Groupon Essays

Groupon Essays Groupon Essay Groupon Essay Critics where divided by Groupings decision to to sell because virtually vulnerable and they have no barriers to entry. As great as Group sounds they are facing a massive problem; their business model is easy to copy. Andrew Mason, the founder and CEO of Group estimates that there are over 2000 direct clones worldwide but he insists that there is only a handful there are relevant. The biggest threat to Groupings kingdom is Livingston, although significantly smaller than Group, which raised $40 million since launching in 2009. Livingston received its biggest boost when Amazon has decided to invest $175 million into the company. Despite the severe competition, Group does not seem concerned because they believe large-scale success demanded a degree of operational sophistication that few could match. Groupings unprecedented growth and success have mainly come from two factors: focus on local merchants and a self-imposed limits to a single promotion each day. This combination helped the company to deal with minimal scale and resources and thus to increase the attractiveness of its initially rather small community. The best choice Group made was to establish their business models by cities and offering eels from local merchants has increased their attractiveness for their early subscribers. Many local merchants have tight marketing budgets who are struggle to reach customers found the allure of an outsourced online promotion with no up-front expenses very compelling. This alone became the single source of success for Group. Many people first learned about Group through their family and friends. To encourage word of mouth Group offered $10 towards future purchases for each referral. : Group became very popular among young, well-educated, unmarried and relatively affluent customers. The main reason Group became appealing to consumers was that its saved them money as well as its convenience and variety. With Group offering deals locally, consumers are able to find fun and exciting activities locally without having to travel worldwide. Many consumers feel like a tourist in their own hometowns because they are able to try new thing through Group that they otherwise will never find. Merchants Behavior: The research provided in this case study shows that Group is indeed good for merchants, but in all fairness Group is not some miraculous one-size- its-all marketing tool and so no one should expect it to be so. Selected research shows that Group equips merchants with the technology and buzz to attract high caliber consumers. Consumers that, on average, spent 40% to 60% over face value of the any given voucher, and made repeat visits to the newly discovered merchant. Ninety-five percent of merchants said they would run another deal with Group -? granted the other 5% were significantly disappointed with their Group experience. Some merchant complaints included claims that Group deals cut into their margins significantly so as to leave them in losses, the overall customer experience deteriorated with the increased traffic created by the deal and that deals created confusions as to lead to a poor initial customer experience. That is the argument that Group is not good for merchants. In selected circumstances, Group is probably not the best marketing solution, but we do not believe that provides grounds to say Group is overall bad for merchants. On the contrary, the numbers show Group is an efficient and beneficial marketing tool. Quantitative Analysis: American Apparel, with the popular deal, sold many vouchers. The email address acquisition helped in increasing online revenue. Also American Apparel negotiated the contract with Group to give them much less than half of the revenue generated from the coupons. Considering all these factors and also some of the following assumptions, American Apparel landed in profits using the Group coupons. The assumptions made are: a. American Apparel said customers who purchased the $25 group-buy deal ended up spending an average of $70 (50+20) once they cashed in the deal. So, this end up in profitability. . Low return rates are key to profitability c. Ability of the promotion to pull in new customers also leads to profitability The assumed profitability of Group can be calculated as follows Number of vouchers sold = 133,000 As stated in the case, customers spent an average of $20 above the vouchers face value when cashing in the deal. Hence, the price per unit would be around $70 This gives the total revenue as = 133000* 70 = $ 9,310,000 TO avail the voucher, the customer should pick up a product Of minimum value of $50. This can be considered as fixed cost. So, the total cost can be even as = 50 Hence, profit of the American Apparel using the group Promotion can be given as 9,31 0,OHO In the case it is given that on an average customers had spent $20 more on their purchase and this is the key to the profits. So, in case, the customers had not spend that extra amount and had just availed the offer of $25 coupon, then the profits of American Apparel would be affected and hence the profit are sensitive to this assumption. Competitive Advantage: Yes, Group has a lot of competitors from well-known public companies, including all the heavy hitters. The largest of these competitors were Washington, D. C based Livingston. Though Livingston is significantly smaller than Group, it was also growing rapidly. For Example, in January 201 1 it got a big boost by promoting $20 Amazon gift cards at half off and nearly 1. 2 Million customers took the deal. Some other competitors tried to win merchants by offering lower fees or leverages to social media. The web heavyweights Google and Backbone also tried to give competition to Group by offering its own daily deals. But all the competitors efforts failed to hit Group. All the competitors have very similar approaches to Group. In some cases the user interface is indistinguishable because the Group interface has been copied over and over. Theres no brand loyalty in the business of Group. Its strictly a deal-by-deal business by definition. We expect competition to further drive the price per coupon down, and also drive down the number of coupons purchased per customer. But in case of Group, the price per coupon started to grow up which lead to slow failure of Group. From all the above arguments, though the Group has attracted any competitors, it does not have much competitive advantage for its growth. Group 2. 0: Group 2. Is a series of new initiatives offered by Group such as Group Stores, Group Now, Group VII and Group Rewards. One major difference between Group (1. 0) and Group 2. 0 is that Group 1. 0 relies on a push model a model that attracts customers by sending mass- emails regularly that highlight a few of Groupings current deals while Group 2. 0 relies on a pull model a model in which customers v isit Group through its website, APS or internet searches to find specific deals. My assessment of Group 2. 0 is that while it has its pros and cons, it will eventually become successful. Although launched well, the Group Stores initiative was not successful and shut down soon. However, the other initiatives: Group Now, Group VII and Group Rewards, show a lot potential. Group Now is a useful smartened app for customers who are looking for a particular product or service immediately. The app helps customers find current and nearby Group deals. Group VII is an initiative that rewards VII members with access to deals earlier than non; embers as well as better refund policies for a membership fee of $30 annually. This is a great way for Group to reward their regular customers and differentiate those Group users from one-time or new users. Group Rewards is a loyalty program that allows merchants to reward Group customers for repeat coupon purchases for their specific business. For example, if a customer uses Group to purchase Spinney coupons, Spinney can reward that specific customer after he or she purchases a set number of coupons (as predetermined by Spinney). This initiative will help increase customer loyalty through rewards.