Groupon's Strategy Model

Topics: Business model, Competition, Strategic management Pages: 2 (670 words) Published: August 20, 2013
To: Board of Directors
From: Corporate Investments
Date: 08/12/11
Re: Groupon investment

Groupon’s business model is based around offering mass discounts on certain products and services to subscribed customers from merchants that have signed up with them. The strategy used combines economies of networking and economies of scale. (Mordoekataus, 2011) Groupon has demonstrated vast growth in terms of reporting revenue of $713.4 million in 2010, reaching over 83 million subscribers while advertising the products and services of 56,781 merchants. (Mordoekataus, 2011) In terms of strengths, Groupon is able to offer consumers large discounts as well as allowing for the new discovery of products and services. Local merchants signed up with Groupon offerings can get a guarantee demand for their products, getting rid of excess capacity, and attaining economies of scale. (Conlin, 2011)This puts Groupon in a strong strategic position as it is a form of free marketing through word of mouth which creates high consumer demand for the products and services it offers. There are concerns over the business model as merchants are often actually loosing money as a result of able to fulfil orders because of too many customers, which in turn leads consumers to questioning the quality of Groupon's offers. (Whitecamp, 2011) This combined with the fact that many customers only want one-off bargains means there is no customer loyalty. This will dissuade merchants from signing up with Groupon once they have experienced the gap between cost and benefit. The main threat to Groupon is the vast amount of direct competition from other web-based companies with a broad user base like Google, Amazon and PriceLine. (Abdullah, 2011)In terms of Porter’s forces of analysis there is a high threat of new entrants as there are hardly any barriers to entry in terms of setting up a business offering the same products. Groupon’s business model has no comparative advantage as there are...


References: L, Whitecamp. (2011) Groupon IPO: Plus New Business Strategy? [online] Available at: http://thenextwomen.com/2011/06/14/groupon-ipo-plus-new-business-strategy
M, Abdullah. ( 2011) Groupon’s Business Model Doomed to Fail [online] Available at: http://seekingalpha.com/article/311857-groupon-s-business-model-doomed-to-fail
M, Conlin (2011) Groupon’s fall to earth swifter than its rise [online] Available at: http://news.yahoo.com/groupons-fall-earth-swifter-fast-rise-184713324.html
P, Mordoekataus. (2011) Is Groupon’s Business Model Sustainable? [online] Available at: http://www.forbes.com/sites/panosmourdoukoutas/2011/10/22/is-groupons-business-model-sustainable/
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