Ecommerce Model of Groupon

Topics: Revenue, Business, Deals Pages: 8 (2506 words) Published: February 22, 2013
1. Introduction
As dynamic pricing mechanism been introduced, buyers and sellers can negotiate product prices in the market as well as the e-commerce market. Group-buying was appeared in the mid-1990s, and been popular in recent ten years as a business-to-consumer (B2C) transaction. Group buying, means provides products and services with deep low prices if buyers reach a certain number. Coupons are provided by manufacturers or retailers as a way of promotion. They usually distributed via mail, newspapers, magazines, mobile phones and Internet. The early group buying business model has lots of problems, one of them is time factor. Retailers offer the discounted deal only if buyers reach minimum numbers. During this time, buyers may move to other stores or choose online shopping. After Groupon created the online platform, it allows consumers spread news about interesting items and persuading friends, colleagues or families join in. This decrease the time to get the deal. It’s a win-win model for Groupon and customers.

Based on Groupon website, annual reports, and some articles, this report aims to find out the value proposition, value configuration, market seek,and revenue model of Groupon through analysis the operation of Groupon and relationship between Groupon and their stakeholders: local merchants and customers. Then identify the challenge and potential risk of this e-commerce. 2. Background of Groupon

2.1 Bulid and development
Groupon is a company which first combined the group-buying and coupon. It launched on November 2008 in Chicago, after two years, there are 150 markets in North America, 100 markets in Europe, and 35 million users registered on their website. In 2012, the company was valued at $1.35 billion, became the fastest company to go from zero to$1 billion in revenues, while Twitter and Facebook used 3 and 5 years respectively achieving this goal. As recorded in Groupon’s 10-K report, annual revenue increased in a high speed, from $312 million in 2010 to $1.6 billion in 2011, increase about 400%.

2.2 Products of Groupon
An innovation of Groupon is it positioning their products as services and experiences such as vouchers of restaurant, travel and hotel; hair nail salons and spa. This new model is a basic guarantee for profit in low prices. For instance, 40% off tickets to an opera show, £80 worth of spa for £30,or a £700 Seven Days European Tour for £400. The deal can be divided into two parts, one is mail deal which shown on the homepage, another is side deal which shown in some cities. These side deals offer big discounts for customers but they are scarce. This innovation become a competition advantage because services product has high profit, the retailers can still earn lots of money although they set low prices on Groupon. Compared with physical products (clothes, furniture, electrical equipment) which customers have high involvement, services products deals are more easier to succeed. Secondly, the value proposition of Groupon is offers a “Deal of the day” in every market. This means Group only add one new item for each city in one day. Products become more popular and competitive due to the limited supply. Moreover, Groupon make its homepage interface more simple and delicate, to make visitors feel energized, relaxed, focused, more ready to make a purchase. 3. The Operation model of Groupon ecommerce

The business model consists of four components, Groupon company, Groupon website, local business and customers. Groupon sell their products or services of their website, and these products/services based on targeting customers’ needs, offered by local businesses in some selected local merchants. The deal is valid when a certain number of users subscribe to the deal. Then customers can use the vouchers in a certain time, the vouchers can also be refunded within the stipulated time


Groupon Merchant customers...
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