The Power of Deals - Groupon business case exposed

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Business case for Groupon exposed,why so many followers enter the market and why it's not a winner takes all market. The power of online deals.

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  • Groupon's stock price is an accurate reflection of what the company is. By the way -what are they, a questionable business model? What true value do they offer for their customers?. As far as where they are going, a quote from Bloomberg Business Week says it all - 'Today August 15th - The stock fell $2.04, or 27 percent, to close at $5.51 Tuesday. That's 72 percent below its initial public offering price of $20 in November. Groupon had no comment Tuesday.' of course they don't have anything to say... What can they say!
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  • Merchant provides A local deal 40%-80% discount Terms & Conditions Groupon creates Landing page Graphics Deal text & context Groupon activates Deal on Groupon platform Multiple deals in multiple cities (>150 cities) Groupon ensures Traffic generation Online advertising ‘ pain creation’ - sense of urgency Customer socializes Through FB/Twitter/Email To earn referral fees ($10) With friends/family/colleagues Customer socializes Through FB/Twitter/Email To earn referral fees ($10) With friends/family/colleagues Customer Redeems Coupon in store Through off/online reservation
  • The Power of Deals - Groupon business case exposed

    1. 1. Booz & Company This document and its analysis are property of Booz&Co. Use of any information should clearly reference its authors. The Power of Online Deals A Perspective on Group deals Amsterdam, 26 January 2011
    2. 2. Inform about the development of a new €Bn industry Provide an overview of the market & its players Future Outlook - where is this heading? OBJECTIVES
    3. 3. Imagine… <ul><li>You are an entrepreneur </li></ul>Andrew Mason December 2006 November 2008 April 2010 November 2010 December 2010 Timeline Born in ‘81 Andreessen Horowitz, Battery Ventures, DST,Greylock Partners, Kleiner Perkins Caufield & Byers, Maverick Capital, Silver Lake andTechnology Crossover Ventures.  What is going on here? <ul><li>You start a company to bring people together to influence change, organize people and raise money </li></ul><ul><li>One initiative becomes so popular it deserves to be a business on its own </li></ul><ul><li>Within 15 months you receive $135Mn funding at a $1.35Bn valuation </li></ul><ul><li>Within 24 months you receive a take-over bid of $6Bn….which you decline </li></ul><ul><li>The following month you close a $950Mn round at a $4.75Bn valuation </li></ul><ul><li>You plan for a $15Bn IPO </li></ul>2012
    4. 4. The process is simple: Groupon has unlocked a local ‘dealvertising’ model 1. Deal Provision 2. Deal Creation 3. Deal Activation 4. Customer Conversion 5. Social Interaction 6. Coupon Redemption Dealvertising conversion cycle (Groupon Example) offline online Deals + Advertising = Dealvertising <ul><li>Merchant provides </li></ul><ul><li>A local deal </li></ul><ul><li>40%-80% discount </li></ul><ul><li>Terms & Conditions </li></ul><ul><li>Groupon creates </li></ul><ul><li>Landing page </li></ul><ul><li>Graphics </li></ul><ul><li>Deal text & context </li></ul><ul><li>Groupon activates </li></ul><ul><li>Deal on Groupon platform </li></ul><ul><li>Multiple deals in multiple cities (>150 cities) </li></ul><ul><li>Groupon ensures </li></ul><ul><li>Traffic generation </li></ul><ul><li>Online advertising </li></ul><ul><li>‘ pain creation’ - sense of urgency </li></ul><ul><li>Customer socializes </li></ul><ul><li>Through FB/Twitter/Email </li></ul><ul><li>To earn referral fees ($10) </li></ul><ul><li>With friends/family/colleagues </li></ul><ul><li>Customer Redeems </li></ul><ul><li>Coupon in store </li></ul><ul><li>Through off/online reservation </li></ul>Source: DealVertiser© 2010
    5. 5. The key value lies in the ~50%* commission for Groupon, and ‘no cure, no pay’ customer acquisition for the merchant Amsterdam Deal example January 25 th , 2011 * Approximation, based on interviews with Groupon customers
    6. 6. The key value lies in the ~50% commission for Groupon, and ‘no cure, no pay’ customer acquisition for the merchant Groupon Cost/Benefit <ul><li>Benefit </li></ul><ul><li>~50% commission </li></ul><ul><li>>700 coupons sold </li></ul><ul><li>€ 13650 net revenue </li></ul><ul><li>Customer acquisition through </li></ul><ul><ul><li>Good deal sourcing </li></ul></ul><ul><ul><li>Customer sharing / referrals </li></ul></ul><ul><li>Cost </li></ul><ul><li>Sales </li></ul><ul><li>Deal creation </li></ul><ul><li>Advertising </li></ul><ul><li>Hosting </li></ul>Merchant Cost/Benefit <ul><li>Benefit </li></ul><ul><li>Zero upfront advertising cost </li></ul><ul><li>€ 13650 revenue upfront </li></ul><ul><li>Acquisition of 700 customers </li></ul><ul><li>Acquisition of ~35 repeat customers 1) </li></ul><ul><li>Higher capacity utilization </li></ul><ul><li>Possibility to up-sell </li></ul><ul><li>Free online advertising </li></ul><ul><li>Cost </li></ul><ul><li>~85% value discount </li></ul><ul><li>Cannibalisation </li></ul><ul><li>One off ‘deal-seekers’ </li></ul>Groupon & Merchant Value Amsterdam Deal example January 25 th , 2011 1) assuming a 5% retention rate after 1 st visit
    7. 7. Inform about the development of a new €Bn industry Provide an overview of the market & its players Future Outlook - where is this heading? OBJECTIVES
    8. 8. The addressable market is huge ($133Bn in US alone) which is why big players are following the bucks <ul><li>Amazon invested $175Mn in LivingSocial </li></ul><ul><li>1 deal on LivingSocial for an Amazon giftcard was sold 1Mn times  that is 500k for LivingSocial and 500k for Amazon in 1 day </li></ul>
    9. 9. The addressable market is huge ($133Bn in US alone) which is why big players are following the bucks <ul><li>Facebook is developing Facebook Deals </li></ul><ul><li>Local businesses can offer you deals when you check into their place on facebook </li></ul><ul><li>Several C&R deal examples: </li></ul><ul><ul><li>Gap:  Giving blue jeans to the first 10,000 customers to claim their deal. </li></ul></ul><ul><ul><li>Harrah's (casino):  Offering a complimentary nightclub admission, buffet or other gift to people who stop by any of its 10 Las Vegas resorts. </li></ul></ul>
    10. 10. The addressable market is huge ($133Bn in US alone) which is why big players are following the bucks <ul><li>Recent unannounced launch of Google Offers </li></ul><ul><li>Already >42,000 coupon deals available </li></ul><ul><li>Strong link to local (maps) </li></ul><ul><li>Less focused on ‘group-buying’ </li></ul>
    11. 11. Also in the Dutch market more and more companies are entering the dealvertising space Launch date Rev/Month* Company MyCityDeal - March 2010 Groupon - May 2010 Groupdeal - April 2010 TMG - May 2010 Jan 2011 Jan 2011 Jan 2011 * estimate Source: Booz&Company Analysis € 1.5-€2Mn € 100-€150k < €10k < €50k < €50k
    12. 12. Primary focus of deals is on Dining and Health & Beauty services… 0 % of Deals per Segment Groupon Amsterdam main deals Jun-Dec (194 total) Fashion Nightlife 4% 3% Activities 12% Other Retail/Services 1% 3% Health & Beauty 35% Events/culture 1% Dining 42% Online Source: DealVertiser Analysis
    13. 13. … with highest absolute discounts in health & beauty and retail services f Coupon Price Coupon Value Activities Other Retail/Services Health & Beauty Online Dining Fashion Events/culture Nightlife Average Coupon Value & Price per Segment Groupon Amsterdam main deals Jun-Dec (194 total) € 84 € 71 € 39 € 28 € 24 € 20 € 17 € 8 Avg. Discount Source: DealVertiser Analysis
    14. 14. Inform about the development of a new €Bn industry Provide an overview of the market & its players Future Outlook - where is this heading? OBJECTIVES
    15. 15. The current deal models are far from mature and will continue to rapidly evolve Marketing Customers Sales Deal Sourcing Operations From To <ul><li>Local (cities, regions) </li></ul><ul><li>Non-durable goods & services (bars/beauty centers) </li></ul><ul><li>National, global (partnerships) </li></ul><ul><li>Durable & non-durable (Amazon / Gap) </li></ul><ul><li>Bringing community to the deals </li></ul><ul><li>Bringing deals to the community </li></ul><ul><li>All deals to all people </li></ul><ul><li>Attracting ‘deal seekers’ </li></ul><ul><li>Segmented deals to select target groups </li></ul><ul><li>Attracting loyal customers </li></ul><ul><li>50% and up commissions </li></ul><ul><li>‘ real discounts’ on actual prices </li></ul><ul><li>20% and less commissions </li></ul><ul><li>‘ high-low’ pricing on ‘fake offers’ </li></ul><ul><li>Coupon code lists in store </li></ul><ul><li>checkin / automatic redemption </li></ul>Technology <ul><li>Online, email-based offering </li></ul><ul><li>Limited data / deal analysis </li></ul><ul><li>Integration of local, social, mobile </li></ul><ul><li>Sophisticated deal analysis </li></ul>
    16. 16. Consumer behaviour is already changing <ul><li>Changes in consumer behaviour: </li></ul><ul><li>Proactive search for deals before purchase </li></ul><ul><li>Unwillingness to continue to pay full price </li></ul><ul><ul><li>Only 15% of coupon users comes back a second time to purchase at full price </li></ul></ul><ul><li>Increase in online impulse purchases </li></ul><ul><ul><li>“ I can’t help myself, the deals are just too good, and the barrier to purchase so low (only 5-10 eur)… so I keep on impulse shopping” - Dutch female Groupon customer </li></ul></ul><ul><li>Increase in trials of products & services </li></ul><ul><ul><li>281 people in Amsterdam bought “Colon hydra therapy” coupon in 1 day. Usually this business sees ~800 customers a year. </li></ul></ul><ul><li>Not necessarily cannibalization: additional spend on active deal categories </li></ul>Source: Groupon Effectiveness Study, Sept 2010; Dutch customer behaviour study My city Deal
    17. 17. As local, social & mobile are converging, large companies gain easier access to new marketing & sales opportunities Dealvertising SweetSpot <ul><li>Improving utilization through targeted deal offers </li></ul><ul><li>Attracting a new customer group </li></ul><ul><li>Targeted in-store customer promotions (eg. Ladyshave offer when you check-in at beauty salon; Lighting offer when you enter woonmall) </li></ul><ul><li>Sending you H&M offer when you enter Zara store </li></ul><ul><li>Co-signing offers: when you walk by a hairdresser salon that carries Redken you get an offer for a haircut, sponsored by L’Oreal </li></ul>Examples of usecases Source: DealVertiser Analysis 2011 Local Groupon Facebook Social Mobile
    18. 18. Going forward we anticipate further sophistication of local targeting: getting you the most relevant deal at the right time Example: Yahoo’s “deal” mobile ads
    19. 19. Next steps are up to you… <ul><li>Analyze the market for insights and reach out internally for expertise </li></ul><ul><li>Create a digital vision and strategy </li></ul><ul><li>Develop the strategic framework by which to organize your efforts </li></ul><ul><li>Create a tangible action plan </li></ul><ul><li>Create a roadmap & clear program management </li></ul><ul><li>Execute! </li></ul>
    20. 20. If you are serious about online value creation, contact us. We help our clients think about the strategy and tactics to win in the space <ul><li>10+ years of consulting experience </li></ul><ul><li>Industry focus on consumer goods and retail, across wide range of categories </li></ul><ul><li>Specialized in marketing organization and capability building </li></ul><ul><li>Expertise in e-Commerce, digital marketing, social media </li></ul>Coen de Vuijst Vice President Amsterdam [email_address] <ul><li>Industry focus on e-commerce & social media </li></ul><ul><li>Expertise in online fashion and flash sales models </li></ul><ul><li>Experience in iPhone app development </li></ul><ul><li>Associate in Consumer & Retail practice </li></ul>Tamara Obradov Associate Amsterdam [email_address] <ul><li>Expertise in online deal and group-buying models </li></ul><ul><li>Founder of two online start-ups </li></ul><ul><li>Industry focus on retail and service operations, e-commerce & social media </li></ul><ul><li>Associate in Retail Operations practice </li></ul>Robbert Huisman Associate Amsterdam [email_address]

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