Is it better for Deliveroo to focus on increasing order frequency or growing the average order value?

Introduction

Is it better for Deliveroo to focus on increasing order frequency or growing the average order value? This trade-off question strikes at the heart of Deliveroo's growth strategy. We'll need to carefully consider the implications for user behavior, revenue, and long-term sustainability.

To address this, I'll follow a structured approach:

1. Ask clarifying questions
2. Identify the trade-off type
3. Analyze product understanding
4. Develop hypotheses and potential impacts
5. Define key metrics
6. Design an experiment
7. Plan data analysis
8. Create a decision framework
9. Provide recommendations and next steps

Step 1

Clarifying Questions (3 minutes)

• Context: I'm thinking about Deliveroo's current market position. Could you share any recent changes in market share or competitive landscape?

Why it matters: Helps understand external pressures influencing the strategy. Expected answer: Increased competition from new entrants. Impact: Would lean towards frequency if market share is threatened.

• Business Context: Based on Deliveroo's business model, I assume commission is a percentage of order value. Is this correct, and are there any fixed fees per order?

Why it matters: Affects the financial impact of frequency vs. order value. Expected answer: Commission-based model with small fixed fee. Impact: Higher order value might be more profitable if fixed costs are significant.

• User Impact: I'm curious about user segmentation. Do we have data on the behavior of frequent vs. occasional users?

Why it matters: Different strategies may be more effective for different user segments. Expected answer: Frequent users have higher lifetime value but lower average order value. Impact: Might suggest a dual strategy targeting different segments.

• Technical: Considering our current infrastructure, are there any technical limitations to scaling up order frequency?

Why it matters: Ensures the chosen strategy is feasible to implement. Expected answer: Current system can handle increased frequency with minor upgrades. Impact: If significant technical barriers exist, might favor order value growth.

• Resource: What's our current marketing budget allocation between user acquisition and retention?

Why it matters: Indicates available resources for implementing either strategy. Expected answer: 60% acquisition, 40% retention. Impact: Higher retention budget might favor frequency increase efforts.