Week 4 (c) - GROUPON’S BUSINESS MODEL: SOCIAL AND LOCAL

INTRODUCTION

Groupon (a portmanteau derived from "group coupon") is a deal-of-the-day website that features discounted gift certificates usable at local or national companies. Groupon was launched in November 2008, and the first market for Groupon was Chicago, followed soon thereafter by Boston, New York City, and Toronto. By October 2010 Groupon served more than 150 markets in North America and 100 markets in Europe, Asia and South America and had 35 million registered users.

The idea for Groupon was created by now-ousted CEO and Pittsburgh native Andrew Mason. The idea subsequently gained the attention of his former employer, Eric Lefkofsky, who provided $1 million in "seed money" to develop the idea. In April 2010, the company was valued at $1.35 billion. According to a December 2010 report conducted by Groupon's marketing association and reported in Forbes Magazine and the Wall Street Journal, Groupon was "projecting that the company is on pace to make $1 billion in sales faster than any other business, ever". However, a report from Forrester Research in October 2011 suggested that the Groupon business model was a "disaster" and that the firm had become an example of "how fast an Internet darling can fall.

Business model

The company offers one "Groupon" per day in each of the markets it serves. The Groupon works as an assurance contract using ThePoint's platform: if a certain number of people sign up for the offer, then the deal becomes available to all; 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.

PROBLEM OF STATEMENT

    1.       How does Groupon take advantage of social networking and location technology?

    2.       Do you think this business model is viable? Why or why not?

SUGGESTION AND ACTION

QUESTION 1:

How does Groupon take advantage of social networking and location technology?

ANSWER:

Since its launch in 2008, the daily deal Web site Groupon has become so popular and so profitable that it passed on a $6 billion buyout offer from Google in December 2010 [source: Ovide]. Groupon has achieved fame and fortune by putting a Web-savvy spin on the boring old coupon. But to understand how Groupon works, let's start with how coupons work.

A coupon is what is called a loss leader. A loss leader is any kind of sale, promotion, discount or special offer that entices customers to walk in the door. The business will almost certainly lose money on the discounted items, but the hope is that the customer will also spend money on other items, or even better, become a regular customer. Coupons typically have an expiration date and offer modest discounts; perhaps a dollar off specific grocery store items or a 15 percent discount at a major retailer.

Groupons are like coupons on steroids. The deals offered daily through Groupon start at 50 percent off and can go as high as 90 percent cheaper than the normal price. Groupon can offer such steep discounts because it guarantees business owners a minimum return on their investment and the possibility of becoming an overnight sensation. Groupon claims that its service is a win-win for both businesses and consumers, but there are some disadvantages. Groupons was using their strategies to take advantage of some culture that interested with discount.

Nowdays, Social, local, mobile are three words marketers are hearing more and more these days. Sometimes we may even hear them uttered together in one breath as SoLoMo. With an increase of users relying on mobile phones, tablets and their accompanying geo-location technology, businesses today are increasingly finding the need to think locally.

QUESTION 2:

Do you think this business model is viable? Why or why not?

ANSWER:

In our opinion, this business model is still viable because the increasing the numbers of social networking user that will increase the numbers of Groupon's customers. Other than that, increasing the online business will help this kind of business model to growth healthy.

• ·         Ability to get more profit
• ·         Inexpensive deal
• ·       Currently social connectivity is proven as a platform to selling goods and services on the internet.
• ·         Groupon serves 500 markets in 44 countries.
• ·         Groupon also need to strategize the marketing and business in order to maintain their profits.
• ·         Groupon also need to maintain and increase competitive advantage for their products and services.