Groupon is a deal-of-the-day Web site that is located in major geographic markets across the world. Launched in October 2008 by Andrew Mason, Groupon has been characterized as one of the fastest-growing companies of all time. It was first offered in Chicago, followed soon thereafter by Boston, New York City, and Toronto. Since then its growth has been spectacular. It is now in over 550 cities, has 44 million subscribers and 3,100 employees. According to an August 2010 feature in Forbes, Groupon topped $500 million in revenues in 2010 and is on pace to become the fastest company in history to reach $1 billion in sales.
Groupon’s name is a combination of the words group and coupon. Most subscribers see Groupon as a fun way to shop and learn about businesses that previously were unknown to them. For businesses, Groupon is largely a customer acquisition tool. It’s becoming increasingly difficult for brick-and-mortar stores and organizations to drive traffic to their locations. As a result, they’re looking for ways to increase foot traffic and jump-start their sales.

How It Works
Groupon offers one deal a day in each of the markets it serves. If a certain number of people sign up within a specified time, the deal is “on.” If not enough people sign up, the deal is “off” and no one is charged.
The day this case was written the Groupon deal in Oklahoma City, Oklahoma, was $5 for $10 worth of breakfast and lunch fare at Ground Floor Café, a restaurant in downtown Oklahoma City. A total of 50 people needed to take the deal for it to be “on.”
By 7:55 A.M. the day the deal was posted, the 50 person minimum had been met. By noon, 229 people had taken the deal and by 5:00 P.M. the number was 337.
To participate, an individual must be a Groupon subscriber, which is free. Once a subscriber takes a deal, a reservation is made in his or her name, and the subscriber’s credit card is charged once the deal is “on.”
A voucher is then delivered via e-mail to confirm the purchase. The voucher is taken to the merchant offering the deal to redeem the purchase. There is usually an expiration date on the voucher—6 to 12 months is common. A 6- to 12-month time frame gives the purchaser a comfortable amount of time to use the voucher, and spreads out the number of people coming into a business to redeem the voucher.
Once you become a Groupon subscriber, you sign up for one or more cities, and then receive the daily deal for each city via e-mail, Twitter, or Facebook. Groupon makes money by keeping approximately half the money the customer pays for a deal. So, if an $80 massage is offered for $40, then Groupon and the retailer spit the $40. Groupon’s primary target market is 18- to 34-year-old urban females.
A visual depiction of Groupon’s business model, from both the business side and subscriber side, is shown below.

Discussion Questions
1. Evaluate Groupon’s strategies for growth. Do you think Groupon has done a good job in terms of identifying the most fruitful avenues for growth, or do you think Groupon should have been more creative in its growth strategies? Make a list of things that Groupon hasn’t done that you think have indirectly contributed to its growth.
2. How does a company go about getting its business featured on Groupon?
3. Of the current challenges facing Groupon, which one do you think is the most threatening? If you were the CEO of Groupon, how would you address this challenge?
4. Refer to the table shown in this case that lists Groupon’s internal growth possibilities and its external growth possibilities. Of the eight growth possibilities, rank them 1 to 8 in terms of the order of likelihood that Groupon will utilize that possibility as part of its future growth strategy. Explain the rationale for your rankings.

Application Questions
1. Some observers have questioned whether Groupon’s pace of growth is sustainable. Briefly make the argument for and the argument against the sustainability of Groupon’s growth.

2. Sign up for Groupon in a city of your choice (it’s free). Follow the Groupon deals for at least a week.
Record your observations. Do you think Groupon’s business model and its basic approach are sound?
What is it that you liked and didn’t like during the week that you followed Groupon? Do you think Groupon will remain attractive to businesses and consumers?

Transcribed Image Text:

Groupon's Business Model Example: $40 for an $80 Spa Treatment Merchant signs up with Groupon Groupon collects money from buyers ($40) Customer signs up with Groupon Buyers pay Groupon ($40) Groupon's Pitch to Merchants Groupon features deal ($40 for $80 spa treatment) Groupon pays merchant its share (usually 50%) Groupon offers deal ($40 for $80 spa treatment) Subscribers buy deal Groupon's Pitch to Consumers Buyers receive vouchers (1 $80 spa treatment) Merchant provides spa treatment services to buyers Buyers take deal ($40 for $80 spa treatment) Buyers use vouchers to redeem purchase and enjoy their spas #deal reaches critical mass, it's "on" Merchant acquires new customers Deal reaches critical mass and is "on"