ABSTRACT Despite increasing attention to frugal innovation in resource‐constrained environments, we still know little about profiting from frugal innovation. Based on the strategy—tripod—perspective, we investigated the impact of frugal innovation on firm growth performance. We explored how its role varies with market environment (market heterogeneity), institutional environment (knowledge leakage risk), and firm resources (complementary servitization offerings). Together, these elements determine how frugal innovation drives company growth. We examined our hypotheses with survey data from 334 firms in China with a pyramid‐shaped income hierarchy. With regression analysis, we found that frugal innovation has a positive effect on firm growth performance. Furthermore, market heterogeneity weakens while servitization strengthens this effect. However, the moderating role of knowledge leakage risk is insignificant. Our findings underscore the strategic value of frugal innovation and indicate that its efficacy may vary with market dynamics and servitization offerings.
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