Groupon | E-commerce Retailer for Vouchers

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GrouponGroupon is a daily deals website operating globally. It has remained a popular option for those looking to find great deals and offers. In this article, we will look at 1) what is Groupon?, 2) products, 3) business model and key components, and 4) learning from Groupon’s success.

WHAT IS GROUPON?

The Company

Groupon began operations in 2008 from Chicago and shortly following this from Boston, New York City and Toronto. Within a year, the website began serving more than 150 markets inside the United States and about a 100 markets in Europe, Asia and South America.

The name is a play on the words group and coupon signifying the business of the company. The website is a daily deals provider that features gift certificates at a discount from different types of companies. Groupon was created by Andrew Mason with financial backing from a former employer, Eric Lefkofsky. Mason ran the company as CEO till 2013, when he was asked to leave the company after a failure to meet targets and raise profitability.

After enjoying rapid success initially, the company went into a negative spiral and reported a fourth quarter loss of $9.8 million in 2011.

History of Groupon

Mason’s project began as a campaign and fund raising website called ThePoint.com. The website used a system called ‘the tipping point’ which meant that a donation would only be charged if a certain number of people contributed to the campaign. When the business transitioned from ThePoint to Groupon, the same idea was used, meaning that a Groupon deal only went through if a certain number of people bought it. If this limit was reached, then Groupon would charge its fee otherwise it would not. This was a major point of encouragement for vendors to come onboard and offer different deals to draw in business.

The first deal was an offer on pizza at half price from a restaurant on the first floor of the Groupon office in Chicago in October 2008. Twenty people bought the deal. Groupon quickly expanded within the US and went from calling multiple vendors every day to ask for deals to accepting only one in eight vendors that wanted to be featured on the site.

Groupon continued its expansion by moving into international markets. One way of doing this was by purchasing and rebranding existing similar deal-of-the-day services. Some of these have been MyCityDeal in Europe, ClanDescuento in South America, Qpod.jp in Japan and Darberry.ru in Russia. Others have been Beeconomic.com in Singapore, SoSasta.com in India, uBuyiBuy in HongKong and GroupsMore in Malaysia. All of these were acquired between 2010 and 2011. In 2012, the company purchased Mertado, a Facebook based social shopping service and Breadcrumb which is a point of sale system and application for iPads targeting local restaurants. Based on these purchases, Groupon created access to other types of businesses to add to its repertoire. By the end of 2012, the company also purchased Savored which was a high end restaurant reservation and discount site. This gave the company access to these higher end restaurants, as well as a separate independently run business.

These acquisitions continued in 2012 with a real-time location sharing mobile application called Glassmap and a European travel application called Blink that provides short notice hotel reservations. In December 2013, the company reported the highest weekend of sales since it was founded in 2008, with billings up 30 percent year over year.

Markets

Any new market targeted in first explored and mapped out by employees who identify successful local businesses. These are then approached with an explanation of the Groupon model and social media sites are used as promotional tools.

At present, Groupon serves nearly 500 markets in 48 countries. These include markets in the United States, Mexico, Puerto Rico, Brazil, Chile, Colombia, Argentina, Peru Thailand, the United Arab Emirates, Turkey, Israel, Singapore, Malaysia, Hong Kong, China, Russia, South Korea, Japan, Taiwan, Indonesia, India, South Africa, Morocco, Canada, the United Kingdom, Ireland, Germany, France, Belgium, the Netherlands, Romania, Ukraine, Poland, Italy, Spain, Portugal, Finland, Sweden, and Norway.

In 2011, the company launched in China with a joint venture. Groupon and Tencent joined together to launch Gaopeng. The venture struggled initially and eventually merged with Futuan. In the same year, Groupon also expanded in the Middle East with the launch of Groupon UAE as well as into New Zealand.

Groupon’s Indian expansion came about with the purchase of a local version of itself called SoSasta also in 2011. The new venture was named Crazeal later that year and with the acquisition of the relevant domain name it was once again renamed to Groupon by 2012.

Learn How Groupon Works!

PRODUCTS

Groupon products are not targeted towards everyone as the offered deals are most often in the category of things people want rather than the things they need. The major target audience are young urban professionals who want to explore the city they are in at an affordable manner. Groupon deals allow people to try out products and services that they may otherwise not have attempted to purchase. The most common types of Groupon deals are for:

  • Restaurants, bars, hotels, bed and breakfasts, and getaways
  • Spas and resorts
  • Fitness centers and specific classes such as yoga, Pilates, or spinning
  • Hair and nail care
  • Cosmetic dentistry procedures and other cosmetic procedures
  • Laundry and dry cleaning
  • Assorted classes
  • Small local retailers

Most often, the deal is a 50 percent discount on a specific product or service. The deals can range from $20 to $2,999 for a variety of items. There are restrictions that apply to almost deals. There are expiration dates on usage or deals only for new users. Some restaurants may offer deals on a restricted menu excluding alcohol. For this reason, all fine print should be read carefully when deciding to avail a deal.

BUSINESS MODEL & KEY COMPONENTS

The Groupon business model has shown immense promise in the past. Though recently there has been some criticism based on the company’s inability to meet profit targets, a change in management could prove to be the solution needed by the business to continue its past success. Any business model is made up of several components that interact with each other. The Groupon business model has the following components.

Business Model Components

Key Partners

Mainly, Groupon’s partners are the companies that offer deals on the website. In addition to these, there are also the investors that have injected capital into the enterprise since it was a startup.

Key Activities

Key activities for Groupon may include

  • Acquisitions of companies and negotiations of partner setups
  • Creative writing for daily deals
  • Website maintenance and upgrades
  • Customer communications
  • Customer data management
  • Advertising decisions

Key Resources

Key resources are those assists that are vital to keep the business going. For Groupon, these resources include intellectual ones such as detailed customer databases. These databases allow customization of offers for the clients. The established brand name garners trust and is a vital asset. The people who work for Groupon are vital for their creativity and innovation. Financial resources are also necessary to continue to expand and serve clients in the best way possible.

Value Proposition

Groupon’s value proposition to its clients is the offer of low prices for items that the customer wants together with convenience and accessibility. The deals are localized to ensure that the right people are offered the right deal.

For businesses, Groupon offers a connection to the right client base, offering a platform for advertising, as well as the opportunity to generate new clients. The time limit on deals ensures that people buy immediately when otherwise they would stop and think. The tipping point allows for the business to gain enough offers for a deal to make it viable for them to sell it.

Customer Relationships

Highly customized emails open a channel of communication with the customer that helps retain customer for future repeat business. Customers are offered items of their interest and kept updated on what is offered.

Customer Segments

Broadly, Groupon has two segments of customers. The first is the customer who wants to buy the deal on offer and the second is the business who is offering this deal. These two segments have drastically different motives and Groupon needs to work to create a balance between them. According to Groupon, a majority of their users are women. Generally, the segment is made of younger users who range in age between 18 and 34. The company further segments them based on their demographics, purchase history and interests.

Channels

Groupon uses various communication channels to reach clients. These include personalized regular emails. Another channel is regional and national advertising campaigns to reach even more customers and encourage them to use the service. Other advertising channels include newspapers, magazines and even radio and television.

Cost Structure

One of the main costs for the company are advertising. This includes the personalized and regular emails, as well as all other channels. Other part of costs are infrastructure which include office space, servers etc., as well as human resource which is the employees. Yet another aspect of the cost structure is the massive investments the company makes for expansion usually through acquisitions.

Revenue Streams

Groupon’s revenue streams are based directly on the number of deals sold and the actual cost of the deal. Groupon charges for deals that meet minimum user criteria. Businesses are also charged a subscription fee while the service remains free for the customer. Ad space is also sold as a small revenue stream.

Groupon USP

Groupon has many competitors that offer a similar or competing product offering. What makes Groupon unique is their prices and the type of deals they offer. Groupon uses a large sales force that successfully negotiates deals from businesses for clients. As for the type of deals on offer, the company has managed to successfully create a business based on what customers want rather than what they need. Offering attractive discounts on these wants ensures that people remain tempted to keep coming back. Groupon has also leveraged excellent writing, humor and media such as email to maintain a connection with the customer base.

LEARNING FROM GROUPON’S SUCCESS

Lessons to Learn for Entrepreneurs

Creating an Online Organizational Personality

Essentially, Groupon relies on people to read through a daily deals newsletter. Most often, people are likely to get bored with these after a while and unsubscribe. Groupon has managed a series of steps that ensure that the likelihood of this happening is significantly reduced. Some of these steps are:

  • Creating Personality: When a person clicks unsubscribe to a Groupon email, they get to meet Derrick. The photo below shows who Derrick is. This interesting, somewhat personal image may get a laugh out of people and encourage them to subscribe again.

A likable online personality makes it relatively easier for a company to build and maintain customer loyalty and interest. This loyalty makes it easier to deal with any actions or events that may otherwise damage the brand. Most businesses can achieve this to some degree by adding some extra interest in their web based communications and their websites. Whatever attempt is made to create a personality however, should be in keeping with the brand’s identity and support overall long term goals.

  • Create a Blog: A blog can be a great way to stay connected and show the human side of a business to its clients. A blog is more informal and allows a look into the people who are behind the brand. The level of customer engagement that can be achieved through a blog is difficult to achieve through other mediums. A blog starts a conversation that allows readers to join in to respond, critique and share points of view. In addition, a blog offers a great way to achieve organic search engine optimization.
  • Focus on Website Content: Many companies may spend a lot of resources on having a fancy website designed and created, but not pay too much attention of what material is to go on it. Well written content that supports the company philosophy can help create an interesting corporate personality. Functional content is not enticing for viewers and will not be a source of repeat visits.
  • Be Interesting on Social Media: Take Twitter as an example. There are many organizations that post in a generic detached sort of way. This can be boring and uninteresting for readers and they will not care about the brand at all. There should always be some basic organizational criteria to stay within when positing on social media, but beyond that, the people responsible for these pages and posts should be encouraged to inject personality into them by posting interesting links, continue conversations, and be humorous – all in keeping with the persona that the company aims to create.
  • Respond: A likeable company will most likely be one that responds to queries, criticism, feedback and observations in a timely way. This includes any mediums being used such as Twitter, Facebook, a blog, or other blogs where the company may be mentioned. An individualized response shows that there are human behind a brand who are sympathetic and caring.

3 Business Lessons to Learn from Groupon

The Groupon business is not new or particularly innovative. It is the way the business is run that forms the basis of its popularity. There are three major lessons than any new business can learn from the Groupon example. These are:

  • Keep it Simple: Groupon sells a simple product – great deals – in a simple way. The methods are easy to understand and the website is easy to use. This ensures that potential customers are not scared away by the need to understand a complicated offer.
  • Differentiate by Branding: Groupon can essentially be seen as a simple newsletter campaign that sells coupons. The most frequently used channel of communication is email which is not the most innovative form of reaching the customer in today’s world. However, by ensuring highly customized emails that are tailor made for the recipient and excellent writing to make them readable, the company has managed to create a differentiated image for itself.
  • Solve a Problem: Groupon solves problems for both the vendor who offers a deal and the customer who buys it. The vendor is able to gain some publicity as well as new users or members. The customer is able to secure a great price for a product or service that they may want and is not a necessity. This ability to be a problem solver keeps it a popular intermediary.

Andrew Mason: What I’ve Learned at Groupon

Potential Problems

While Groupon continues to make sales and connect customers with vendors, its profitability remains a question mark. The company fired its CEO and founder in 2013 in light of continued inability to become profitable and falling stock prices. Companies like Groupon are easy to setup but appear to be difficult to sustain. The challenge is to keep both customers and vendors happy and this is no easy endeavor as both have drastically opposite goals. These challenges will require the company to rethink its strategy and business model in order to remain relevant and profitable.

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