Groupon’s business model is based on the theory that everyone loves a great deal
ID: 380546 • Letter: G
Question
Groupon’s business model is based on the theory that everyone loves a great deal. Groupon is a popular “deal of the day” Web site offering discounted gift certificates usable at local or national companies. Each day Groupon e-mails its subscribers discounted offers for goods and services that are targeted by location and personal preferences. Consumers can also access its deals directly through its Web sites and mobile applications.Customers purchase Groupons from the company and redeem them with affiliated merchants. The discounts are huge—usually 50 to 90 percent off. But there’s a catch: A deal becomes available only if a certain number of people sign up for a specific daily Groupon offer. If the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as quantity discounts as well as sales promotion tools. Groupon makes money by keeping approximately half the money the customer pays for the coupon. Groupon personalizes “deals” for users who supply some information about themselves, such as their zip code, gender, and age—and it will make sure you see the deals most relevant to you. Subscribers who opt for personalization still receive information about their location’s featured deal of the day as well, and they can also pass along deals to their friends via e-mail or broadcast them to their social networks. Groupon Now! is Groupon’s service for mobile users. Subscribers can buy Groupon Now! deal vouchers on a mobile touch site, touch.groupon.com, or through the iPhone or Android app. Most Groupon Now! deals are only valid for a few hours and have a limited quantity. This is how Groupon Now! works for customers: 1. The user enters his or her location to find deals nearby. The user chooses the type of deal he or she would like to see. 2. If the user finds a deal he or she likes, that person “buys” the deal online via Groupon. The user can print the voucher or bring it up to display on a mobile device. 3. The user presents the Groupon Now! deal voucher to the merchant within the specified time frame and receives a discounted “deal” on movies, restaurants, or retail items. For merchants, Groupon Now makes it easy for them to launch discounts and special offers during the times when they are least busy. Groupon grew to $500 million in revenue in just three years, faster than eBay or Amazon, and now offers more than 1,000 deals each day in over 48 countries. However, since going public in November 2011, Groupon’s stock has fallen about 70 percent, owing to high business costs and a failure to lock in repeat transactions with merchants and customers. Groupon also faces increased competition from both Amazon.com and Google, which started their own daily deal businesses. Google offered to buy Groupon for $5 billion in 2011, but was rebuffed. Groupon has attempted to move beyond the group coupon business, into the selling of goods (Groupon Goods) and Groupon Payments (a mobile payment service). In 2012 it rolled out Breadcrumb, a point-of-sale iPad application for hospitality businesses, like restaurants and bars, to manage transactions. The goal, Groupon executives have said, is to turn the company into the back-end engine for local commerce. Despite growing 20% in revenues in 2015, and forecasting 30% growth in 2016, analysts are not impressed. Groupon’s stock has fallen from $30 a share five years ago to $3 a share in 2016. Analysts are not convinced that Groupon can ever become an successful online retailer and compete against Amazon, or a mobile payment system that can compete against PayPal. Even in the coupon voucher business, it faces stiff competition, including Facebook. Some analysts argue that its business model is not based on an innovative Web solution for finding customers, but revolves around a sales force in Chicago that calls merchants to propose voucher marketing programs. In the Internet age, a sales force turns out to be very expensive.
1. What are the weaknesses of Groupon’s business model described in the videos?https://www.youtube.com/watch?v=tgeh607ZXA0 : https://www.youtube.com/watch?v=9mjpVDEydxs
2. What features of contemporary e-commerce does Groupon Now! utilize?
3. What value does this service provide subscribing merchants? What value does it provide customers?
4. What kinds of businesses are most likely to benefit from using Groupon?
5. Visit Groupon’s Web site and enter your zip code. What kinds of deals are displayed? Would you use Groupon? Why or why not?
Explanation / Answer
Although the groupon has strong network base as company have hundreds of representatives who signed up with the retailers but still there are some weaknesses in this business model. First one is the strong competition from the internet based other competitors. Moreover merchants have issue with the company and the company is not so loyal with the merchants. It is very difficult to sustain this business model because marketing cost is too high. Groupon is using social networking path to enhance his marketing deals. Moreover they have started providing location based service for their customers. Groupon bring new customers for the merchants in lieu of fact that the customer will shop again and again from the merchant. For this the company offers heavily discounted vouchers to the customers in order to attract them. Business which have hgh profit margins can be done by groupon like dealing in jewellery, big automobiles etc. When I visited the website the site asked for the email address. Once i entered the email id they showed me many offers. But as I am from India I don’t find this reliable to get the product in other country from Chicago. No I will not use groupon. Refund policy is also not clearly mentioned.
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