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Groupon business model
Groupon business model
Groupon business model
Groupon business model
Groupon business model
Groupon business model
Groupon business model
Groupon business model
Groupon business model
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Groupon business model


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  • 1. Observations on Groupon’s business model – a primer<br />Christian Dahlen<br />Nov 2010<br /><br />
  • 2. Content of this document<br />Business model<br />Revenue model<br />Customers<br />Merchants<br />Competitors<br />Economic characteristics<br />
  • 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 /><br />
  • 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 /><br />
  • 5. GROUPON CUSTOMERS<br />Customer demographics <br /><ul><li>Early adopters: Highly affluent with disposable income
  • 6. ‘ Urban females’
  • 7. 18-34 yrs
  • 8. Likely facebook and Twitter users
  • 9. 60k-200k users/ city
  • 10. 100- 1000 users/deal/city</li></ul>Benefit to customers <br /><ul><li>Deep discounts
  • 11. Discover services/merchandise that they didn’t know of
  • 12. Access to new services/merchandise
  • 13. 4 smaller ‘side deals’ in addition to main deal
  • 14. Deal personalization based on voluntary disclosure of preferences
  • 15. Deals divvied up by ZIP code</li></ul>Notable sources: <br /><br /><br />
  • 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. High customer acquisition cost
  • 18. Business thriving on repeat customers.
  • 19. Rice University study:
  • 20. 66% successful
  • 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. Redemption rate: ~80%
  • 23. Incremental spending: Gap expectation that customers will spend more than just $50, likely upward of $75 to $100 once in the store
  • 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. Learning curve in structuring a deal (too many responses; too many discount shopper, redemption over coupon life time) </li></ul>Notable sources: <br /><br /><br /><br /><br />
  • 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 /><br />
  • 27. PRESENT AND FUTURE COMPETITORS<br />Notable sources: <br /><br /><br /><br />
  • 28. ECONOMIC CHARACTERISTICS<br />Plusses<br /><ul><li>Brand
  • 29. Economies of scale (‘winner takes most’)</li></ul>Negatives<br /><ul><li>Lack of network effect
  • 30. No technology barriers to entry
  • 31. No switching cost for merchants and customers
  • 32. Scaling is expensive (sales people on the ground)
  • 33. High cost of customer acquisition</li></ul>Notable sources: <br /><br />