The Customer Value Stack

Newsletter • 6 min read

The pandemic has created a boom for food retailers. But the market is changing quickly. The recipe for success is aligning digital products to the customer value stack.

The Customer Value Stack

Trump vs. Biden and the very prolonged counting process pretty much drowned out everything else this week. As a non-American, I found it exhausting so for you folks in the US I don't know how you slept!

After pulling my head out of the election news there was a story in the business world that caught my attention this week. The UK-based meal delivery service Gousto closed their latest round of funding, raising their valuation to a $1 billion. Unicorn status for a meal delivery service, currently just focused on the UK market. This means Gousto is playing in the same league as other well-known UK-based unicorn startups like Monzo, Deliveroo and Babylon. Something is clearly going well, and that's what I'm going to breakdown in this newsletter.

I've always been interested in the business model for meal boxes. It has always felt like the next evolution of home-delivered groceries. Looking at these services from a customer value perspective they tick a lot of boxes. From a customer experience perspective, they've elevated themselves above the commodity product. Just like people don't want banks, people don't want groceries. Customers rarely want the product they pay for, they hire the product to make progress on a Job to be Done. The neo-banks focused on helping people manage their money. In Gousto's case, their customers don't want groceries, they want fresh, healthy meals that are easy to assemble. Gousto has been profitable for a little while but it's taken a pandemic to accelerate customer growth. As I discussed last week, context changes everything!

So what's the recipe (sorry, I couldn't resist) and common themes for these new start-up/scale-up businesses with mega-valuations? I would argue the way they think about products and map that to customer value is a key ingredient to success.

The customer value stack.

  • The end-to-end journey. This is the customer's broader context and focuses on what they are trying to get done. By focusing on the Job to be Done there's always the opportunity to look at the competitive landscape asymmetrically by stitching together different services from different verticals into one digital experience.
  • Intelligent services. These are digital experiences that create moments of delight. They are usually real-time, intelligent, contextual and social. This means that they help customers make progress on their desired outcomes, at the right place at the right time and at the point of need.
  • The product. The product is the thing the customer buys. It has inherent value but that also means that it has attributes that are easily compared. Whilst the product generates revenue, it is subject to intense price comparison and commoditisation.
  • Capabilities. This is critical to the running of the product. Operationally they are important to make the product real and sometimes differentiating the product. Operational and technological innovations like AI, processing power, logistics networks or sustainable supply chains can enhance the product.
  • Infrastructure. This is foundational to making the product work like cloud servers or payment rails. To customers, it is largely invisible and never really noticed unless it wasn't there. For example, an app that wasn't on the App/Play Store or a credit card without Visa or Mastercard.

Customers buy based on the top two customer value attributes; the Job to be Done (end-to-end journey) and their desired outcomes (intelligent services). Many incumbent brands, focus mostly on the product and so new entrants can differentiate through a great customer experience. Not only that, they are building direct relationships with customers and creating moats by investing in technological and operational capabilities.

How Gousto creates customer value.

As you can see, Gousto brings together a lot of different intelligent services together to fulfil the customer's Job to be Done. Previously, customers would need to find a recipe, write a list of ingredients, buy the ingredients from the supermarket and then measure out exact quantities before cooking. Gousto has brought all of that into one experience. Select the week's meals on the app and have them delivered to your door with all the exact ingredients and recipe cards. Furthermore, be able to predict the cost of your meals through super simple subscription pricing. Having spoken with a lot of people about their personal finances, I can attest to the fact this is something people really struggle with.

The shifting value in the food industry

Yet one might ask what all the fuss is about. The pandemic has been great business for supermarkets. Whilst the direction of travel is towards digital, in the digital space supermarkets face new challengers.

During the pandemic, home delivery has become a lot more important, for obvious reasons. Pre-pandemic, one of the key barriers to online shopping was breaking the habit of going to the supermarket. The push away from shopping in-store has not been strong enough to make online delivery a weekly habit for a mass audience. During the pandemic, customers have built habits around the home delivery of food. This means there's a risk the number of customers going to supermarkets post-pandemic will not be high enough to make them economically viable. The supermarket's strength has always been the physical availability of their stores. This might flip and become their biggest weakness (cost) in a post-pandemic world.

New challengers have built new distribution channels and logistics networks. A new breed of logistics companies, a business once at the service of retailers, are building direct relationships with customers. Deliveroo and Just Eat in take away food, Ocado and specialists like Abel and Cole in groceries and meal boxes from Gousto, Hello Fresh and Mindful Chef. This creates a lot of value. So much so that Ocado's market cap (£19.03bn) is over 10 times that of Marks and Spencer (£1.88bn), it's new supermarket partner. Waitrose, which recently parted ways with Ocado, was interested in acquiring Mindful Chef, a competitor to Gousto. However, they fell out of the deal as Nestle became the front runner. Nestle acquiring a direct to consumer channel poses another threat to supermarkets as they fight to avoid disintermediation. There's a lot to play out in the coming months and years. The pandemic is accelerating a lot of trends simmering in the FMCG space right now.

From a customer angle, the more they get familiar with digital services for food, the more they will be pulled towards the conveniences of intelligent services that help them with the Job to be Done of eating well. Ultimately, supermarkets are still selling the product, whereas companies like Gousto are selling an end-to-end experience. If you're just operating at the product level and leaning too heavily on brand equity to drive demand, your business could be at risk of being disrupted.

Bonus bits

A couple of extras related to this week's post...

Customer Value and Banking as a Service

If you're in the financial services world and interested in how the customer value stack is impacting your industry, take a look at the latest report from 11:FS. Better banking business models: embedded finance and the path to growth. If you're not in financial services then I'd still recommend the report as Fintech is rapidly becoming a fourth platform where every company will be a fintech company. Gousto uses a few different fintech companies like First Data, SagePay and (another UK unicorn).

The Wheel of Progress. An interview with Eckhart Boehme

The next Jobs to be Done meetup is taking place this Wednesday 11th November at 18.00 GMT. Eckhart has produced a framework to gain an understanding of what progress customers are seeking. The Wheel of Progress aims to provide a systematic approach to research based on the Jobs to Be Done theory. Its goal is to facilitate the customer research process while creating actionable insights. I'm very much looking forward to speaking with Eckhart and understanding how he builds customer value. Join us, it's free to sign up.

← Interview with Eckhart Boehme about The Wheel of Progress
How to unlock growth when everyone is digital →

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