Groupon – Daily Deal Aggregator Business Model Essay
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1. Choosing a company with an Innovative Business Model
Groupon is a deal-of-the day website that features discounted gift certificates usable at local or national companies. It is based on the daily deal aggregator business model. Groupon was launched in November 2008, and the first market for Groupon was Chicago, followed soon thereafter by Boston, New York City, and Toronto. By October 2010, Groupon served more than 150 markets in North America and 100 markets in Europe, Asia and South America and had 35 million registered users.
In addition to generation of revenues, offering daily deals on Groupon has proved to be beneficial for various businesses. Start-ups have gained market share by offering lucrative deals for customers on Groupon and attracting them to their businesses. Once these businesses gain their initial share of customers, it becomes easier for them to retain these customers and even attract new ones, with the help of providing quality product or service. Various businesses, domestic and international, have gained by often providing daily deals on Groupon.
2. Analysing the Business Model and Identifying the Innovation
The Groupon Innovation
Groupon is a daily deal website considered to be one of the top ten innovative Business Models with a huge user base of 83 million across 43 countries. Groupon sells coupons in a very unique way; As mentioned above, Groupon follows Daily deal Aggregator Business Model which enables groups of people who want to purchase a particular product or service to sign up and then seek a volume discount from vendors. These discounts are in the form of daily deals/coupons for products or services.
Daily Deal websites typically offer a single product or service a day for a discount and these deals become valid only after a pre-specified number of people sign up to avail this deal. When the deal expires, or sells out, the offer is gone. Daily Deal websites typically offer one product or service a day for a discount. This Business Model reduces risk for retailers who post the offers; They can treat the coupons as quantity discounts as well as sales promotion tools. Groupon makes money by keeping approximately half the money the customer pays for the coupon.
For example, an $80 haircut could be purchased by the consumer for $40 through Groupon, and then Groupon and the retailer would split the $40. That is, the parlour gives a haircut valued at $80 and gets approximately $20 from Groupon for it (under a 50%/50% split). The consumer gets the haircut, in this example, from the parlour for which they have paid $40 to Groupon.
Unlike classified advertising, the merchant does not pay any upfront cost to participate: Groupon collects personal information from willing customers and then contacts only those customers, primarily by daily email, who may possibly be interested in a particular product or service. Groupon breaks into new markets by identifying successful local businesses, first by sending in an advance a number of employees to gain data about the local market; when it finds a business with outstanding reviews, salespeople approach it and explain the model, and use social marketing sites such as Facebook to further promote the idea.
Groupon’s biggest strength is its user base which has grown due to its First Mover Advantage and affordable deals. The question, however, at present is the sustainability of the business model.
According to the CEO, Andrew Mason, Groupon is trying to “fundamentally change the way that people buy from local businesses in the same way that e-commerce changed the way that people buy products.”
3. Analysing the Market Scenerio
Present Scenerio in the market
The emergence of dozens of competitors to Groupon, with customers frequently playing one site off against another, diminishes the competitive differentiation between them. In addition, merchants whose goods and services are featured on the sites are now being courted by more players, making them less loyal and less likely to be prepared to pay rich premiums for the sites’ directing new customers to their store locations. Further, the benefits to both customers and merchants are likely to drop as the market is flooded with same kind of offers.
Moreover, some of its big rivals are backed by some major funding and engineering resources. LivingSocial is backed by Amazon – it grew gross revenues 32 percent from August to September, bolstered by a blockbuster Whole Foods deal. Smaller players like TravelZoo and Bloomspothave their own advantages; They tend to be more focused on a particular niche. Apart from competition, there are also the issues of taxation; States including New York have decided merchants should collect sales taxes on the full face value of items purchased, not the price that consumers actually pay.