In 2007, Andrew Mason,
a master’s student at the University of Chicago had founded a site “The Point”.
This company helped people promote social campaigns such as charity fundraisers.
He was later approached by an investor and dropped out of school to work on The
Point full time. While working their
full time Mason realized that most campaigns combined consumers together to receive
discounts from retailers. After
incorporating this to the site, Mason decided to make it a separate business
since it was such a success. Then, in 2008 Groupon was created.
Initially, Groupon started
selling their idea to promote their customers businesses by selling discounted
product on their site. By doing so the businesses get another way of getting
customers and Groupon takes a cut of each sale they help generate. After seeing the process working so well,
Groupon expanded to Boston, New York and San Francisco, attracting 60,000 email
subscribers and running more than 100 deals. By limiting discounts to a single
promotion each day, Mason was able to handle the minimal scale and resources. This
plan worked well for both the local consumers and the businesses because customers
were drawn to the deals that they wouldn’t be able to get anywhere else. As
well as bringing in customers who originally wouldn’t have come.
The popularity of Groupon grew
over the next two years. Not only did their popularity grow but so did the
business that started serving 300 cities in 35 countries. With this growth
Groupon’s number of employees rose to 4,150 to help handle the 50M subscribers.
Groupon was doing so well, Google decided to make a purchase offer for $6
billion. Groupon rejected the offer because at that point they knew they were
growing rapidly and it wasn’t going to end soon. As a result, they went public an initial
response was very encouraging as the stock closed 30 percent higher on the
first day, valuing the company at $17 billion.
One of the major problems that
Groupon has is the increase in competition that they have to deal with as new
startups are trying to create their own type of Groupon. Also, well established
companies are also looking to get into the field such as Google and Facebook. However,
Groupon’s largest competitor was based out of Washington
D.C. named LivingSocial as they had received an
Another problem that Groupon has
is that while it grows they have a tough time managing the focus and values of
the organization. As mention earlier,
they expanded to serve 300 cities in a two-year span slowly losing their focus
on local businesses while using minimal scale and resources.
The last problem is Groupon’s
standard agreement with businesses. The agreement being a 50 percent split of voucher
revenues. This 50 percent split was paid out in three installments of 5, 30 and
60 days. Some businesses were able to negotiate better terms. This is a problem
for Groupon because most of the businesses they work with are local businesses
and they value the increase in customers that Groupon brings to them. After the
promotion, some businesses seem to lose as more of their customers are now
looking for the promotions that was available on Groupon. Also, since it is
already at a discount and then Groupon takes half that revenue the company
loses even more. As a result, businesses will tend to stay away as their
profits will dip.
A solution to the increase
in competition is that they should be the leader in the market by setting the
trend such as Wal-Mart does. For example, I mean if one of the competitors
offer a deal try to match it or beat it. This will keep the customers coming to
Groupon as they will have the best deal or the best reputation as they are
established in the company.
growth that Groupon is facing can be fixed by having them put measures in place
that once they use to many resources and increase the scale it gets flagged as
a possible issue. This will help Groupon decide if the benefit of the deal is
worth putting their value to the side.
To fix the
issue of losing businesses because of the 50 percent split, Groupon can change
the split if the business continues to do business with them, by lowering the
split to 40 percent. This will increase confidence in the businesses working
with Groupon as they will see that Groupon wants both parties to come out of
the deal with positive results.
If competitors were able to offer
better deals than Groupon, Groupon should match or beat that offer. By doing
this, Groupon will keep subscribers on their site rather than going to the
competitor as they are familiar with them and they are getting the same deal.
Also, it will take subscribers away from their competitors because Groupon has
the name brand recognition.
By lowering the percentage
split with clients who do multiple deals with Groupon, will increase their
bottom dollar a little. This is because by offering the lower percentage to these
businesses they continue to get their business in which they could have lost if
they had done nothing.
best recommendation is to lower the percentage split with long time customers.
This will not only influence businesses to continue to work with Groupon, but
it will also draw in others to also want to work with Groupon. This is because it
shows that Groupon values the businesses they have deals with.
To put this in place, there has
to be policies that check to make sure that the spilt doesn’t leave Groupon
with a loss. The percentage split between businesses has to be confidential because
if others businesses find out another business is getting a better deal it can cause
problems. Also, the policy should state that the agreement depends on the size
of the deal as it has to make sense for Groupon to take less. As a result,
Groupon should continue their agreement but put forward a loyalty program that
lowers the split after a certain amount of time, if it makes financial sense for
Results and Obstacles to Implementation
results in the short term will be beneficial to Groupon. Groupon will have a
greater reputation on caring for the businesses they work with. They will also
attract more businesses because of this fact. The increase in awareness is both
positive and negative. This is because it will be short lived. It will be only
for the short term because once their competitors start seeing what they are doing
they can start competing with the agreements.
By competitors offering lower
splits, this can become an obstacle or problem that Groupon might face as they
are already lowering their percentage for certain businesses. This might lead
them to change their whole model, just because their competitors adapted to the
lower percentage as the new norm. This will diminish the chance of this being a
successful solution because Groupon will be taking two hits, one being the
decrease in the split and then the second as trying to stay in the same range as
This might turn into a trend
to see who can survive of the bare minimum, as it will come to a point were
some will not be able to afford to lower their agreements.