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Groupon Case Analysis


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Our Fall 2011 presentation of our Groupon case analysis for Strategic Management.

Published in: Business, Technology

Groupon Case Analysis

  1. 1. Building a Sustainable Business Model University of Southern California Marshall School of Business Strategic Management Professor Paik Fall 2011 1Rohan Agrawal Celine Fook Willie Kuo Andrew Nguyen Mimi Shih
  2. 2. 2 Introduction to the firm Launched in 2008 in Chicago with $1 million seed money One of the fastest growing technology companies of the decade Expanded aggressively to 44 countries and over 500 markets Launched IPO in November 2011 to raise $700 million How does such a company continue to grow, whencustomers are becoming less engaged and merchants see less and less of an incentive to run deals? Overview Industry Firm Implications Q&A
  3. 3. 3 Players have very limited power in this space Threat of new entrants High Anyone can start an online discount business with enough capital Buyer power Substitutes High Rivalry HighThere are low switching Many new players entering the costs for consumers. High landscape, offering deals Online discounting Fierce competition, doesn’t build brand based on territorial loyalty. expansion. There is little brand loyalty to deal sites. Supplier power Moderate There are low switching costs for merchants. However, merchants are at the mercy of group buying sites Overview Industry Firm Implications Q&A
  4. 4. 4It is difficult for incumbents to differentiate Major Industry Players Emerging Players Value added benefits Convenience (donations, local charities) Location Discounted luxury goods Overview Industry Firm Implications Q&A
  5. 5. 5There is fierce competition in acquiring customers Aggressive, quick Contingent on expansion expansion of merchants into new territories and consumers 2011, 37 acquisitions Limited by credit and with Asia as the next cash restrictions target. Overview Industry Firm Implications Q&A
  6. 6. 6The industry is growing amidst fierce competition Trends Affecting the Predictions Industry 2012 – Half of US online consumers Downturn of the economy will have used online coupons 263% growth in 2010 Consumers’ desire to spend less and save more 46 Billion by 2016 Social Media Boom of digital age, more and more apps are being used and users are going online Overview Industry Firm Implications Q&A
  7. 7. 7Groupon’s first mover advantage keeps it on top Value Rareness “hyper-local” • Expertise in telesales model • Human capital “attainable luxury” • Cost per acquisition (CPA) model Hybrid model Imitability Dual advertising space • History • First mover advantage • Numerous small decisions Network • Winner takes all externalities • Socially complex resources • Management Overview Industry Firm Implications Q&A
  8. 8. 8Groupon’s organizational structure will not hold Organization Overview Industry Firm Implications Q&A
  9. 9. 9Frequent merchants and new customers are key Run Groupon deals Leverage Slow distribution of social Profit revenues to Deals with media merchants merchants Acquisition of new customers Increased cash on hand Expansion Overview Industry Firm Implications Q&A
  10. 10. 10Groupon replicates its business model globallyGlobal Cost Efficiency Global Transnational International Multi-domestic Local Responsiveness Overview Industry Firm Implications Q&A
  11. 11. 11Groupon’s rapid expansion created weaknesses Customer not returning (non- repeat customers) Groupon rapidly Poor expanded toindustry maintain marketstructure position & gain new customers Merchants do not see value in the Groupon model (non-returning merchants) Overview Industry Firm Implications Q&A
  12. 12. 12Groupon must leverage network externalities 1 Add value to merchants 2 Lock in repeat customers Profile all subscribers, Forward repeat deals Segment merchants to to provide to customers, based provide a tiered personalized deal on historical advertising service recommendations purchasing data Overview Industry Firm Implications Q&A
  13. 13. 13Deal recommendations will lead to sustainability Build a database of Segment merchants Forward repeat-deals to consumer preferences based on WTP customers Survey all customers Sell consumer profiles to Send customers deals by merchants the same merchant Create an Organically Build a database of Attain a preferences advantage that Leverage Groupon’s ability develop loyal, diverse and Further the database by others cannot to target a niche customer repeat historical data utilizing customers loyal merchant easily replicate Recommend deals based for merchants base on profile data/historical Give higher paying Give and Grouponof an consumers more purchases merchants a more incentive to use Groupon’s prioritized deal rating service Customers will not regard Groupon e-mails a spam Ensure repeat customers Build a relationship with and will have more and create brand loyalty, merchants while locking incentive to use the generating higher volume them into Groupon services personalized service sales Overview Industry Firm Implications Q&A
  14. 14. 14 Recommendations rollout schedule 2012 2013 2014 2015 Internal preferences Get system Continually upgrade system database running Personalized Provide recommendations for allrecommendations Run beta subscribers service Leverage consumer reports and market targeting capabilities Tier merchants to merchants Overview Industry Firm Implications Q&A
  15. 15. 15Sustainable competitive advantage Customer base Merchant base Loyal Reach target customers Truly use Groupon as an Return customers advertising platform Locked into Groupon’s Reliant on Groupon serviceGrowth by acquisitions Sustainable, organic growthOverview Industry Firm Implications Q&A
  16. 16. 16 Thank you for your timeOverview Industry Firm Implications Q&A
  17. 17. 17 Groupon Income StatementOverview Industry Firm Implications Q&A
  18. 18. 18 Groupon Operating MetricsOverview Industry Firm Implications Q&A
  19. 19. 19 Groupon Balance SheetOverview Industry Firm Implications Q&A
  20. 20. 20Groupon Consolidated Balance Sheet Overview Industry Firm Implications Q&A