Project from Marketing Research- Business Analysis of Groupon

Business Analysis

Written By: Ben Carter, Kelly North, Meg Allison, Stephanie Eder, Chris Rodriguez and Ken Webster

April 24, 2012

Table of Contents

Executive Summary…………………………………………………………..3 

Introduction and Background……………………………………………4 

Situation Analysis……………………………………………………………..5

Primary Research Information………………………………………….6

Characteristics of the Final Sample……………………………………6 

Summary of Research Findings…………………………………………8 

Recommendations ………………………………………………………….13 

In-Depth Interviews………………………………………………………..15 

Business Analysis……………………………………………………………19

Executive Summary

After conducting an online survey (with 68 respondents gathered from social media, e-mail, and in class) as well as in-depth interviews (with 6 respondents total, some of whom worked for Groupon, individuals who liked/disliked Groupon, and individuals who have worked for a company that has used Groupon for its customers), we have come to the following conclusions:

Our first research objective was to determine the percentage of users that visit the Groupon site daily and purchase at least one package a month. While just over two-thirds of our respondents said they look for deals at least once a week, only one-third responded saying that they have used a Groupon deal in the past six months. Thus we have concluded that frequent visits to Groupon’s website does not have that much effect on the actual purchase of Groupon deals.

Our next research objective was to determine the percentage of customers who would be more likely to purchase a package if they could get a refund had they not used their package before its expiration date. Over three-quarters of our respondents said that they have never purchased a Groupon deal and not redeemed it. Of the remaining respondents (those who had purchased Groupon deals and allowed them to expire), the majority said that this has only happened once or twice. Three-quarters of all respondents said they would be more likely to purchase a Groupon deal if they were given the option to get a refund in the instance they did not use their Groupon deal before it expired. As a result, we concluded that it would be in Groupon’s best interest to give its customers the option of a refund if they didn’t use their Groupon deal.

Another research objective was to determine what factors prevent consumers from using Groupon. When asked what it is that prevents them from using the Groupon website, two-thirds of respondents answered that it was the location of the deals offered and the variety of the deals offered that prevents them from using Groupon. The majority (over 90% of respondents) said that Groupon’s website was clear, concise, and easy to navigate, therefore we concluded that this is not one of the things preventing consumers from using Groupon.

We also wanted to know how Groupon’s customers liked to find out about the latest deals and came up with this research objective to determine whether consumers prefer e-mail subscriptions or free memberships. Roughly half of the respondents answered that they prefer a free membership (i.e. signing onto the Groupon website themselves) as opposed to an e-mail subscription (i.e. receiving periodic e-mails in their inbox directly from Groupon). Since Groupon already allows their customers to choose if they would like to visit the Groupon website directly or have Groupon send them e-mails, we’ve concluded that Groupon should continue to do so.

Our last research objective was to identify other offers that consumer’s would prefer to see offered through Groupon’s service. Respondents were given the following options to choose from: sporting events, theme parks, spas, concerts, and restaurants. Two-thirds of respondents said that they would most like to see restaurant deals. Half of the respondents said concert deals were appealing. Just under half said that sporting events were also appealing. Theme parks and spas received less favorable responses, only a quarter and a third, respectively. In conclusion, we feel that it is in Groupon’s best interest to continue to provide a wide variety of deals, and that they continue to expand their various purchase categories as the company evolves in order to maintain their current customer and also continue to gain new customers.

Introduction and Background

Launched in November 2008, Groupon features daily deals on the best stuff to do, see, eat and buy in 48 countries. Groupon grew out of a website called The Point, a website launched in November 2007 that lets you start a campaign asking people to give money or do something as a group- but only once a ‘tipping point’ of people agree to participate. The idea for Groupon was created by now-CEO Andrew Mason. The idea subsequently gained the attention of his former employer, Eric Lefkofsky, who provided $1 million in "seed money" to develop the idea. The idea for Groupon was an antidote to a common ailment for US city- dwellers: there’s so much stuff to do, but the choice can be overwhelming and costly. 

Groupon works by using an online website called Groupon.com or through a mobile device like a cell phone. Once you enter your location and chose the type of deal, Groupon pulls up business in the area that are offering coupons. Then once the deal is bought, present the Groupon to the merchant within a specific time. 

The service focus of Groupon is to provide a site where you can find things you want to do at a discounted rate. However, Groupon cannot pick any business they want and post a coupon onto their site, the company has to come to them and ask to be promoted on Groupon’s site. This can cause a few issues. 

Issues with Groupon from a merchant’s position:

Greater expenses -Typical deals features on sites like Groupon are discounted by 50% of the original retail price. On top of that, Groupon takes 50% of all voucher sales that it obtains for its clients. Thus, business owners generally earn only 25% of what they’d normally make on any sale generated through a daily deal website. 

Attracting the wrong customers – Some business owners that have used Groupon to promote their services in the past have commented that Groupon buyers are not the kind of customers you want. They’ve complained that daily deal buyers are just out for the deal and they will spend as little as necessary at your establishment in order to redeem their deal. This includes lower tips on average and a lower rate of tipping.

Too many customers too soon – The power of group buying can rally enormous numbers of people to your place of business. While it’s always great to earn new sales, the high traffic in a short period of time can be disastrous to a business that’s not prepared. If you don’t have the man power on hand to accommodate this huge influx of new customers, the quality of service you provide for your customers will suffer. As a result you’ll see your online ratings on review sites like Yelp and OpenTable crash and burn.

Hiring more employees – The huge influx of new customers that result from your deal offering means you’ll likely have to hire a few extra employees to handle the increased workload. This requires that you create and pay for job listings, setup interviews, and train the new workers. All of that costs extra so you’ll need to take those costs into consideration as well.

Lower profit margins – Forget about making any profits from customers that buy deals. Most businesses that offer deals are lucky if they break even. Remember, you’re only making about 25% of what you’d normally earn.

Short lived exposure – While daily deal sites can generate an enormous amount of attention for your business, that intense spotlight only lasts for a few days. After that, it’s all downhill in terms of deal impressions and the battle to deliver unprecedented customer service to stingy deal crazed consumers begins. 

No customer addresses gained – Growing one’s customer database may be the single most important goal for a business owner. A strong email list is essential for nearly every business to achieve success in a market. Unfortunately, Groupon and other daily deal websites do not share the buyers’ contact information or email addresses with the merchants.

Employee morale may suffer – Business employees have complained that Groupon customers tip very little because they’re trying to squeeze the most out of a deal. Simply put, lower tips combined with heavier workloads may leave your employees clamoring to find another job.

Buyers of Groupon deals have also been experiencing problems. The main issue customers are having is that once the deal is bought, you have to use it within a certain time. If the deal is not used you don’t get your money back. 

Issues with Groupon from a customer’s position: 

Overselling deals- Often businesses can’t keep up with high order demands. Since Groupon takes its cut upfront, it becomes the customers’ problem when the vendor can’t deliver in a timely manner- or at all. 

Inflated savings claims- Groupon exaggerates its savings percentage to its buyers so that people think they are saving more money than they actually are which inclines them to buy the coupon. 

Substandard customer service- The company has an overall customer service rating of 53.83 out of a possible 200 points This score puts Groupons customer service and support in the ‘disappointing’ category. 

The broken Groupon promise- In the lower right corner of every city’s homepage is the Groupon Promise: “If the experience using your Groupon ever lets you down, we’ll make it right or return your purchase. Simple as that.” Groupon did not issue refund to the many dissatisfied customers.  

Situation Analysis Summary

Groupon’s brand positioning is that they are determined not to be a coupon distributer or promoter of ‘cheap pizza.’ They want to be perceived as an impartial guide to a city or neighborhood, somewhat in the manner of the local paper’s weekend section. Groupon has hired over 400 writers and editors who bring stories, texture and humor to their clients’ offers. This is what makes Groupon different from their competitors. There are a lot of ways to find coupons for things you want to do, but Groupon can locate exactly where you are on their mapping system and find deals that are nearest to you. 

Groupon set out to establish themselves through Online Marketing techniques. The business uses email blast and (understated) word of mouth marketing to entice new customers. The business first established a successful relationship with a local business and advertises that business through their discount coupons. Because it is mutually beneficial (in a marketing sense), Groupon attracts business as clients for their services. 

Other companies, especially those that don’t have the extensive location directory that Groupon has, can stand out by placing a greater focus on ranking their sites for relevant city specific terms. Many Groupon clones rely heavily on paid advertising to generate site traffic. Daily deal sites are either made or delayed based on the activity of their users. 

Groupon’s competitors:

Living Social is Groupons main competitor, coming in at number two (behind Groupon) in the companies’ category. 

BuyWithMe is a social buying website where leading local merchants offer exclusive limited time offers to the members of the BuyWithMe community. 

Glit City is the local lifestyle site from the Glit Groupe that offers insider prices on businesses around a city. 

Groupon doesn’t have a specific category due to the fact that it is such a new industry. Launching in only November 2008, Groupon’s growth development has just started. 

Primary Research Information

Our team assembled online surveys, focus groups, and in depth interviews in order to find out the percentage of the users that visit the Groupon site daily and purchase at least one package a month, the percentage of customers that would more likely purchase a package if they could get a refund if they did not use their package in time, determine what factors prevent consumers from using Groupon and identify other offers that consumers would prefer to see offered through Groupon’s service. The reason why we chose online surveys and focus groups was because of the convenience of our classmates and use of internet, having left us at no cost to this research. The in depth interviews offered us deeper insight, quicker sampling, better rapport in a one on one interview, fewer distractions and was fast and cheap. Also with in depth interviews, we could discover and make changes quicker.

Characteristics of the Final Sample

For our surveys we used a non-probability sampling procedure, specifically the convenience method. For the first half of our surveys we decided to conduct an online survey. 60 respondents were surveyed through our social media accounts as well as e-mails between our classmates. For the second half of our surveys we conducted six various in-depth interviews. We interviewed one person who worked for Groupon, two who worked for a business that used Groupon, one Groupon enthusiast, one who dislikes Groupon, and one indifferent. 

The advantages of doing both surveys as well as in-depth interviews is that we can get basic opinions and satisfaction on a large scale through our surveys, but through our in-depth interviews we can not only connect with Groupon users, but also get the opportunity to explore the problems and praises further. The disadvantages were only that it was a time consuming process and required two separate survey designs. 

The criteria to participate in the survey was not very strict but had a few requirements. Every respondent participating in either the survey or the interview must be between the ages of 18 and 30 years old based on our research showing that Groupon tries to position themselves to a younger crowd unlike their competitors such as LivingSocial which are designed more specifically for an older group. We chose to survey both men and women since Groupon’s product is not gender specific and it was discovered through focus groups that men have used Groupon and would use it more if they could find deals geared towards them.  The survey was also neither geographically specific or race specific. 

The following charts below will further show some of the key characteristics of our final sample. 

 

Conclusion:

The graph features a total of 68 respondents. 58.8% of the respondents for our online survey were female and 41.2% were males. A lot of females use Groupon but we wanted to make sure we had an almost even number of both genders participating to reduce our sampling error.

                               

Conclusion:

Above shows that 78 participants responded to the question asked, and of that 78, 88.5% use online coupon services and 11.5% do not use online coupon services but chose to continue participating in the survey against advisement.  

Summary of Research Findings

Research Objective: Determine the percent of the users that visit the Groupon site daily and purchase at least one package a month.

Conclusion:

68 respondents answered the question above. Out of 68 respondents, 66.2% said that they only check for online deals 1-2 times a week compared to an 8.8% responding that they check once a day or more. This shows the low loyalty level of Groupon consumers and two-thirds of our sample hardly checks at all. 

          

            

Conclusion:

Rather than asking respondents if they have used Groupon within the last month, we decided to take it on a larger scale, which is 6 months. Based on our results 54.4% (37/60) have used Groupon within the last 6 months and 45.6% (31/60) have not, it is mostly an even split.

Research Objective: Determine the percentage of customers that would more likely purchase a package if they could get a refund if they did not use their package in time.

            

Conclusion:

Out of 68 respondents, 3/4, 75% would be more inclined to use Groupon’s services if they were provided with the opportunity to receive a refund any unused purchases. Only 25% said that they would not be more inclined to use the service with the offer of refunds.

Research Objective: Determine what factors prevent consumers from using Groupon.

Conclusion: 

21 respondents participated in this question, out of that total, 64.3% say that the locations of the deals offered prevent them from using the Groupon website. 57.1% do not like the variety of deals, and 28.6% find the website to be confusing.

Research Objective: Determine whether consumers prefer e-mail subscriptions or free memberships.

Conclusion:

Groupon’s current strategy is the e-mail subscriptions and our results show that consumers are unhappy with this feature. 68 respondents and 70.6% would prefer a free membership rather than the 29.4% who enjoy the e-mail subscription.

Research Objective: Identify other offers that consumer’s would prefer to see offered through Groupon’s service.

Conclusion:

68 responded to this question, which gave them the option to choose more than one response. 67.6% are most attracted to restaurant deals, 47.1% concerts, 39.7% spas and sporting events, and 22.1% theme parks.

The following charts display cross-tabbed information that was found to be the most helpful results for our research objectives. They answer questions we previously posed and show which concerns from our focus group were a general consensus or personal opinions.

This chart shows the correlation between the number of unused Groupon deals compared to the overall number of purchases.  There are 42 responses and of 75% of people who have not have any unused purchases have purchased 1-2 deals in the last six months and 60% of users who have had unused deals have purchases 5 or more in the past 6 months.  This response was interesting because through our qualitative research a large issue that we faced was consumer’s steering away from Groupon due to past experiences of not using the deals that they purchased, but majority of consumers who purchased within the last six months do not face the same issue. 

The chart below compares between satisfaction level of purchases and the number of deals purchased in the past 6 months.  With a total of 41 responses 66.7% of users who have purchases 3-4 deals were only moderately satisfied, however no one was not at all satisfied. 

Below shows the correlation between owning a smart phone and using the Groupon App. Only 40% of 68 respondents have a smart phone and use the app. 60% own a smart phone and do not use the app. Evaluating this we wonder if the cut of advertisements that Groupon performed should be reinstated and used to promote the mobile app to increase mobile shoppers and maybe increase their user database. 

Finally comparing how many people have had unused Groupon deals to how many users would more likely purchase with a refund option. 68 responses, 88.2% of respondents who have not had unused deals are not attracted to a refund. Only 34% of those with unused deals are attracted to the refund option which was also largely favored through our quantitative research but less popular through the quantitative. 

Recommendations

According to our research, our team has assembled recommendations that may be of use to the Groupon Company. The research offered many results. 

First off, people were more likely to buy a package if they were familiar with the company. This may go against the company’s goal of supporting small, up and coming businesses, but as more and more small business stray away from collaboration with Groupon, the company might consider offering more packages with well established businesses. 

Some of the people who bought Groupon packages did not use them, and for fear of the same loss, they do not buy anymore packages. One suggestion could be to extend the offer beyond that point if it has not been used. Another suggestion is to provide another Groupon, through customer service, on a case by case basis in order to retain that customer (as is with Apple Computer Company). 

In order to maximize the amount of purchases per customer, consider tailoring the offers to that customer by analyzing what they have bought previously. For example, if the customer has a history of purchasing shoes, offer him more shoes, sports apparel, tickets to sporting events and everything related in order to make the customer feel less bombarded with random offers. 

Through focus groups we were able to ask for customer recommendations which included:

Offer more variety (even within certain segments such as sports)

Have smaller neighborhood selections

Put a cap on the amount of Groupons sold

Have more masculine services offered

The last point, especially, points to the fact that the company needs to gain more male buyers. 

Finally, a suggestion for the company is to look at the business to business side, meaning the restaurants and businesses that participate in the promotion with Groupon need to be properly “rewarded.” By looking at psychographics and customer history, a suggestion would be to tailor coupons to customers who are willing to spend more than the offer. By searching out these customers, the company can look to help the business financially as well as promote them for the time being. Most people who work in the service industry and who have witnessed the collaboration between their workplace and Groupon claim to find it disheartening, and by acknowledging these facts, the company can hope to gain business clientele for the long run.

In-Depth Personal Interviews

Subscriber 1’s Interview

1.  What is your relationship with Groupon?

__X__   Subscriber   

____   Client/Service Provider 

____   Other  _____________________________________________________  

2.  How many services/products have you purchased through Groupon and what were they?

I have purchased roughly 10-15 deals through Groupon. The deals I bought varied between spa packages, massages, restaurants, and Groupon goods. 

Which of the categories you listed above, made up for the majority of your purchases and why?

I use it mostly for restaurants because there are always such great deals to get large amounts of food at expensive restaurants for less.

You mentioned that you purchased Groupon Goods. What are those?

They are products you can purchase from Groupon that are not affiliated with another business. I bought a scale.

How long have you been using Groupon?

2 years

3.  Describe your interactions with Groupon.  Please provide as much detail as possible.      

Through daily e-mail notifications, or my I phone and I pad. I only look at them when I am bored or a deal is something interesting.   

Which of these methods you listed above do you prefer to use and why?

My I Phone because it is a good time killer when I am at work or commuting

Have you heard any negative interactions with Groupon, If so please explain?

Yes I had issues with their fine print. Such as not being allowed to use the Groupon on the weekends so you get turned away. Also all the good times for massage appointments fill up quickly so the only time available is when I am at work.

4.  How satisfied overall would you say you are with your relationship with Groupon? 

Satisfied

5.  Please describe your response to Question #4.   

They normally offer good deals that have half priced items or meals. The only negative is the fine print issues I mentioned above and expiration dates.

6.  Describe any additional offers you would like Groupon to provide subscribers. 

I would like Groupon to have an adventures section like Living Social does where you could by deals for day trips or excursions.

9.  Have you (purchased for subscribers or offered for client/service providers) coupons through other coupon distributors?              

 Yes   

10.  Which ones? 

Living Social and GuiltCity

11.  Describe your experience this company.  Include as much detail as possible. 

Honestly, they were the same experience as Groupon there are no distinguishable differences.

Between Living Social, Groupon, and GuiltCity, which do you prefer to use the most and why?

I prefer to use Groupon because it was the first one I started on so I trust it and I am loyal to them.

Client 1’s Interview

1.  What is your relationship with Groupon?

____   Subscriber   

__x__  Client/Service Provider 

____   Other  _____________________________________________________  

2. What was the name of the company that you worked for which used the service?

Caffe De Luca

3.  Describe your interactions with Groupon.  Please provide as much detail as possible. 

Caffe De Luca started to loose customers, so the owners thought It would be a good idea to have a groupon promotion. Lots of people came in and used their groupon. However, the at the end of the promotion the company lost money rather than gaining revenue. And customers never came back who used it. 

4.  How satisfied overall would you say you are with your relationship with Groupon? 

Very UNSATISFIED

5.  Please describe your response to Question #4. 

The company just lost lots of money. It seemed like people almost abused the groupon promotion.

6.  Would you consider doing another offer through Groupon?  

No

7.  What would Groupon need to change in how they relate to client/service providers to get you to make another offer through Groupon?

I think there needs to be a limit set up by the company so not everyone gets a coupon.

9.  Have you offered coupons through other coupon distributors?  

NO

10.  Describe your experience this company.  Include as much detail as possible. 

I didn’t really interact with the company. The experience with groupon wasn’t great. The owners just did it that once. Due to loosing revenue. So, Overall it wasn’t a pleasant experience.

11.  Would you (make another offer or make another purchase) using this company's service?

      No

Subscriber 2’s Interview

1.  What is your relationship with Groupon?

_X__   Subscriber   (Ask Q#2)

____   Client/Service Provider   (Skip to Q#3)  

____   Other  _____________________________________________________  

2.  How many services/products have you purchased through Groupon and what were they?

I have purchased two deals from Groupon.  One was for King Crab something like $10 for $20 worth of food.  And the other deal I got was from Chicago Power Yoga for 20 drop in classes for $39. 

Probe: Is there anything else?  If respondent volunteers an additional product or service, continue asking until respondent can't remember anything else.  (Skip to Q#4) 

3.  Describe your interactions with Groupon.  Please provide as much detail as possible.         From the two experiences I personally had from Groupon everything went off without a hitch and I had no problem with the deals or Groupon themselves.  Now I was suppose to go to a Blackhawks games that was a Groupon deal but did not get enough people to purchase the package or something and they did not tell us that we did not have the tickets until one hour before the game started.  Groupon was having difficultly solving the problem and finally gave the person who bought the Blackhawks Groupon a $20 voucher for the next purchase he made.  

Probes: Could you expand on this?  (Ask as needed)                                                                                                                    Is there anything more?  (Ask at least two times)                                                              What about . . . ?   (Fill in the blank as you go along with anything related to         respondents comments which is of interest to you)

4.  How satisfied overall would you say you are with your relationship with Groupon? (Read response choices)

Highly           Very         Satisfied             Neither Satisfied       Unsatisfied           Very          Highly     Satisfied    Satisfied                                   nor Unsatisfied                                Unsatisfied   Unsatisfied

5.  Please describe your response to Question #4.  (Probe)  

I have been satisfied with the services of Groupon because they basically advertise what you are getting in the very beginning.  I am not overly satisfied because sometimes I think they fool you into thinking the deals a better deal than it actually is.  And from the situation my friend got in with Groupon and the Blackhawk tickets. 

8.  Describe any additional offers you would like Groupon to provide subscribers. (Probe)

 I would like to see more shows and concerts offered as Groupons.  I think it would help bands get their name out there and also it would enable you to see what is going on around Chicago. 

9.  Have you (purchased for subscribers or offered for client/service providers) coupons through other coupon distributors?               Yes   (Ask Q#10)            No  (Terminate interview)  

Client 2’s Interview

What is your relationship with Groupon?

____   Subscriber   (Ask Q#2)

X Client/Service Provider   (Skip to Q#3) 

____   Other  _____________________________________________________  

3.  Describe your interactions with Groupon.  Please provide as much detail as possible. 

I worked with Groupon three years ago when I was the marketing and event manager at a foodworks Hospitality group. We tried it because it was new and it seemed like a great way to promote the restaurant without an upfront cost. if people did not purchase the coupon we did not pay. We offered a Groupon as part of our marketing plan for a new restaurant opening.

 4.  How satisfied overall would you say you are with your relationship with Groupon? (Read response choices)

Highly           Very         Satisfied             Neither Satisfiednor Unsatisfied         Unsatisfied           Very          Highly unsatisfied   

 5.  Please describe your response to Question #4.  

We sold 3,000+ coupons ($10 for $20). At first it seemed like a success but there were a few details that made it very disappointing. The demographics Groupon targets are not ones with disposable income, instead they are ones that only go to restaurants if they have a coupon (not repeat costumers) and didn’t spend more than the $20 they had purchased. We also had a lot of people trying to play with the rules, they wanted to see how much they could get away with, this was our main concern. Also, the money from the offer, we got 50% of the $10. So $5 was the only money we received from the $20 of food & drinks people actually consumed at the restaurant. We also did not receive the entire sum until 6 months after the offer had ran. 

6. Would you consider doing another offer through Groupon?     Yes                 No

  What would Groupon need to change in how they relate to client/service providers to get you to make another offer through Groupon?    Their customer service was fine, I did not have a problem with that. The offer policy was what I was not happy with, but at the time we decided to move forward with the offer Groupon had just appeared in the realm of marketing  possibilities so we decided to try it. 

Have you (purchased for subscribers or offered for client/service providers) coupons through other coupon distributors?               Yes             No 

10. Which ones? Black board eats

11. Describe your experience with this company.  Include as much detail as possible. It was great the only discount we gave was to our costumers, there was no cost to be featured. They target the chicago 'foodie' people that are interested in the experience, not the coupon.  

12.  Would you (make another offer or make another purchase) using this company's service?

       Yes                                No

Employee 1’s Interview

1.  What is your relationship with Groupon?

____   Subscriber

__X__   Employee

____   Client/Service Provider

____   Other  _____________________________________________________  

2.  How many services/products have you purchased through Groupon and what were they?

____A handful of deals.  I recently bought one for Cesar's Killer Margeritas, one for the Brew and View at The Vic, and a Good deal for contacts.______________ 

3.  Describe your interactions with Groupon.  Please provide as much detail as possible.         ___I work as an Account Manager for Oklahoma City.  I work directly with merchants making sure they are completely prepped and ready for their feature.  I confirm payment terms and deal structures with them.  We also work together on the preview of the deal before it goes live to confirm issues like Fine Print and factual details.  I also discuss redemption options and how to track customers using various tools provided by Groupon.  I am an advocate for the merchant and work directly with the Sales Reps, Editorial, Customer Service, and Merchant Services.____

4.  How satisfied overall would you say you are with your relationship with Groupon? 

Highly           Very         Satisfied             Neither Satisfied       Unsatisfied           Very          Highly     Satisfied    Satisfied                                   nor Unsatisfied                                Unsatisfied   Unsatisfied

5.  Please describe your response to Question #4.

____It's been a great experience as a first job out of under-grad.  I started in Sales and transferred to a Merchant Services position, so I've been able to gather insight into various areas of the company.  It's great to be a part of such a creative, fast-paced, up and coming company in its prime.  I feel like I have the opportunity to actually voice my observations and shape the way things are done in my position._____

8.  Describe any additional offers you would like Groupon to provide subscribers. _______I think the various areas Groupon has already branched out to, such as GrouponLive and Groupon Goods are great starts.  It will be great to see what other areas we are able to explore in the future.

9.  Have you purchased coupons through other coupon distributors?
                     Yes   No   

Business Analysis

Written By: Ben Carter, Kelly North, Meg Allison, Stephanie Eder, Chris Rodriguez and Ken Webster

Manufacturer:

Groupon is an online company that "manufactures" its "goods" by supplying the customer with a discounted service or product. Groupon started as a business venture that offered discounted services in a small market, which is the market of up and coming restaurants. Since then, Groupon has expanded and is currently involved in over 500 different markets and over 44 countries worldwide.

Brand Product Line:

Groupon doesn’t have a specific brand product line. They cover multiple brands in various markets and sell their products to customers at a discounted price. Their products can vary from a spa coupon, a car custom detailing job, or even a vacation getaway. That is what makes Groupon so popular to so many different people. Anyone can download the Groupon app or go to their website and find something that they are interested in. Having a broad product line allows Groupon to have an equally broad group of customers, which increases sales and overall revenue. The company wants to be seen as an adventurous guide to the city, offering what's new and trendy. Groupon takes half of the price paid for the product or service provided (i.e., If someone pays 40 dollars for a service, the business cooperating with Groupon receives 20 dollars and the other half goes to the sponsoring business).

Brand Positioning:

Groupon’s brand positioning is that they are determined not to be a coupon distributer or promoter of “cheap pizza.” They want to be perceived as an impartial guide to a city or neighborhood, somewhat in the manner of the local paper’s weekend section. Groupon has hired over 400 writers and editors who bring stories, texture, and humor to their clients’ offers. This is what makes Groupon different from their competitors. There are a lot of ways to find coupons for things you want to do, but Groupon can locate exactly where you are on their mapping system and find deals that are nearest to you. Their type of deals aren’t percentages off of your total order, it’s more like “Spend $20 and then get $10 free!” which helps out the business because the customer is still spending money and they have an opportunity to up sell. 

Brand Marketing Strategies:

Groupon set out to establish themselves through Online Marketing techniques. The business uses email blasts and (understated) word of mouth marketing to entice new customers. The business first establishes a successful relationship with a local business and advertises that business through their discount coupons. Because it is mutually beneficial (in the marketing sense), Groupon attracts businesses as clients for their services. In 2011, Groupon spent 613 million dollars in marketing expense toward bringing in new subscribers (because most users are one time users) according to public record and AdAge.com. In 2010, Groupon established their iPhone app, which is devised to entice subscribers to use Groupon more often. The app uses the phone’s GPS to locate nearby businesses that offer Groupon discounts. 

Groupon has already achieved levels of success. They rely heavily on user discovery, communication, and online advertising to push the brand and names further into the market. Groupon has 32,000 + pages indexed in Google, more than 100 of those pages are main entry for a city, like www.groupon.com/los-angeles. Groupon plays to group buying by requiring a certain number of people to purchase a deal before the product “tips.”

Brand Advertising/Marketing Budget and Allocation:

Groupon’s advertising and marketing expenses include targeted online ads, sponsored searches, ads on social networks (such as Facebook and Twitter, both online and mobile), email marketing campaigns, loyalty programs, and affiliate programs. However, after Groupon decided to cut back on its marketing and advertising expenses, they focused on more traditional routes of advertising, and spent almost $16 million on TV, radio, and outdoor ads (billboards, bus stations, etc.).

Groupon spent $345.1 million on online advertising and marketing costs in the first half of 2011.  This was up $241.5 million from what they spent in the first half of 2010.  However, Groupon says they will be cutting back on marketing and advertising expenses.  Instead, Groupon plans to place more emphasis on retaining existing subscribers and gaining new subscribers by giving consumers more refined deals, higher quality customer service, and continuing to expand the amount of different categories in which their deals are offered.  CEO Andrew Mason stated that he saw Groupon’s heavy marketing costs as “a very large one-time expense,” since Groupon can target all of the new users gained from the campaigns with free emails in the future.

Cutting back on marketing expenses could be a bad idea for Groupon though.  Groupon’s number of cumulative subscribers seems to have slowed as their advertising and marketing spending began to do the same, which is illustrated in the graph below.

On the other hand, Reuters reported that in 2011 Groupon grew to have 115 million subscribers (up from 50.58 million at the end of 2010).  At the same time they were reported to be triple the size of its main competitor, LivingSocial (which at the time boasted 40 million subscribers – much less than Groupon).

Brand Creative Execution:


Groupon’s last big advertising creative execution was its Super Bowl campaign in 2011.  Groupon worked with advertising agency Crispin Porter & Bogusky.  The agency produced a series of commercials for Groupon, which caused much controversy after they aired during the 2011 Super Bowl.  To get an idea of what the commercials entailed, one featured Elizabeth Hurley standing in a rainforest speaking about how threatening deforestation is; then it cuts to Hurley in a spa talking about a Groupon for a Brazilian wax.  Cuba Gooding Jr. and Timothy Hutton were featured in similar commercials, which spoke about whale hunting and trouble in Tibet, respectively, before again cutting to scenes focused on Groupon deals.  These commercials were a failure, and received negative feedback from consumers.  CEO Andrew Mason said that Groupon went the agency route in order to “be edgy, informative, and entertaining,” but after the controversy surrounding the ad campaign, Groupon fired Crispin Porter & Bogusky.

Competitors’ Marketing Strategies:

Other companies, especially those that don’t have the extensive location directory that Groupon has, can stand out by placing a greater focus on ranking their sites for relevant city specific terms. Many Groupon clones rely heavily on paid advertising to generate site traffic. Daily deal sites are either made or delayed based on the activity of their users. Subscriber lists increase when customers share their finds with friends. Living Social allows customers to get their offer for free if they can get three friends to also buy it.

According to the article "Is Groupon Toast?” competitors have begun to detach themselves from the familiar Groupon marketing strategy. Companies like Womply don't send out mass emails; instead they ping customers who have shown a preference for a certain business. Companies like this are using a more sustainable marketing approach in order to gain consistent users. Companies like Bloomspot are also successful in sustaining customers because they segment their market (by customer, not business) and seek out customers that, by habit, are likely to spend more even when offered the discount. There are, however, several companies that duplicate the Groupon model and are not receiving the same effect (ScoopOn in Australia, for example). Groupon has begun to buy out similar companies and put the familiar Groupon name on them.

Competitors’ Advertising/Marketing Spending:

LivingSocial spends the majority of its online advertising and marketing budgets (73%) on the five biggest websites in the United States.  These are AOL, Google, Facebook, Microsoft, and Yahoo.  In contrast, Groupon spends 69% of its online advertising and marketing budget on websites other than these top five, but spends more on the main ones (Facebook, Google, and AOL) than LivingSocial does.

LivingSocial is Groupon’s main competitor, coming in at number two (behind Groupon) in the companies’ category.  LivingSocial was able to cut the gap of people visiting Groupon over their own site to 2-1 at one point last year, when 10 times more people were visiting Groupon over LivingSocial.  LivingSocial did this by selling $20 Amazon gift cards for $10, and received over 1.4 million purchases on the deal, which greatly increased their membership.  If LivingSocial can capitalize on more successes like this, Groupon may be in trouble.

Size Category: 


The thing that is so great about Groupon is that you can find almost anything you want at a discounted rate in a spot close to your location. Groupon doesn’t have a specific category due to the fact that it is such a new industry. Launching in only November 2008, Groupon’s growth development has just started. 

Path From Startup to IPO:


2007: $1 million, the amount Groupon raises in angel funding. 

2008: $4.8, amount Groupon raises in Series A.

2009: $30 million, amount Groupon raises in Series B. 

2010: Rob Solomon joins Groupon as new COO.

$135 million, amount Groupon raises in Series C.

Valuations: $1.3 billion.

441,000, number of Groupon’s the company sells through first national deal with Gap, more than $11 million.

$6 billion, Google’s approximate bid to buy Groupon. 

2011: $950 million, amount Groupon raises in Series D.

Valuations: $4.75 billion.

$15 billion, rumored valuations in meeting with Wall Street banks to discuss the public offering.

$25 billion, Groupon’s elevated valuations as IPO talks continue.

$400 million, amount by which the SEC requires Groupon reduce the 2010 revenues in yet another revised S-1.

Groupon went public (NASDAQ) on November 4, 2011 at $20 a share selling 35 million shares which is 5% of the company’s common stock.

Target Audience Demographics:


The typical user of the online/mobile coupon company Groupon is a single female between the ages of 21 and 34 years old. They are usually among the Caucasian or Asian American race, living in the West and Midwest region. The women have graduated with a Bachelors degree and work full time entry-level salaried jobs.

Psychographic of Target Audience:

Anna is a young intelligent single female. She uses Groupon deals from all different categories every day. She starts her day either in class or at her entry-level job. After work she uses her smart phone to find a Groupon for the spa. She uses it to get her nails and a facial done before she goes out for the weekend. After the spa she heads home and browses the daily deals from her laptop. Looking for a new restaurant to try with her girlfriends, she stumbles upon a daily deal for a new Indian restaurant. Looking to end the night with some cocktails, she finds a deal for the girls favorite margarita place. Thanks to Groupon she gets to enjoy all her favorite things in life at an affordable price for her lower income.

Category/Brand Consumption Patterns:

In a time of such economic crisis, consumers are looking for the best deals, sales, and coupons whenever they get the chance. Unfortunately for Groupon, they have become a one-stop shop. “Groupon’s web traffic has dropped 50% since July 2011. At the same time its primary competitor, LivingSocial, saw a 27% rise in traffic in the same time period.” (Parr, Mashable) There is no incentive for consumers to come back to the site. When opening up the web site, the consumer is prompted to input their e-mail for a subscription, but that is hardly a membership, and more of voluntary spam mail. According to Business Insider, more than half (roughly 55%) of Groupon users voted that they would not purchase another deal through Groupon.

Market Share:

Groupon has a steadily decreasing market share, but still is thriving when it comes to overall sales. Groupon's stock performance so far has been remarkably strange, and it is one of the most widely followed stocks on the market with a low float that hovers around $600 million. Including its first trading day, there have been 4 days where Groupon shares increased by 8 percent or more and 4 days where Groupon shares dropped by 9 percent or more. What's more surprising is that very little material news has been released about Groupon. Only about 20 percent of Groupon subscribers have actually bought a Groupon and only about 10 percent have bought more than one. There are always stories coming out about small business owners who had a negative experience with Groupon, including a cupcake company that had to make over $100,000 worth of cupcakes at a loss.

Rank:

The I.P.O (Initial public offering) ranked Groupon as the second-largest Internet I.P.O. of last year, and the largest offering in the United States, according to a report from Thomson Reuters. The largest was the May offering of the Russian search engine company Yandex, which brought in $1.4 billion, and spots 3 through 6 on the list were occupied by China-based Internet companies. Groupon is ranked number 5 among the “The World’s Most Innovative Companies” in 2011, which ranks the companies and illustrates power and potential of innovative ideas and creative execution. These businesses all demonstrate creativity at work in the global marketplace. 

Life Cycle:

Groupon has been expanding aggressively through purchasing startup companies. As of November of 2011 Groupon had moved into what marketers refer to as its twilight zone of the “quiet period”. During the “quiet period” companies don’t grow tremendously but more so treads at a steady pace not declining and slowly increasing.

Recently Groupon has not been looking too promising according to people in the financial industry.  Many people claim that Groupon is over inflated and not worth what they claimed in their quarterly report.  Financial companies believe Groupon will underperform the S&P 500 in the soon future.  The stock has received a 1-star ranking in the Montley Fool CAPS because of the vast amount of money spent on marketing the company and not bringing in enough revenue.  There were also speculations of the underwriters for the IPO were not being completely truthful with the accounting information.  

(In the Year 2011)

(In the Year 2011)

Groupon controls the market share for daily deal websites with 53%, as of August 2011, with its second closest competitor (LivingSocial) having only 20%.  The rest of the market is made up of smaller sites that total up to 27% of the market but none individually hold more than 4%.  Yipit Data states that Groupon had gained 2% of the market share from July 2011 to August 2011 while LivingSocial had lost 2% of their market share while the small sites having not gained or lost any of their market shares.  These daily deal sites have expanded into categories such as travel and internet deals as well.  Groupon (36%) has a little bit more competition within the travel category with LivingSocial Escapes and TravelZoo, Jetsetter, and travel websites such as Travelocity and Priceline.  

Revenue:

Groupon dominates the revenue received from the daily deal market with 68%, LivingSocial comes in a distant second with 25%.  Groupon continually grows its monthly revenue by around 8% a month which other sites like LivingSocial have fluctuates its monthly revenue which fluctuates anywhere from -4% to 12%.  In the fourth quarter of 2011, Groupon’s revenue increased 194% to $506.5 million compared to $172.2 million in the fourth quarter 2010.  This does not take into account the amount they spend on marketing the brand ($156,461,000 per quarter) but the fourth quarter was the first quarter where Groupon claimed to have a profiting operating income of $15 million.