GrouponBusiness Model Analysis Stephanie Meyers J7736
Executive SummaryLaunched in 2008, Groupon, Inc. is currentlythe world’s largest online coupon companywith close to 40 million active customers. In2011, Groupon became the largest IPO by aU.S. Internet company (Barr & Baldwin, 2011)since Google. The company declined a $6billion takeover offer from Google in late 2010(Geron, T., 2011).
In April 2012, the SEC examined thecompany’s revision of its first set of financialresults as a public company following twofinance revisions before its November IPO(Raice & Eaglesham, 2012). Following the SECexamination, Groupon shares plunged andaccounting experts and investors alikecritiqued the company’s leadership team.
Groupon announced it would revise results forthe fourth quarter after discoveringmanagement had not set aside enough moneyfor customer refunds, widening its loss by$22.6 million (Raice & Eaglesham, 2012).
Although the company achieved enormousgrowth in just a few years, critics wonder if thecoupon giant will survive with a businessmodel that has and continues to be replicatedby unlimited competitors, including LivingSocial.
Disruption• Print Media – Shift in advertising dollars once spent on print advertising to partnering with Groupon – Groupon’s online dominance and massive subscription base allows a whole new population of consumers access to products and services they may not have known about through traditional advertising means
Disruption• Mobile – Groupon launches app for iPhone and iPod Touch – In Feb. 2012, Groupon announced record mobile performance in N. America in December 2011 with one quarter of all Groupon vouchers purchased through a mobile device, including consumer and merchant app usage up significantly year over year
Disruption• Digital – Groupon was confronted with digital loyalty cards that are distributed and controlled by the business owner, not the coupon site – Merchants provide customers with a discount or reward for their loyalty – Enable merchant to collect viable data on the customer
Business ModelGroupon’s business model is aligned with theChameleon model, which offers customerspersonalized products and services that areadapted to the customer’s needs (Jansen, W.,2007). Groupon focuses on the consumer’sgrowing need for individualization, to tailorservices and products that match the needs ofindividual customers.
Value Model• Groupon unveils Personalized Deals in 2010 – That tailors each subscriber’s daily deals to their personal preferences and buying history (Groupon Launches Personalized Deals, 2010) – As each customer shares information and forms buying patterns, deals become more relevant
Value Model, contd.• Groupon is able to anticipate the needs of the customer and only sends those deals that correspond to those unique interests, ultimately saving the customer time from searching for the right services or products themselves
Management of Customer Relations• Groupon approaches customers directly through email. Since deals are delivered to the subscriber’s inbox daily, Groupon remains top of mind and the hyper-local deals that are familiar to the customer gets the attention and maintains the interest of subscribers.
Management of Customer Relations• The deals are presented in a unique way with quirky, literary descriptions of the deal to entice and often times add humor to personalize the deal to the customer• Groupon’s writers are tasked with “seducing” subscribers to either purchase a deal, or keep reading Groupon’s emails (Streitfeld, D., 2011)
“Grouponitis”• The addiction to purchasing daily group coupons, no matter how superfluous the deal (Doyle, B., 2011)• Groupon is able to play on the basic motivation of saving money by reducing the risk involved in paying for something a customer may not have a real desire for
Long Term Outlook• Social shopping is ultimately going to be a “winner takes most” business• Groupon holds the top spot with both first- mover advantage and extremely robust technology• Constant competition as business model is easily replicated
Financial Condition• Groupon’s revenues have grown exponentially between 2009 and 2011. Costs and expenses reached their highest peak between 2009 and 2010, with significant expenses still reported in 2011. Groupon acknowledges an increased loss of revenue for both periods driven by an increase in credit card processing fees and refunds that were not recoverable from the merchant.
Revenues• Groupon continues to show robust growth, with a revenue increase from $172.2 million in the fourth quarter of 2010 to $492.2 million in the fourth quarter of 2011
Free Cash• Groupon had $8,325, $-315,397 and $794,770 available in free cash between the years 2009-2011, respectively (in thousands)• 2010 free cash amount reflects Groupon’s acquisition of CityDeals, a European-based collective buying power business
Financial Outlook• Foreign exchange rates pose a challenge and make the company vulnerable for future losses – Groupon has operations in 47 international countries and was only able to grow international segment revenue by a little less than 13% compared to 2010
• Refunds – Groupon remains highly vulnerable with costs of revenue related to refunds that are not recoverable by the merchant – In 2010, Groupon reported an $8.6 million increase in refunds compared to $59.9 million in 2011, a 86% increase
Analysts Take• Street Insider analysts said Groupon showed strong Q1 results and Q2 sales guidance.• Morgan Stanley analyst Scott Devitt said he believes Groupon and Daily Deals are here to stay.• Competitors have not had much of an impact on Groupon, not gaining any meaningful traction or having deployed new innovations.
Risk Factors• Refunds – Company admitted it failed to predict how many people would return new high-priced deals and demand refunds (Dembosky, A., 2012) – Groupon relied on historical patterns of returns on traditional deals, rather than forming a predictive model to take into account the effect of the deals offered on those purchasing them
Risk Factors, contd.• Business Model – For continued success, Groupon must provide ROI for merchant partners – Must transform one-time customers into repeat customers – Launch of Groupon Rewards will allow customers to unlock special Groupon deals from their favorite businesses through repeat visits
Final thoughts• Groupon is in a relatively new market that has a limited history to be able to predict whether growth can continue or be maintained• Groupon’s success rides on the interest of merchant partners and subscribers, who may no longer want or need Groupon’s service• For long-term success, Groupon must be flexible to adjust and or adapt its business model to fit the needs of merchants and customers at that time