. The first impression a customer gains of your premium product takes place the first time they experience your entry-level product. While the specifics of the features and benefits might vary wildly at the extremes, there are continuities that carry across all points of the spectrum: the feel of the brand, its ethos, the extent to which it makes customers feel valued, which is hard to fake, especially at the lower end of the price range.

The vast majority of marketers do not work in the airline sector, of that I am aware. But many opt for a ‘good, better, best’ pricing and segmentation structure, and the principle applies whatever the market category. Treat the lowest-value customers well – go further for them, innovate for them – and you are building a power brand for the future at every price point.

Breaking the habit of price hikes

Easy enough in theory, of course, much harder in practice. Innovation costs. Which brings us to the second of those two fundamental questions: ‘how?’. Given that low-margin customers are not going to repay the cost of innovation fast, how do you make the numbers add up?

Clark’s approach is instructive. The last time he worked with manufacturers on a new economy seat, some two decades ago, he briefed them not only to achieve a step change in comfort but at the same time to reduce weight. Using new materials and geometric science, the team succeeded in bringing down the weight of the clumsy standard seat of the day from 30kg to 13kg. That meant the new, improved seat paid back a part of its cost in reduced fuel consumption every time an Emirates jet took off.

This approach is a variation on a discipline called ‘frugal innovation’ – classically defined as bringing products and technologies to market for the poorest communities in the world who could previously not afford them.

But frugal innovation has tended to achieve this democratisation of consumption by stripping out features to produce vastly simplified offers, which would be sold in huge volumes at razor-thin margins – products so basic and defeatured that, in a sense, it wasn’t really innovation at all.

I like Clark’s version better, where the product is not stripped back but actually enhanced, and the ‘frugality’ is moved from the demand side, where the customer gives up a whole suite of goodies, to the supply side, where the savings are achieved through manufacturing efficiencies.

‘New frugal innovation’, as I’ll call it, is the route brands should explore to bring enhanced new experiences – products, packs, services, environments, technologies – to their lesser financially endowed customers. It means breaking the habit of looking to price hikes to pay back the costs of all that R&D, but looking to non-obvious production efficiencies instead. I’ll be talking more about it in my session at this year’s Festival of Marketing.

And I’ll be expanding on Clark’s latest seat innovation, which is slated for launch next year, and touching on some of the other ways he’s guided Emirates to its enviable global success. And why not? Here is a five-decade industry veteran still seeking tirelessly to do what every marketer everywhere should be doing every day: innovating to improve the experience of the customer.

Even the one in row 54.