Groupon: a Comprehensive Study

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Groupon: A comprehensive Strategy
TM583 – Course Project

By Jesse Marcano
Cory Shenault
Clifton Leonard

Table of Contents

Section 1 - Strategy3
Section 2 – Core Competencies6
Section 3 – Industry Dynamics10
Section 4 – Technology Sourcing and Internal Innovation13
Section 5 – Product Development Strategy16
Section 6 – Strategy to Protect Innovations17

Groupon did not invent the daily deal website; however, they introduced the concept of using the group buying power of online shoppers to receive substantial discounts from local merchants. Their model has been easy to replicate, which has lead to many clones operating in the same market as Groupon. As one of the first entrants into this market, they have gained the name recognition to allow them to partner with a plethora of local businesses. Additionally, their massive data warehouses contain extensive data on customer buying habits and which deals have been most successful. The use of advanced analytics to segment this data lets them target customers with the most relevant deals. These advantages have allowed them to grow more quickly than any business in history. With continued innovation, they should be able to sustain this tremendous growth and help maintain their top spot in the market. Section 1 - Strategy

Hyper Local Marketing, E-commerce, and social networking are the core competencies of Groupon which is a group-based social e-commerce service that launched in November of 1998. It was initially part of The Point platform which is a collective platform for activists and philanthropists. The Point is where like-minded people meet in order to further the progress of their business endeavors. The Point was used by people to organize group purchases (such as magazines subscriptions) by people. “It was this site that inspired Andrew Mason to create Groupon and begin using group buying power to create a win-win for local businesses and their customers” (Mason, 2009).

Created by a 29 year old music from Northwestern, Andrew Mason has probably built the fastest growing web site in history. The name of the organization blends “group “ and “coupon” and they advertise online daily deals and discounts, in some cases up to fifty percent off, to local businesses that offer goods and services. The deals and offers only work if a certain number of residents buy the same good(s) and service(s) on the same day. According to Christopher Steiner, “it’s a cents-off coupon married to a Friday-after-Thanksgiving shopping frenzy” (Steiner, 2010). The vendors, such as restaurants, yoga studios, and boxing gyms gain exposure in return. Obtaining a much larger customer base than they previously had before Groupon issued the offers on their web site.

Groupon occupies 85,000 square feet of space in what was once Montgomery Ward in the River North neighborhood of Chicago. In 2010, Morgan Stanley put together a report for Groupon and projected the company to pass the $500 million mark in revenue that same year. Groupon was able to raise $135 million with a larger portion contributed by Digital Skye Technologies which is a Russian investment fund which also contributed monies to Facebook and Zynga. After raising those monies, Groupon’s valuation was estimated at $1.35 billion which enabled Groupon to become the second fastest company to reach a $1 billion valuation behind Youtube. Groupon’s bottom line was reported to be in the black seven months after its inception.

Smaller companies with insufficient budgets for marketing and promotion are able to generate more sales with the model that Mason has created. Once such strategy was demonstrated in New York in May of 2010 when Groupon offered tickets to an exhibit for King Tut for $18 per ticket which was just above half price. The marketing idea sold 6,561 tickets and earned $120,000 in revenue and the exhibit incurred no marginal...
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