Groupon Case Analysis

Overview of Groupon:

Groupon is a marketing services company that promoted local business by selling deeply discounted vouchers for their products and services. It was launched in 2008 in Chicago, Groupon is already present in 47 countries, 5 continents and more than 750 cities all over the world with more than 10,000 employees, 200 million subscribers, and an enviable position as the daily deals leader of the world. The company works as an intermediary between consumers and local merchants by selling discounts online.
The concept of Groupon is seen as an emerging marketing tool for local merchants and a new shopping experience for consumers. One of the main promises of Groupon is to enable customer’s loyalty and customer retention to
merchants. However, merchants’ perception is that the customers that redeem the coupons do not come back and pay full price for the service/product provided.
Groupon has presence in Dining, Salons and Spas, lessons, Entertainment and Cultures, recreation and Travel, Perishables, Apparel etc, in wide variety of business.
This presence is due the fact local business faces a variety of challenges of reaching customers because of their tight budget, lack of expertise, lack of adopting new technology and media. The lure of an outsourced online promotion with no up-front expenses as compared to traditional advertising helps Groupon in driving position by attracting local merchants to do business with them. Groupon took full advantage of social media to market their services as well as they have inside sales team for business over phone or email.

The Problems:
Although Groupon is the fastest growing company ever, but its financial position is very bad. As presented in the paper, Groupon never saw its profit since inception. It has tremendous top-line growth but no profit. Some says it is not worth of multibillion-dollar value. Although at the very first day of trading, its stock price was more than 30% but after several months stock price was declining. Some question about its business model. It also faces tremendous competition from its competitors like Google and copy cats.

Internal
Analysis
Groupon helps merchants to generate revenue by discounting specific product for a specified period of time with hope merchants will sell not only large volume of listed products or services but also other products or services and ultimately Merchant will have huge revenue at the end of the deal. Consumers are also happy as they get product in reduced price and its discount generally it is at least 50% of list price. Merchants need to sign with Groupon for promotion and Groupon decided which product or service to be offered. The deal was activated when minimum numbers of customers buy this promotion which is set by Merchants. Groupon’s standard agreement was a 50/50 split of voucher revenues but sometimes Merchant can negotiate on this issue.
50/50 split of voucher revenue helps groupon to increase their revenue better than 60/40 split of revenue. 50/50 split generates more revenue but loses Merchants loyalty because merchants will not be benefitted with this term rather Merchants will prefer term which will generate more revenue for them. Although this will generate less revenue but it will have long term positive effect. More merchants will be attracted with this term which will in turn generate more revenue. Sometimes these merchants will help Groupon to brand them to other merchants.
The success of Groupon’s daily deal depended on a variety of factors such as mix of new versus existing customers, upside spending at the time of redemption, and success converting discount buyers into regular customers. Surveyed data shows only 22% customers who made 1+ repeat visit. This percentage is not good. They should focus on this issue. On the other hand it found that 95% of Merchants would run another deal with groupon which is very good indication.
It is found in the paper that both Merchants and customers expressed Low level of satisfaction and loyalty.
Local businessman faces difficulty to best structure and operate a deal only 66% deal was profitable. 50% up sell to customers for more than face value of the coupon. 31% customers turn to full price customers 31%. Customers changes from savvy – customers to the general population and End user customers get low quality service and bad experience from the local business and lot of not redeeming customers are available.
It has been observed that Groupon is spending too much on marketing rather giving some incentives to merchants by more profit sharing. Their business model does not carter each merchants needs. They have to explain all pros and cons running a deal to the merchants. Each merchant has unique requirements for running business they have to analyze merchants need and find a way to fit in Groupon’s strategy.
Another issue Groupon is expanding too quickly without having any clear mission and vision statement. They do not have any check and balance approach whether it is feasible to expand too quickly or not. If you look at the sales revenue and never look at the expenditure then you will not survive in the long run. When you have a very organization with not check and balance approach then it is very difficult to control and suddenly you will find everything is
collapsed.

External Analysis
Groupon expanded rapidly into new markets. Within one two years, by the end of 2009 the company was running daily deals in about 30 US and Canadian cities. By the end of 2011 it expanded its business in 48 countries and more than 500 cities. They have 33.7 million subscribed customers worldwide. They were expanding so aggressively both nationally and internationally that their revenue was quintupled from $313 million in 2010 to $1.6 billion in 2011.
Despite this excessive growth they could not reduce their losses in successive years. Groupon spent heavily on customer service, consumer advertising and merchant sales forces that comprises 45% of company employees. These expenses led to operating lose despite the company’s strong top line.

Ethical Issues:
Running a deal is fully depends on Goupon. Merchant does not have to choice which product or service they would like run a deal to generate revenue or sometime they want get rid of inventory of certain products. This approach is not fair. Grouopn can advise Merchants that some product or service will generate revenue for them but they should not direct merchants that they have to run deal for this or that kind of product or service. Groupon can approach merchants that customer are looking for certain kinds of product or service by analyzing their choice of preferences and if the merchant run this deal then it will be more profitable for both Groupon and Merchants.
Many merchants complain that Groupon’s structure does not fit their carters. Groups should explain clearly all pros and cons to the merchant so that they are well understood before signing off for running a deal.
Another issue with not to disclose redemption rate. Redemptions begun with a big surge in the first month after a deal was run and then decline to a steady rate and then spiked again shortly before expiration. Some customers never redeemed their voucher. Groupon did not disclose non-redemption rate. This redemption rate ranges from 10 to 30%. This is not fair when revenue generation depends on redemption of coupon. Merchants are doing business with keep in mind when customers redeem their coupon they will buy more. For groupon not to disclose may be good for the short term goal but doing business with Merchants in the long run will not be good for Groupon. In today’s world nothing can be hiding. Somebody will find out the truth. Groupon can play proactive role in this regards which will help them continue to do business. Some customers complain they received low quality service from local merchants which has bad affect on Groupon business. This kind of complains are viral, spreads very rapidly among other customers. Groupon has to be careful when doing business with service/patrons Merchants. Groupon can guide the merchants how to run a deal successfully or they can put a note on coupon like while quantity last better to show up early to avoid running out merchandise etc.
Groupon said they found 2000 clone worldwide. There is no ethical issue involve doing cloning as long as there is not copy right protection or patent protection. Anyone can do any business and nobody should not interfere if they follow all rules and regulation imposed by government.

Challenges:
The core business of groupon is very simple. It neither held any inventory nor carrying out fulfillment instead relying on merchant partners. It requires mass emailing, transaction processing and a website which is very simple and readily available. Any organization with customer database and a business sale functions could offer its own daily deals.
Because of this simplicity in functions there are 2000 ‘direct clones’ worldwide which makes very difficult to compete. One of its largest competitors is LivingSocial which has 5000 employees serving 65 million customers in 22 countries.
Some competitors serve niches with better margin for merchants, likes OpenTable(restaurants), knot(wedding) and Travelzoo(travel). Some competitors tried to win merchants over by offering lower fees or leveraging other media. But analyst predicts the real threat for groupon is Google and Facebook, each of which announced its own daily deals offering.
One challenge is to reduce excessive expenses. These expenses led to operating lose. Because the spent too much on acquisition, customer service, advertising and merchant sales force. Another challenge is to streamline sprawling operations and to manage influx of new employee which contributing to occasional service failure and other snafus.

Future of Groupon:
Every company has a vision of continuous growth. Company like Groupon suffered from financial loses. As a result to keep track on doing business they have restructure their business strategy as well as they have focus on reducing expenditure. To continue business in the competitive market Groupon has to do beat thousand of clones as well as smartest technology company like Google. They have to focus on encouraging more merchant to do business with them by allowing 60/40 split of revenue as well as reducing fees. They have to give customer more flexibility to redeem their coupon and more lucrative offer for consumers like if they revisit they will get more discount like customer loyalty rewards. If the consumers do not revisit then merchants will not do business with Groupon.
They can analyze the issue why redemption rate decline in the middle of the period and can give customer lucrative offer so that they redeem their coupon in slow period thus enabling Merchants to do business with them.
They can look for new opportunity in new cities or countries. They can introduce new system which will allow them to manage more merchants, consumers effectively and efficiently and of course within shortest period time so that they can reduce overhead cost.
They can refocus their partnerships to be mostly larger companies/online platform that can handle large customer influx. They become niche distributor and can create a division devoted to handling small business
Groupon introduced new initiatives Groupon 2.0 to stay ahead which is good news indeed. This will allow merchants to define and run their own deals. But response to Groupon 2.0 is not satisfactory. One service was shut down but other was performing well. Groupon management is optimistic that this will be a powerful suite of merchant marketing solution. Groupon rewards and Groupon now will open doors to a ‘Multi-trillion dollar” business opportunity.