Marc Andreessen was once asked what message he’d put on a billboard. His answer: “I’ve actually thought about hiring a skywriter to do this one. Right in the heart of San Francisco would be a billboard with just two words on it: Raise Prices.”
He was mostly referring to charging more for the same product, which is usually good advice. But there’s another interesting spin on this idea, embodied by a meal delivery startup called Tovala. The company is essentially taking the Blue Apron model (which famously crashed and burned) and trying to improve it, mostly by charging more up front.
Blue Apron has had a painful life as a public company; the stock is down about 98% since its IPO. The meal kit delivery pioneer has struggled with customer acquisition costs and lifetime value. When Blue Apron went public, it looked like a pretty simple money machine: According to its prospectus, it would pay $94 to get each new customer, those customers would spend $606 in their first year, $261 the year after, and diminishing amounts after that. But as long as Blue Apron kept acquiring new customers at reasonable prices, and kept them on the platform for long enough, they’d pay back the marketing cost and then some.
Both assumptions turned out to be wrong: Once Blue Apron was up and running, competitors figured out the same math and started bidding for the same customers. And since they were bidding in the same channels Blue Apron used, they were also targeting existing Blue Apron customers. So, not only did the cost to acquire a given customer rise, but each customer’s lifetime value declined.
Plus, Blue Apron had always faced the problem that some customers just didn’t like the product. They’d order a meal kit when they were feeling culinarily ambitious, but when they got home tired from work and were half an hour of meal prep away from eating anything good, they’d default to leftovers or delivery. On the other hand, the company’s success created its second problem: The customers who liked meal-in-a-box products liked the competition’s just as much.