Analyzing Groupon: Weaknesses, Features, and Value for Merchants and Customers

QUESTION

(a) The Real Deal With Groupon
URL http://www.youtube.com/watch?v=tgeh607ZXA0; L=12:42
(b) Introducing Groupon Now!
URL https://www.youtube.com/watch?v=9mjpVDEydxs; L=1:00

SUMMARY: Groupon is a popular leading daily-deals site on the Internet, with nearly 50 million
active users. In 2011 it was the fastest growing company in the history of the
Internet, but in 2012 it imploded to be one of the fastest falling stocks on Wall Street.
Groupon Now! is a Groupon location-based service that finds local deals you can
buy and use immediately using your mobile phone. It is also used by merchants
to attract customers during their least busy hours. Groupon+ is a new product
that links users credit cards to their Groupon accounts and receive the discounts
automatically. It is one of several new initiatives from Groupon as it seeks to expand
beyond the vulnerable daily-deals marketspace.
CASE 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. Originally focusing on local restaurant deals, Groupon has deals
on travel, retail goods, health and beauty, and entertainment. Groupon sees itself as
supporting local e-commerce, and local merchants who honor the groupons.
Groupon makes money by selling its vouchers or “groupons” to local merchants as
a form of advertising. For consumers, the service is free, and the discounted items
provide savings from retail prices.
Customers purchase Groupons from the company and redeem them with affiliated
merchants. The discounts can be 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 went public in November 2011, and it’s stock quickly shot up 30% to $36.
Groupon grew to $500 million in revenue in just three years, faster than eBay or
Amazon, and now offers thousands of 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. In 2019 its stock is selling for $3.50 to $4.00 a share.
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. Groupon
generated $2.6 billion in revenue in 2018, about the same as 2014, and lost $11 million. In
2014 it lost $73 million. Analysts are not impressed. Groupon’s stock has fallen every year
since its IPO despite efforts by management to develop new products and services.
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.

VIDEO CASE QUESTIONS
1. What are the weaknesses of Groupon’s business model described in the videos?
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?

ANSWER

Analyzing Groupon: Weaknesses, Features, and Value for Merchants and Customers

Introduction

Groupon, once the fastest-growing company on the Internet, faced a significant decline in stock value and encountered challenges with its business model. This essay will delve into the weaknesses of Groupon’s business model, highlight the features of contemporary e-commerce utilized by Groupon Now!, discuss the value provided to subscribing merchants and customers, identify the businesses most likely to benefit from Groupon, and provide personal insights based on a visit to Groupon’s website.

Weaknesses of Groupon’s Business Model

Groupon’s business model presents several weaknesses. Firstly, the heavy reliance on a sales force to propose voucher marketing programs is expensive and not scalable in the Internet age. Additionally, Groupon struggled to secure repeat transactions with both merchants and customers, leading to declining stock value. The high costs associated with the business and failure to lock in long-term relationships posed challenges for sustainable growth. Furthermore, increased competition from companies like Amazon and Google entering the daily deal market added pressure to Groupon’s business model.

Features of Groupon Now! Utilizing Contemporary E-commerce

Groupon Now! capitalizes on several features of contemporary e-commerce. Firstly, it leverages mobile technology by offering a location-based service that allows users to find local deals on their mobile devices. This demonstrates Groupon’s adaptation to the rising popularity of smartphones and the convenience they provide. Groupon Now! also utilizes limited-time offers and real-time inventory management, allowing customers to access deals for a few hours with limited quantities. This creates a sense of urgency and scarcity, leveraging the principles of contemporary e-commerce.

Value Provided to Subscribing Merchants and Customers:

Groupon Now! provides substantial value to both subscribing merchants and customers. For merchants, the service offers a platform to launch discounts and special offers during their least busy hours, effectively driving foot traffic and increasing sales. Groupon’s vast user base and targeted marketing enable merchants to reach a large, local customer segment. Additionally, Groupon+ allows users to link their credit cards to their Groupon accounts, facilitating seamless and automatic discounts, making it convenient for customers to redeem deals and save money. The service caters to customers’ preferences and provides savings on a wide range of products and services.

Businesses Likely to Benefit from Groupon:

Groupon is most likely to benefit businesses that have perishable inventory, excess capacity during off-peak hours, or rely on foot traffic. Restaurants, spas, entertainment venues, and local retailers can leverage Groupon to attract customers during slower periods, increase brand exposure, and potentially turn first-time customers into repeat visitors. Groupon provides a means to engage with the local community and offer value-driven deals to encourage patronage.

Personal Insights and Evaluation of Groupon

Upon visiting Groupon’s website and entering my zip code, a variety of deals were displayed, ranging from local restaurants and spas to fitness classes and retail goods. The selection of deals catered to different preferences and demonstrated the diversity of offerings available through Groupon. As for whether I would use Groupon, it depends on the specific deal and my needs at the time. Groupon can be an excellent tool to discover new local businesses and access discounts, making it attractive for exploring new experiences or saving money. However, it is crucial to assess the terms and conditions of each deal to ensure it aligns with personal preferences and requirements.

Conclusion

Despite facing challenges and weaknesses in its business model, Groupon remains a significant player in the daily deals market. Groupon Now! utilizes features of contemporary e-commerce, such as mobile technology and limited-time offers, to provide value to both subscribing merchants and customers. Businesses with perishable inventory and excess capacity during off-peak hours are most likely to benefit from Groupon. As a user, Groupon offers the potential for exploring new experiences and saving money, making it a valuable platform when used judiciously.