Groupon business model

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Groupon business model

  1. 1. Observations on Groupon’s business model – a primer<br />Christian Dahlen<br />Nov 2010<br />www.linkedin.com/pub/christian-dahlen/1/447/4b3<br />
  2. 2. Content of this document<br />Business model<br />Revenue model<br />Customers<br />Merchants<br />Competitors<br />Economic characteristics<br />
  3. 3. GROUPON BUSINESS MODEL<br />Customer signs<br />with Groupon<br />Deal reaches critical mass<br />Customers pay Groupon<br />Customer redeems coupon at merchant<br />Groupon features deal<br />Groupon pays merchant share<br />Merchant signs up<br />Groupon decides which deals are featured in a ZIP code area<br />Payments spread out in 3 installments over lifecycle of deal, leading Groupon with negative working capital<br />Notable sources: <br />http://primitus.com/blog/whats-the-secret-success-of-groupon/<br />
  4. 4. GROUPON REVENUE MODEL<br />local<br />US<br />GAP, Body Shop<br /># of geographies<br />national<br />international<br /># of deals<br />Long waiting list of merchants waiting to be featured<br />Main deal<br />x<br />Categories/ geography<br />Side deals<br />New experimental feature<br />Groupon stores<br />Groupon net revenue<br />x<br />Gross/ List price<br />Function of category; seems to have increased<br />Discounted deal price<br />x<br />Net deal size<br />x<br />Discount to customers (%)<br />Share to Groupon (%)<br />Typically 30-50%<br />~ 50%. May trend downwards due to competitive pressure<br />Notable sources: <br />http://techcrunch.com/2010/05/02/teardown-groupon/<br />
  5. 5. GROUPON CUSTOMERS<br />Customer demographics <br /><ul><li>Early adopters: Highly affluent with disposable income
  6. 6. ‘ Urban females’
  7. 7. 18-34 yrs
  8. 8. Likely facebook and Twitter users
  9. 9. 60k-200k users/ city
  10. 10. 100- 1000 users/deal/city</li></ul>Benefit to customers <br /><ul><li>Deep discounts
  11. 11. Discover services/merchandise that they didn’t know of
  12. 12. Access to new services/merchandise
  13. 13. 4 smaller ‘side deals’ in addition to main deal
  14. 14. Deal personalization based on voluntary disclosure of preferences
  15. 15. Deals divvied up by ZIP code</li></ul>Notable sources: <br />http://www.grouponworks.com/demographics<br />http://aimgroup.com/blog/2010/08/20/groupon-goes-niche-with-new-%E2%80%98deal-personalization%E2%80%99/<br />
  16. 16. MERCHANT OBSERVATIONS<br />Groupon proposition: Guaranteed revenue and large number of new customers. <br />Best Suited Businesses<br /><ul><li>High fixed cost businesses
  17. 17. High customer acquisition cost
  18. 18. Business thriving on repeat customers.
  19. 19. Rice University study:
  20. 20. 66% successful
  21. 21. Examples: lifestyle businesses, e.g. spas (82% successful), sailing, restaurants (58% successful), education</li></ul>Key Merchant Economics<br /><ul><li>Revenue: Typically retains 50% of the deal minus credit card fees
  22. 22. Redemption rate: ~80%
  23. 23. Incremental spending: Gap expectation that customers will spend more than just $50, likely upward of $75 to $100 once in the store
  24. 24. Repeat customers: 22% repeat business</li></ul>Key Issues Today<br /><ul><li>Long waiting times to be featured ->competition and introduction of side deals
  25. 25. Learning curve in structuring a deal (too many responses; too many discount shopper, redemption over coupon life time) </li></ul>Notable sources: <br />http://online.wsj.com/article/SB10001424052748703447004575449453225928136.html?KEYWORDS=groupon#printMode#ixzz0yt80rShB<br />http://www.retaildoc.com/blog/groupon-worst-marketing-business/<br />http://adage.com/digital/article?article_id=145552<br />http://blogs.wsj.com/venturecapital/2010/09/29/rice-university-study-groupon-renewal-rate-not-so-hot/<br />
  26. 26. MERCHANT PERSPECTIVE ON CUSTOMER INTERACTION<br />Get customer to follow on<br />Respond to <br />Merchant<br />Like it on<br />Offer on<br />Advertise on<br />Notable sources: <br />http://gigaom.com/2010/09/29/hey-groupon-its-time-for-a-localsocial-roll-up/<br />
  27. 27. PRESENT AND FUTURE COMPETITORS<br />Notable sources: <br />http://www.evanmiller.org/is-groupon-the-next-google.html<br />http://www.businessinsider.com/why-yelps-daily-deals-could-be-a-groupon-killer-2010-7<br />http://gigaom.com/2010/10/13/newspapers-need-to-do-more-than-copy-groupon/<br />
  28. 28. ECONOMIC CHARACTERISTICS<br />Plusses<br /><ul><li>Brand
  29. 29. Economies of scale (‘winner takes most’)</li></ul>Negatives<br /><ul><li>Lack of network effect
  30. 30. No technology barriers to entry
  31. 31. No switching cost for merchants and customers
  32. 32. Scaling is expensive (sales people on the ground)
  33. 33. High cost of customer acquisition</li></ul>Notable sources: <br />http://techcrunch.com/2010/10/17/why-groupon-is-no-ebay/<br />

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