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The Power of Deals - Groupon business case exposed
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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.

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

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  • 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. 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. Imagine…
    • You are an entrepreneur
    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?
    • You start a company to bring people together to influence change, organize people and raise money
    • One initiative becomes so popular it deserves to be a business on its own
    • Within 15 months you receive $135Mn funding at a $1.35Bn valuation
    • Within 24 months you receive a take-over bid of $6Bn….which you decline
    • The following month you close a $950Mn round at a $4.75Bn valuation
    • You plan for a $15Bn IPO
    2012
  • 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
    • 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 Redeems
    • Coupon in store
    • Through off/online reservation
    Source: DealVertiser© 2010
  • 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. The key value lies in the ~50% commission for Groupon, and ‘no cure, no pay’ customer acquisition for the merchant Groupon Cost/Benefit
    • Benefit
    • ~50% commission
    • >700 coupons sold
    • € 13650 net revenue
    • Customer acquisition through
      • Good deal sourcing
      • Customer sharing / referrals
    • Cost
    • Sales
    • Deal creation
    • Advertising
    • Hosting
    Merchant Cost/Benefit
    • Benefit
    • Zero upfront advertising cost
    • € 13650 revenue upfront
    • Acquisition of 700 customers
    • Acquisition of ~35 repeat customers 1)
    • Higher capacity utilization
    • Possibility to up-sell
    • Free online advertising
    • Cost
    • ~85% value discount
    • Cannibalisation
    • One off ‘deal-seekers’
    Groupon & Merchant Value Amsterdam Deal example January 25 th , 2011 1) assuming a 5% retention rate after 1 st visit
  • 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. The addressable market is huge ($133Bn in US alone) which is why big players are following the bucks
    • Amazon invested $175Mn in LivingSocial
    • 1 deal on LivingSocial for an Amazon giftcard was sold 1Mn times  that is 500k for LivingSocial and 500k for Amazon in 1 day
  • 9. The addressable market is huge ($133Bn in US alone) which is why big players are following the bucks
    • Facebook is developing Facebook Deals
    • Local businesses can offer you deals when you check into their place on facebook
    • Several C&R deal examples:
      • Gap:  Giving blue jeans to the first 10,000 customers to claim their deal.
      • Harrah's (casino):  Offering a complimentary nightclub admission, buffet or other gift to people who stop by any of its 10 Las Vegas resorts.
  • 10. The addressable market is huge ($133Bn in US alone) which is why big players are following the bucks
    • Recent unannounced launch of Google Offers
    • Already >42,000 coupon deals available
    • Strong link to local (maps)
    • Less focused on ‘group-buying’
  • 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. 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. … 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. 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. The current deal models are far from mature and will continue to rapidly evolve Marketing Customers Sales Deal Sourcing Operations From To
    • Local (cities, regions)
    • Non-durable goods & services (bars/beauty centers)
    • National, global (partnerships)
    • Durable & non-durable (Amazon / Gap)
    • Bringing community to the deals
    • Bringing deals to the community
    • All deals to all people
    • Attracting ‘deal seekers’
    • Segmented deals to select target groups
    • Attracting loyal customers
    • 50% and up commissions
    • ‘ real discounts’ on actual prices
    • 20% and less commissions
    • ‘ high-low’ pricing on ‘fake offers’
    • Coupon code lists in store
    • checkin / automatic redemption
    Technology
    • Online, email-based offering
    • Limited data / deal analysis
    • Integration of local, social, mobile
    • Sophisticated deal analysis
  • 16. Consumer behaviour is already changing
    • Changes in consumer behaviour:
    • Proactive search for deals before purchase
    • Unwillingness to continue to pay full price
      • Only 15% of coupon users comes back a second time to purchase at full price
    • Increase in online impulse purchases
      • “ 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
    • Increase in trials of products & services
      • 281 people in Amsterdam bought “Colon hydra therapy” coupon in 1 day. Usually this business sees ~800 customers a year.
    • Not necessarily cannibalization: additional spend on active deal categories
    Source: Groupon Effectiveness Study, Sept 2010; Dutch customer behaviour study My city Deal
  • 17. As local, social & mobile are converging, large companies gain easier access to new marketing & sales opportunities Dealvertising SweetSpot
    • Improving utilization through targeted deal offers
    • Attracting a new customer group
    • Targeted in-store customer promotions (eg. Ladyshave offer when you check-in at beauty salon; Lighting offer when you enter woonmall)
    • Sending you H&M offer when you enter Zara store
    • Co-signing offers: when you walk by a hairdresser salon that carries Redken you get an offer for a haircut, sponsored by L’Oreal
    Examples of usecases Source: DealVertiser Analysis 2011 Local Groupon Facebook Social Mobile
  • 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. Next steps are up to you…
    • Analyze the market for insights and reach out internally for expertise
    • Create a digital vision and strategy
    • Develop the strategic framework by which to organize your efforts
    • Create a tangible action plan
    • Create a roadmap & clear program management
    • Execute!
  • 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
    • 10+ years of consulting experience
    • Industry focus on consumer goods and retail, across wide range of categories
    • Specialized in marketing organization and capability building
    • Expertise in e-Commerce, digital marketing, social media
    Coen de Vuijst Vice President Amsterdam [email_address]
    • Industry focus on e-commerce & social media
    • Expertise in online fashion and flash sales models
    • Experience in iPhone app development
    • Associate in Consumer & Retail practice
    Tamara Obradov Associate Amsterdam [email_address]
    • Expertise in online deal and group-buying models
    • Founder of two online start-ups
    • Industry focus on retail and service operations, e-commerce & social media
    • Associate in Retail Operations practice
    Robbert Huisman Associate Amsterdam [email_address]