BACKGROUNDAbout GrouponGroupon is a website that offers special deal on a product or service in one category on a dailybasis. Deals are segmented by location, so users do not get information on items that are notrelevant to them. The concept is relatively simple and is based on collective buying power. Thismeans that a deal will only go through when a certain number of individuals have purchased thatparticular deal. The merchant is responsible for determining what number is required for thedeal to become valid. This is commonly referred to as the tipping point. Only once this tippingpoint has been achieved will the payment be processed and the user will receive access to thecoupon.The Groupon website allows users to see how many people have already purchased the deal aswell as how many remain for the deal to become complete. Users can share details of aparticular deal with their own network via social media outlets such as Twitter and Facebook.Users can choose to go directly to the Groupon website to search for deals, or they can opt toreceive a daily email letting them know the relevant deals of the day1.Groupon is currently located throughout most major cities in the US and Canada and is present inover 40 countries around the world.The History of Groupon:Groupon, a word combining both Group and Coupon, is the brainchild of Andrew Mason. Masonis your average 30-year-old guy, a music major and self-taught programmer from Pittsburgh1 Retrieved on 11.17.2011 fromhttp://www.groupon.com/learn
although he has always been entrepreneurial. Mason received a grant for his first idea for awebsite called ThePoint.com, an online platform for petitioners to gather support for their causes.Although it initially received positive feedback, the site was not headed in the direction thatMason wanted and revenue was not sufficient (revenue was brought in through advertising).Mason then started a blog called getyourgroupon.com that offered readers a different deal fromvarious vendors on a daily basis. He was encouraged by his investors to continue pursuing thisavenue and with the help of seven employees this idea eventually morphed into Groupon. In thebeginning, Mason and his crew would call up to 100 businesses a day to get them to list a dealwith them. The deals needed to be something new and different than any other previous offer thecompany may have provided as well as lower in price. A minimum number of buyers wereagreed upon by the company and if Groupon was able to achieve this minimum (the tippingpoint) then Groupon itself would make money. If they did not achieve the minimum, the dealwould not go through and no money would be generated for Groupon.Groupon’s business modelGroupon‘s business model is based on a combination of ―economies of networking‖ and―economies of scale.‖ Typically, economies of networking are the benefits associated with alarger and larger number of consumers buying a certain product, the larger the number of peopleusing the product, the more valuable the product to each user—as they apply to software usage.Economies of network in Groupon‘s model arise, as soon as threshold is reached, in the form ofdiscounts (coupons or voucher) to consumers who participate in the network—the larger thethreshold, the larger the discount. This means that economies of networking arise on the demand
side of the market, as a result of the strengthening of the consumer bargaining power withproduct sellers.Local businesses participating in Groupon‘s offerings have a dual benefit. On one side, they canget a guarantee demand for their products, getting rid of excess capacity and attaining economiesof scale. Second, and perhaps more important, Groupon‘s offerings create Word-of-Mouth andbuzz for new products and services, helping them reach the ―tipping point.‖How does it work?The core of Groupon is 50% off deals from retailers of all kinds, sold via email directly toconsumers in a "one day only" sale offer. For example, a $40 hair styling is for $20. Theconsumer pays $20 to Groupon and gets a certificate to redeem at the hair salon. The certificatemay expire in one year or less. Groupon keeps 50% of the revenue, $10 in this case, and remits --$10 to the hair salon. Therefore, the customer gets a $40 hair styling for $20. Groupon keeps $10and the hair salon gets $10.The way the Groupon model works the retailer is effectivelydiscounting their product or service by 75%, the consumer gets 50% and Groupon takes 25%.The retailer gets new customers, and is betting they come back and become loyal customers. Inthis way, Groupon is a customer acquisition cost, much like advertising.INDUSTRY ANALYSISAs per the graph (Figure 1) the overall daily deal industry in the North American market hasgrownat an exceptional rate of 35.1% (CAGR). Consumer spending on daily deal offers is
expected to reach $3.9 billion by 2015 as per the study done by BIA research organization2.Figure 1: Deal a day US gross revenue projectionsAs per the BIA/Kesley research of the daily deal website industry, there are many variables thatwill impact the growth in many of the cities, registered users and the number of transactions peryear.Following are some of the statistics published by BIA/Kesley - Daily Deal Industry Stats inthe United States3. • More than 200 players • Spread in more than 178 cities in Unites States2 BIA/Kelsey, 2011 retrieved from http://kelseygroup.openbox.net/twattach/DocLib_2485/MKT_DealADayForecast_2010-15.pdf3 ibid
• Target- more than 102 million people as users • By 2015 - $3.9 billion consumer spending on daily deals expected as opposed to $873 million spent in 2010.COMPETITOR ANALYSISFigure 2: Top visited daily deals and group buying websites
The above chart (Figure 2)shows the market share of top ten daily deals and group buyingwebsites as of November, 20114.BRAND ANALYSISWhen we analyse Groupon and compare to their competitors, we observe some strengths, areasthat need improvement, opportunities to utilize and some threats.SWOT AnalysisStrengths First entrant advantage IPO caused public attention and increased financial security to raise funds Aggressively expanding its emerging markets Efficient Management (Same core executives in charge since Groupon established) Financial strength and on Acquisition Foray Large customer and merchant base (Currently have 60 million registered customers, as CNN reported) Wide range of deals to be offeredWeaknesses4 Hitwise.com, 2011, retrieved from http://europeancourier.org/test/2011/09/04/top-10-daily-deals-websites/
System does not have reminders for buyers when deal/voucher due to expiration Lack of network effect High cost of customer acquisition No switching cost for merchants and customers Scaling is expensive (sales people on the ground for marketing and sales) Operates in multiple countries, in multiple languages, eg. Turkish in Turkey5Opportunities Increase Market share in its market Raid in to less penetrated markets Economies of scale Tech savvy generation Alliances and partnerships with social media community National offers rather than city base or local offers The last economic crisis cause more frugal shopping behavior and in favor of purchasing as groupsThreats New players, small and big companies such as Google are planning to enter No technology barriers to entry5 Groupon Turkey, retrieved on 11.15.2011 from http://www.sehirfirsati.com/
Aggressive expansion could lead to managerial / financial problems Deal fatigue Repeat buying and customer retention in question by merchantsCURRENT MARKETING STRATEGYWe observed that Groupon uses 4 types of segmentation for its email marketing: 1. Geographic –target offers by zip or postal code –―local‖ 2. Product type – moved from offering just local deals to more specific & focused programs: Groupon Getaways – focuses on travel GrouponLive – focuses on live events Groupon Now! – same-day deals 3. Lifecycle -Initially every subscriber was treated the same whether they bought zero deals or 100. Groupon has since ―tried to evolve that into a more of a ―lifecycle strategy‖.For example, new subscribers receive a series of 12 messages over their first 45 days in theprogram. The emails are designed to excite and engage new subscribers with the brand. 4. Personal data- The team also gathers data to personalize its emails. Three types of data drive Groupon‘s personalization Self-reported – such as age, gender, zip code
Appended – data purchased from third-party services Behavioral – data based on what subscribers click and purchaseCURRENT ISSUESBusiness ModelThere are relatively few switching costs in the Groupon model — a customer signs up for free,the process is not onerous or difficult, and there is no customer loyalty, special discount, or otheranti-switching incentives built into the program. The Groupon Business model does not createstickiness, loyalty or a barrier to competitive imitation. There has been emergence of dozens ofcompetitors to Groupon, with customers frequently playing one site off against another, makingthe benefit of buying from any given site more uncertain and diminishing the competitivedifferentiation between them. In addition, merchants whose goods and services are featured onthe sites are now being courted by more players, making them less loyal and less likely to beprepared to pay rich premiums for the sites directing new customers to their store locations.Further, the benefits to both customers and merchants are likely to drop as the market is floodedwith look-alike offers and the advantages of using one site over another decline.The model is based on individual transactions — users do not subscribe to Groupon; rather, eachpayment is transactional. The user interface for Groupon offers no particular advantage, as theoffers come by email.
Legal RisksIn many states, for instance, it is illegal to offer discounts on alcohol, yet Groupon merchants doso anyway. In others, coupons need to have a5-year expiration, rather than the much shorter onesfound on most Groupons:Groupon cast themselves as mere marketing vendors that are not responsible for the conduct ofthe corresponding merchants. For example, Groupon‘s Terms of Sale claim that ―The Merchant,not Groupon, is the seller of the Voucher and the goods and services and is solely responsible forredeeming any Voucher you purchase.6‖ On this view, Groupon avoids liability for merchants‘shortfalls.However, Groupon is the merchant of record for the charge to the customer‘s credit card. As theentity officially responsible for charging the consumer, Groupon thus faces increasedresponsibility to see that the consumer receives what was promised. We think it is probably anunfair and deceptive practice to attempt to disclaim liability in such circumstances. Grouponattempts to push all responsibility to merchants. On every relevant question — discountingalcohol, honoring expiration dates, providing cash-back.There is also the issue of taxation-- states including New York has decided that merchants shouldcollect sales taxes on the full face value of items purchased, not the price that consumers actuallypay.CompetitionGroupon may be the largest deal-a-day business, but with basically no barriers to entry, it has6 Groupon.com, 2011, retrieved from http://www.groupon.com/terms#terms-of-sale
383 rivals, according to Yipit7. And the growing crowd of rivals threatens to steal customers andis driving up marketing costs. Groupon has #1 market share by quite a large margin -- it had 11million visitors in September,2011 followed by Living Socialwith 7.2 million. A distant third,Gilt Group had just over 800,000, according to ComScoreMediaMetrix8.LivingSocial is backed by Amazon-- bolstered by a blockbuster Whole Foods deal.AndGooglesbeen pushing its new entry in the space, Google Offers.Repeat customers and targetingGroupon and Living Social have done an excellent job of grabbing attention, but the jury is stillout on whether they can turn the curious onlookers into repeat buyers. Some experts argue thatthe vast majority of people who buy a Groupon deal don‘t buy a second one9.Deal FatigueThe daily deal space is overcrowded and people tend to ignore the offers – deal fatiguesetting in. We can actually see some of this in Compete PRO‘s data (Figure 3)10.Deal quality has been sliding as merchant get wearier of the deals. That will likely lead to margincompression – businesses may not be as willing to jump at deals where Groupon gets 50% of therevenue.7 Yipit.com, retrieved on 11.17.2011 from http://www.cnbc.com/id/451533238 ibid9 Geekwire.com, Geekwire.com, retrieved from http://www.geekwire.com/2011/big-problems-facing-groupon-living-social-scale-repeat-customers-targeting10 Compete.com, retrieved on 11.16.2011 fromhttp://www.compete.com/
Figure 3: Visitor comparison, Groupon and Living socialFinancial ProblemsIts famous for spending tens of millions on marketing and has to continue spending to keep upits rapid expansion into new markets and growth in existing ones. This has put the company intoa sort of Catch-22: Groupon must spend to grow, but must continue growing to cover itsoperational expenditures.As of June 30, Groupon had $225 million in cash on hand, according to an amended S-1 thedaily-deals website filed with the Securities and Exchange Commission11. Sounds like a lot. Theproblem: The company still owed $392 million to merchants for Groupons that had already beensold and used up by its customers. While it is assumed that the company could raise more capitalon the private markets if it needs it, Groupons accounting sheets are trending in the wrongdirection.11 tba
Accounting IssuesGroupon records the total dollars received from a coupon sale as revenue. For example, ifGroupon sells 200 ―$10 for $20 to the spa‖ coupons, it will record the full $2,000 it receives ($10x 200 coupons) as revenue. This method of reporting is being called into question because theSEC feels that Groupon is acting as an agent for the merchant who is selling the deal. This issuewill see Groupon write down its revenue numbers by more than 50%.In September, 2011, Groupon updated its reported sales to "correct for an error" -- namely,including in its revenue the cash it has to hand back to merchants for their share of the couponsGroupon sells12. For the first half of 2011, Groupon is now reporting revenue of $688 million -- abig drop from the $1.5 billion it claimed previously. For 2010, its last full year of operations,Groupon is now reporting sales of $313 million -- down from its previous $713 million.TARGET MARKET PROFILEAs people know, Groupon cannot be successful without its valuable customers, so preciselyidentifying their features is fundamental for our marketing campaign. Based on our research, wehave identified that Groupon does not only deal with end consumers, but also deals withnumerous merchants. Apparently, both of them are our target audiences.Merchants ProfileObviously, Groupon works with a lot of merchants in a variety of categories,including food,drink, beauty, spa, etc. However, it seems unrealistic for us to target all of them, so we decided tomainly target on food and drink merchants and merchants related to spa, hair removal and12 Retrieved on 11.14.2011 fromhttp://money.cnn.com/2011/09/23/technology/groupon_revenue/index.htm
massage because those two types generated the most profit for Groupon last year. Based on thestatistics, the most popular types of online limited deals are those related to food and drink,which accounted for 26% of online discount offers in the fourth quarter of 2010 13. Beauty, spaand massage offers continue to hold the second spot with 20% of offers.What do they pursue?Since these two types of merchants interact with end consumers frequently, they would like tooffer consumers deals and discounts that are more personalized and more relevant to theirshopping interests. Some entrepreneurs assume that one reason that Groupon has grown soquickly is because of its hot deals, which appeal to consumers who are tired of combing throughlarge amounts of data and choices, including search results; however, after a first buzz, howmany consumers would keep visiting the store? Therefore, those merchants are pursuing to getpersonalized services from Groupon so that they are able to add additional values for consumersand differentiate from other merchants.In addition, they are willing to get more data about consumers‘ purchase histories so that they areable to know how many consumers are repeating ones. Also, they prefer to know how to measurethe performance of joining Groupon‘s game. By acquiring the exact data, they can acknowledgehow many new consumers are attracted and keep their retention. In other words, the moreconsumers can be obtained from Groupon, the more merchants will be joining the game.End Consumer ProfileThe latestmarketing statistics shows the demographics of Groupon consumers (Figure 4). They13 Retrieved on 11.14.2011 from reuter.com
are young, smart, employed, mostly women, and have many similarities14.Figure 4: Demographic of Groupon users14 Retrieved on 11.17.2011 from http://www.onlinemarketing-trends.com/2011/06/groupon-top-10-global-markets.html
They are young.According to the statistics, the majority of Groupon‘s subscribers are aged from 18 to 34 whorepresent 68% of the entire group.They are smart.Most of them have obtained graduate degrees, and some of them also have bachelor degrees.Therefore, they have gained much knowledge about internet, email and social media. Also, theyare gurus in terms of computer skills; therefore, they can check the latest deals of Groupon.They tend to be single women.Since based on the research, 77% of Groupon‘s subscribers are women and the majority of them(49%) are single. Moreover, they are more likely to make final purchasing decisions and tend tobe influenced by incentives, such as discounts, gift cards or points; also, they would like to sharetheir shopping experience with their peers. Therefore, they help in building Groupon‘sreputation.They work and have money.According to the research, we have acknowledged that 75% of Groupon‘s subscribers have full-time jobs and most of them (29%) earn in excess of 70,000 Canadian dollars annually.Furthermore, they are willing to spend more than what the average person spends, so they can beseen as the primary buyers and are able to contribute a huge purchasing power15.15 ibid
What do they usually do? a. They are available online regularly.According to the statistics launched in 2010, persons aged from 18 to 34 in North America spenton an average more than 39 hours online each month (N/A, 2011)16. These people use emailsdaily, and they are familiar with the way of getting information from social media, email, mediabanners, and other online marketing means. b. They like the way of interaction.These people are interested in something fresh, such as new technology and computer videogames. It can be perceived as part of their ‗new lifestyle‘. In addition, most of them have alreadygot connected on Facebook and Twitter. They enjoy the social life and would love to share socialfeeds with their friends and meet new people who have the same interests and behaviours.Interacting and sharing are their core actions; also, they perceive Facebook and Twitter as anonline platform that allows them to build a community where they build and share trust to createmore values. c. They like doing things in an easy way.Since most of these people are goal-oriented and time-limited, they would like to get informationeasily rather than wasting time on searching. Also, they enjoy the way of purchasing and gettingredeemed online or via their smartphones because it is very convenient for them; also, they thinkit is a cool way to keep exploring the new knowledge and trends about digital world, and itallows them to differentiate from others.16 tba
INTEGRATED MARKETING PLANGoals:We have established two goals to be accomplished through this integrated marketing plan. Thesegoals have been set based on the market analysis and recent business developments.First goal is business to consumer (B2C) focussed which aims to strengthen the market positionof Groupon in wake of increasing competition from other companies in the deals market. Secondgoal is business to business (B2B) focussed and is geared towards attracting more and moremerchants to tie up with Groupon. Both these goals are interrelated as outcome of one goaldirectly affects another goal. If we will be successful in attracting more and more customers toregister with Groupon this would create a strong pull factor for the businesses which will beinterested in partnering with Groupon to offer their services to these customers.The below mentioned two goals are further broken down into specific objectives which aremeasurable and will enable our team to determine the success level of this integrated marketingplan.1-To establish Groupon as a preferred choice for the customers in the deals market in NorthAmerica2- To attract more merchants and establish strong brand image in North AmericaObjectives:Both the above mentioned goals are broken down into two specific objectives for each goal asmentioned below. All the four objectives are specific to our North American market.Goal 1:1.1 - To increase the mailing list subscribers in North America by 20%1.2 - To increase unique site visitors per month in North America by 20%
Goal 2:2.1- To increase number of business tie-ups by 20%2.2 –To strengthen relationship with investors, media and trade organizationsBudget:We have a total of $ 5 million allocated for this integrated marketing plan. This budget is dividedequally between two goals. We have further broken down the budget in terms of online andoffline segment. This has been done because of the two reasons. First is that both the categoriesare handled by two different teams and secondly most of the online spending will be taken careof from our head-office while the offline activities will be executed by different teams based onthe geographic breakdown of the activities.For the first goal of business to consumer $1.5 million is allocated for the online marketingstrategy which is $0.5 million more than the offline segment, This is done based on our marketanalysis which reflects that majority of our target market is internet savvy young people whichcan be reached more effectively using online marketing channels (Figure 5).For the second goal we have allocated more money for the offline marketing activities becauseour target market which are merchants are spread geographically and each region will havedifferent merchants.
Total Budget $ 5.0 Million Goal 1 Goal 2 B2C B2B $ 2.5 Million $ 2.5 Million Online Spending Offline Online Spending Offline Spending $1.5 Million $1.0 Million $1.0 Million $ 1.5 MillionFigure 5: Groupon IMC campaign budget.The below chart provides a snapshot of the total marketing budget break down according todifferent set of activities and channels. There are three main activities which accounts for over $1.5 million are social media, publications and celebrity endorsement (Figure 6).
Celebrity Endorsement Email Marketing 100000 Events 500000 450000 Mobile 300000 Outdoor 400000 200000 P.R. 100000 Print 400000 100000 200000 Publications Radio 400000 750000 SEO Social Media 500000 Tele Marketing 400000 Television 200000 Web WebFigure 6: Groupon marketing budget details
Initial Timeline: S. Activities Timeline No. 1. Proposal submission for integrated marketing plan to Jan 15 Chief Marketing Officer (CMO) 2. Approval by CMO office Jan 30 3. Submission to Finance Dept. Feb 1 4. Approval and budget release from finance Feb 15 5. Budget allocation to respective dept. and begin Feb 18 campaignTable 1: Groupon IMC timelineDetailed Execution Report:The detailed execution report lists all the media platform and channels this campaign will usealong with the budget allocated to each. Also specified is the specific time each single activity isscheduled to be undertaken and how we are going to measure the success (Appendix A).
References:BIA/Kelsey, 2011 retrieved from http://kelseygroup.openbox.net/twattach/DocLib_2485/MKT_DealADayForecast_2010-15.pdfCnn.com, 2011, retrieved on 11.14.2011 from http://money.cnn.com/2011/09/23/technology/groupon_revenue/index.htmhttp://www.comscoredatamine.com/2011/01/average-time-spent-online-per-u-s-visitor-in-2010http://www.internetretailer.com/2011/03/24/daily-deal-revenue-will-increase-138-yearhttp://www.cnbc.com/id/45153323/Groupon_s_Got_Problems_Massive_Competitionhttp://www.wired.com/epicenter/2011/06/groupon-risks-and-gifts/http://www.geekwire.com/2011/big-problems-facing-groupon-living-social-scale-repeat-customers-targetinghttp://blogs.hbr.org/hbr/mcgrath/2011/07/the-problem-with-groupons-busi.htmlhttp://www.theatlantic.com/technology/archive/2011/08/the-fall-of-groupon-is-the-daily-deals-site-running-out-of-cash/243863/http://blog.compete.com/2011/11/02/daily-deals-on-the-downside-groupon-and-livingsocial-continue-to-slide/Groupon Turkey, retrieved on 11.15.2011 from http://www.sehirfirsati.com/Hitwise.com, 2011, retrieved from http://europeancourier.org/test/2011/09/04/top-10-daily-deals-websites/
APPENDICESAppendix A:Detailed Execution Report: BudgetedGoal Objective Channel Media Carrier Frequency/Term ($) Evaluation Facebook 1 1.1 & 1.2 Online Social Media Pages Ongoing 50,000 Likes generated Facebook 1 1.1 & 1.2 Online Social Media Apps Ongoing 150,000 Downloads Facebook Clicks & Facebook 1 1.1 & 1.2 Online Social Media Ads Ongoing 300,000 analytics Clicks & Google 1 1.2 Online SEO Google Ads Ongoing 250,000 analytics Clicks & Yahoo 1 1.2 Online SEO Yahoo Ads Ongoing 150,000 analytics Youtube 1 1.2 Online Web Channel Ongoing 100,000 Subscribers Clicks 1 1.2 Online Web Youtube Ads Ongoing 100,000 &Youtubeanalyticcs Time spent/ 1 1.1 & 1.2 Online Web Wordpress Ongoing 100,000 Subscribers Professional 1 1.1 & 1.2 Online Web Blog Writers Ongoing 150,000 Comments 1 1.2 Online Social Media Twitter Ongoing 50,000 Re tweets 1.1 & 1.2 Online Mobile Mobile Apps Ongoing 100,000 Downloads Post Ad increase in National website hits & 1 1.1 & 1.2 Offline Print Newspaper 3 Months 100,000 subscriber Post Ad increase in Regional website hits & 1 1.1 & 1.2 Offline Print Newspapers 1 Month 100,000 subscriber