Business Case Study: Groupon's Business Model

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The Groupon business model: Groupon’s business model is scalable due to which they were able to expand into so many countries in such a short period of time. However, it is fairly simple, easily replicable.
• Groupon is more or less an aggregator platform for a two sided market and it cannot sustain unless both of the parties are benefited.
• In the long run the fact that even after high discounts, half of a merchant’s profit and non-returning customers, decline in quality of services might hamper its growth as merchants might get reluctant to partner up with them in long run.
• This, may destabilize the 2 sided market and may lead to a collapse. However, their new efforts like Groupon now & Groupon Rewards aim at improving this and might
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• Groupon was effectively able to increase the footfall to stores, however it might not lead to profit necessarily as deals included about 50% discounts & 50% cut of the sale for Groupon which meant the merchant getting only about 25% of their original revenue per sale.

Groupon and American Apparel: Groupon presented a great opportunity for American Apparel with its online promotion, with over 133K coupons being sold, out of which 25% customers becoming regulars.
Major assumptions to be made are 80% redemption rate for coupons, 50/50 split of revenue between Groupon and AmA, AmA still earning about 35% of profit per sale with 25% customer returning at least once and spending $50 on that. 50/50 split and 25% returning customer were given however AmA still earning $4.38 profit per sale & COGS being 15% for returning customer is a major assumption and profits do depend on that. They can earn a profit of over $250K and earn some loyal customers in the process even if they can get 30% of the Groupon’s returning 26600 customers to be loyal they will have over 8000 new regulars. See the attached excel for more
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• Some major technological companies were also trying to get in the market like Facebook & Google.
• Traditional coupon magazines were also coming into competition such as Double Take deals were also coming into to the market with some deal aggregators like Newegg (niche), Slickdeals (gen).
Groupon seems to have is an early mover’s advantage and quirky marketing techniques which has established them in the market and provided them better market recognition than others.

Groupon 2.0: Groupon 2.0 is Groupon’s effort to update their services and keep on innovating to maintain relevancy in a highly competitive marketplace. Following are major Pros of this effort.
• Groupon Now the “hyper-Local” effort is aimed to make more customizable and short term deals, giving more power to merchants through yield management.
• Efforts to lock in customers using reward programs
• Groupon Getaways & Live aimed to target niche audiences. Cons:
• Failure of open unregulated market place “Groupon stores” was evident.
• Higher investment & technology, leading to higher OpEx for a company unable to make

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