How To Disrupt The £10 Billion Coffee Shop Market
Managers and product innovators often tell me they have an idea that is disruptive. This first thing I say is: “you need to understand what market opportunities are available, then work forwards from there.”
However, we’re an impatient bunch, aren’t we! We just want to build our ideas, make something happen. I know, I've been there.
We think yeah, we will figure out all that market stuff along the way, learn who our early customers are, iterate till we know what they want and what they don't want.
The problem with this idea-led and iterative mind-set, is not that your ideas or iteration are bad, but that your idea will fail to respect that markets and customers are complex. Basically, what I am saying is it is highly likely your big disruptive idea is not just going to magically fit with what the market really wants. Iterating your way to success is fraught with problems.
You can find 1000 ideas every day that claim to be disruptive. 999 will not. Not because they are bad ideas, but because the market dictates if there is an opportunity for disruption, not your idea.
Iterating your way around a complex market of customer needs is a very high risk strategy. Without a very strong strategic alignment to the growth opportunity and customer value, you will not get the results that are expected.
Customers don’t actually want a coffee shop
Let’s say you wanted to disrupt the ‘coffee shop market’, then there is one thing that is going to mess up your big innovation plans; a misunderstanding of what a coffee shop customer actually values.
Coffee shop customers might buy a coffee, a cake or bite to eat but these are the products it sells and not actually what customers want. What customers really want is to get their ‘jobs’ done.
This is so fundamental to innovation it bears repeating again - customers don’t actually want a coffee shop, what they want is to get a ‘job’ done.
Being customer-centric is counterintuitive
We all want innovation to become more predictable right? Then we are going to need to learn how to become truly customer-centric in our thinking. However, being customer-centric is not actually very easy.
Like most things, it’s easy to say but hard to do.
Customer-centricity is hard because it’s counterintuitive. Just think about it – we naturally just say let’s go to the ‘coffee shop’, let’s get a ‘taxi’. We codify the world using ‘product’ names rather than describing the ‘jobs’ we are doing.
Getting customer feedback on your product is a step towards being customer-centric. However, it is only when we get in-depth understanding and analysis of your customers ‘job’ that you can really understand what your customers’ truly value.
It might seem at first that the differences between product feedback and customer ‘jobs’ is too subtle to make a difference. But the questions being asked and metrics being collected are a million miles apart.
What is the real market for coffee shops?
The UK ‘coffee shop market’ is interesting example of how easy it is to define the market around the product rather than define what customers value.
For example, Allegra World Coffee reports it is expecting the ‘coffee shop market’ growth to slow to 5% year on year for the next 5 years. This prediction is based on the limitations of the current coffee shop model and it current saturation in the high street.
“Allegra World Coffee Portal’s report revealed the total UK coffee shop market is now valued at £10.1bn across 25,483 outlets, following 20 consecutive years of growth.”
This kind of market sizing and growth analysis is obviously very useful, but for innovation purposes, it is distractedly misleading. Like we said earlier, to innovate you need to pinpoint what your customers value and what value gap you need to fill. What Allegra has done is focus on the sizing an industry and its products, but not the actual market.
In our analysis, the real market of coffee shops is far greater than £10.1bn. In fact, using the ‘job' as the customer definition of value, our estimate is that the UK market is in excess of $45bn.
Coffee shops just have a much smaller share of a much bigger market. This bigger market contains the competitors the coffee shop industry can't see. It also contains many growth opportunities that are also hidden if you see the market as coffee.
Understanding coffee shop ‘jobs’
In our situation we are trying to innovate, so the coffee shop is actually a solution and not the best way to define customer value.
To understand how to unlock more customer value and achieve growth we need to understand the ‘job’ the customer is trying to get done and how customers measure success.
We can define a ‘job’ market using the following approach:
customer group + job to be done + context
Using this approach our research identified that coffee shops actually serve 40 significant job-based markets (we found more, but they were very niche with low willingness to pay).
Below are half-a-dozen commonly cited job-based markets using the above formula.
1. Commuters + getting breakfast + on the morning commute
2. Business people + conducting informal business meeting + face to face
3. Friends + meeting up for refreshments + in town
4. Commuters + trying wake-up + on the morning commute
5. Shoppers + getting a light lunch + in town
6. Students & freelancers + getting computer work done + on the go
So, rather than looking at gross product sales, you identify the ‘jobs’ people use a coffee shop for.
Using this customer-centric lens we made our very different market size calculation. And, more importantly, you can now start to identify where the disruptive growth opportunities are, if there are any at all.
Finding market opportunities for innovation
Uncovering any innovation opportunity is pinpointing which customers need more help when getting a job done. In any market there are segments of customers struggling more than others and we need insights into who they are and what is causing them to struggle.
Each market is different across multiple variables, and therefore, what each customer group values is different. For most people like you and I, the six ‘jobs’ defined above can come up quite frequently in our daily, weekly and monthly lives.
But it is not you as person that is the center of this type of research, but its your ‘job’, and specifically, about how frequently you struggle to get each ‘job’ done. Yes we want to know about your customer persona, but only from the context of what causes you to struggle.
For example, ‘conducting an informal business meeting face to face’ has a very different set of customer success metrics, competitors and market size calculation than ‘get breakfast on the morning commute’. The value model is different.
These value model differences change how you need to innovate for each market.
Firstly, you need to know which ‘job’ or 'group of jobs' to focus on.
Now let’s consider our coffee shop example. You’re an entrepreneur and you want to create a new offering. The traditional way would be to look at coffee and food sales and make predictions based on this. You would, however, be guessing what jobs your customers have.
If you put the ‘job’ at the center of your research, you can calculate which jobs are most important, which are most unsatisfied and which of your products (e.g., coffee, cake, Wi-Fi, etc.) and which competitors are being hired . You can also calculate the market share that each coffee shops brand/competitor has for each 'job'.
To get this data we need to conduct both qualitative and quantitative research and apply software-based analysis techniques.
Evaluate, size and select a market
In the case of our entrepreneur, we would be trying to select markets based on:
1. Unsatisfied ‘jobs’ with attractive size
2. Best fit with the entrepreneur’s capabilities
3. Jobs that are not the core market share of coffee shop incumbents
4. A consideration of the long term objectives of the entrepreneur and other ‘jobs’ that could be targeted.
A key aspect of sizing a job-based market is understanding the customers’ willingness to pay. You need to be aware that all jobs are not equal and you need to evaluate the differences across many variables. Here are some typical variables that you will need to understand.
Number of job executors
Frequency of each job executor getting the job done, eg, how often does the job come up
Importance of getting the job done
Satisfaction of getting the job done
Willingness to pay to get the job done
Once you have your job based data it now becomes possible to start to isolate jobs that are attractive to the entrepreneur and less likely to be pursued by incumbent coffee shop brands.
A good disruptive strategy is niche to begin with and but then over time targets bigger markets, typically the core jobs of the incumbent brands.
Pinpointing the right innovation strategy
Finally, a detailed analysis of a clearly defined 'job' will build a deep understanding of between 70 and 120 customer needs. By measuring the importance and satisfaction of each need to each customer, you can get data that will build a customer segmentation model, grouping customers by how they are similar in their struggle to get the job done.
Segment scores for each need will reveal how each market segment is currently being served. Broadly there are three states – underserved, overserved or appropriately served.
Without this data it is going to be very hard to define and pinpoint which customers are served in which ways. These models are not very predictable. If you get your segment focus wrong the impact on downstream product execution is going to be costly and/or end in failure.
Below, the Jobs-To-Be-Done Growth Strategy Matrix developed by Anthony Ulwick, helps us to translates a customer segments struggle into a growth strategy and identify if there is opportunity for a disruptive strategy to be pursued.
We need to know if a ‘big enough’ segment of the market is overserved and/or contains significant numbers of non-consumers.
A disruptive strategy is about getting the job done worse and charging less (see the matrix).
When a market is overserved, they are paying for performance they do not need or want. They would be quite happy to sacrifice the high performance of current products as long as they could get a good enough product for a lower price.
Growth is about unlocking new customer value
Our coffee shop research established that there is huge growth potential for the coffee shop industry. However, to unlock that growth the industry players and entrepreneurs need to understand what customers really value.
The ‘jobs’ coffee shops serve are diverse and some with very different value models. Innovators need to be willing to go beyond the current coffee shop model and optimise value creation around a specific unsatisfied ‘job’ or a group of similar ‘jobs’. Focusing on incremental or sustaining innovations will be welcomed by customers, but that is not going to uncover and unlock disruptive or radical growth opportunities.
Moreover, if incumbents do not address the disruptive or radical growth opportunities that exist, they are leaving themselves open to ambitious new entrants stealing a march with a new and better model.
By focusing on ‘jobs’ you will get to know the real markets and market size and which segments of opportunity exist. You will know what growth strategy to pursue. You will know how market share is split and how well the job is being done by existing coffee shops brands and the competitor’s outside of coffee shop industry.
Most importantly you will know what customers value inside-out. You will know the right customer jobs and the right segments to focus-on so you can create a product that will align to what the market really wants.
Do you want to learn exactly how a Jobs-To-Be-Done approach might apply to your product or company? Book your FREE Innovation Strategy Session.