Groupon Case Study

“Groupon”

Overview:

Groupon is a marketing service company that was established focusing on the local merchants at the very beginning by selling vouchers and discounted coupons for their products and services. The word came from “Group and “coupon”. It grew out of “The Point”, an online community founded 2007 for collective action. The Point established by Mason who noticed that the popular campaigns banded their consumer to get discount from retailers then he decided to improve such similar deals and promote them online for commission. He believes that if you have one new offer everyday it will keep your customers large enough! This strategy was successful.

Groupon started from Chicago by selling discounted vouchers to its customer and took a cut of each sale in return. Then it expanded to other cities in very few time as it had 60000 e-mail subscribers and worked on 100 deals. Groupon focused on local merchants. However, it expanded internationally in few time which affected its sales and increased the customer numbers.

The mechanism of Groupon is to allow the merchant signing up for a promotion in which they decide the product or service that would be offered. The deal is always 50% off list price, The standard agreement for Groupon in 50/50, its activated only when the customer numbers achieved the point set by the merchant.

The consumers should sign up to receive all the offers and discounts’ updates from Groupon. They receive the notifications on Facebook, email, twitter…. The deal is usually launched at midnight for 24 hours only. Groupon is responsible for getting the consumers’ online transactions, then pays out the merchant’s cut of the revenue in three equal installments as the following: 5, 30, and 60 days later.

To increase the customer’s numbers Groupon gave extra $10 discount toward a future purchase for each referral. It also launched a marketing program that gives commission 15% for each blogger and website on referred traffic. That was effective as one of the top referring sites for 2010 was Groupon. The company’s TV campaign has been launched in 2011 that tried to gather between the sense of humor and the commercial benefits but some observers showed that it contradicted the expectation. However, the customer feedback on dealing with Groupon were really impressive as they love it. So they do not only like to save money by dealing with the company, but also want to keep that feeling of finding the varieties, convenience and other benefits.

Problems:

There are two sides for the merchants:

1- The positive one is attracting more customers by the discounted deals and vouchers. The customers were spending average of $20 in addition to the voucher’s face value during the deal.

2- The negative one is that the merchants couldn’t cover their product cost and that 50% merchants signed for doesn’t cover all the expenses like staff, rent, transportation, etc. Groupon customers themselves were annoying as they overused the voucher and misused the discounted price. They did not follow the Groupon rules and may use same coupon for several transactions. Some merchants discovered that they lost money, however the number of customers still almost the same.

The success of any deal depends on many elements such as the mixture between the existing and new customers, the redemption time and ability to convert a temporary customer, who uses the deals, to a regular one. The growth of Groupon didn’t go right as the quick change from national to international level affected its growth aggressively.