Groupon Assessment Groupon

GROUPON ASSESSMENT 7

GrouponAssessment

Groupon

Grouponis an online company that specializes in organizing and selling dealsin terms of coupons to consumers of various products. To achieve thismodel, the company presents the deals as discounted giftcertificates. Once a customer buys the certificates, they can usethem at their local companies or partner firms in their countries orstates. These certificates are called coupons, thereby giving theidea behind the name of the company as Groupon which is acombination of “Group” and “Coupon” into a business name.Primary business is a deal-of-the-day model where the firm providesthe deals to customers for the products and services near theirstores.

TheBusiness Model

Thebusiness model of Groupon is unique in terms of ideology, arrangementand execution. The model involves organizing deals with businessorganization that allow the use of discounted gift certificates bycustomers (Girotra et al, 2013). There are two main components of thedeal making process that determine the success of any businesstransaction by the company. These are the customer and the merchant.The two are important because they must sign up with the company inorder for the deal to work.

Thebusiness model involves customer signing with Groupon as a potentialbuyer of the coupons. The company awaits the number of the customersto reach a certain amount that can be referred to as a critical mass.At the same time, the merchants sign up with the company and Grouponarranges them in terms of location (Girotra et al, 2013). In thisarrangement, the firm decides on which deals will be featured incertain areas, described by specific zip codes (Groupon, 2015). Afterthe agreements and arrangement according to the locations, the firmfeatures the deals as ready for the customers to buy as coupons. Oncethe customer buys the coupons, the company pays the merchant theamount that should be paid as per the agreement (Groupon, 2015). Thecustomer then proceeds to redeem the coupon at the merchant store orshop for the desired products that are featured by the coupon.

Thepayment by Groupon to the merchants is spread in installments ofthree times in the life cycle of the deal. This means that Grouponwill have a negative working capital since it pays the money receivedin lump sum as installments. On the revenue side, the net revenue ofthe firm is determined by two main variables the number of deals andthe net deal size. The number of deals determines the amount earnedby the firm in revenues from each deal (Girotra et al, 2013). On theother hand, the size of the net revenue from one deal is determinedby the agreements that the firm makes with merchants and thelocation, as well as business dynamics of the products.

Factorspertaining Consumer Behavior and Merchants

Thereduction of the share price of the company reflects a significantreduction in the revenues of the firm. While there are many factorsthat may have led to the failure of the price of the firm’s stock,reduced incomes is among the main factors. According to Sloman andJones (2011), the reduction in incomes, revenues of a firm is at theheart of most failing business operations. Osterwalder and Pigneur(2013) argue that low revenues do not contribute to a firm’soperating and strategic costs, thereby impacting on its stock pricetowards the south. The business revenue and stock price of Grouponare affected by a number of factors that relate to both thecustomer’s behavior and merchants’ reaction as the twodeterminant sides. There are significant elements of consumerbehavior that have contributed to the current situation for thecompany.

Oneof the main consumer behaviors is the frequency of purchase thatcustomers make in a certain period of time. This factor issignificantly determined by the regularity of use of the product inthe deal and the disposable income of the consumer. If the customeris a frequent user of the product, the number of deals will increase,which is one of the main determinants of the revenue of the firm.According to Kaplan (2011), the revenue of the firm relating tocustomers is determined by the number of customers and the repeatpurchases of the current signed on customers. Therefore, thereduction in the share price of the firm could be caused by itsfailure to win more customers sign up. The same could have beencontributed by Groupon’s failure to influence the behavior of thecurrent customers to make repeat purchases.

Anotherfactor is the satisfaction of the consumers of the products featuredby the deals and the preference of customers for the featuredmerchants. The behavior of customers to make repeat purchases from afirm impacts on its performance (Foxall,2005). This may be have affected thetype of merchants that Groupon signed with for deals in the businessmodel. Failure to secure sign ups by the best manufactures andsellers in the market would reduce the revenues of the firm. Despitehaving the deals for discounted prices, consumers may not select thecheaper option for an expensive one (Girotra et al, 2013). This isbecause consumers will prefer to purchase quality and preferredproducts from the perceived best sellers in the market (Blackwell,2006). This could have been a factor that affected the consumerbehavior for the company, leading to dormant customers sign ups.

Atthe same time, merchants may not prefer a long term deal with Grouponbecause of the revenue derived from the deal. This is because thedeals with Groupon reduce the revenue of the merchants that signs upwith the deals firm. According to Sloman and Jones (2011), firmswill always avoid the business models that increase the costs ofearning the revenues that the firm relies upon for operational andstrategic success. In this case, Groupon reduces the revenues of themerchants by increasing the costs of customer acquisition in twoways. The first revenue loss is the discount amount that themerchants will have to forego when selling to customers from thedeals (Girotra et al, 2013). The second is the part of the discountthat is taken by Groupon as the share of the deal to compensate thecompany for the process of customer acquisition.

Newproducts and their Effectiveness

Theintroduction of new products by Groupon was a strategy to attractmore customers and retail the current ones so as to improve itsperformance. This was focused on increasing revenues through the twodeterminants high number of deals, the higher size of deals. One ofthe products was GrouponNow. The GrouponNow works as an application fortablet and Smartphone users to make deals. The users specify theirneed and they are directed to the nearest deals in their location(Groupon, 2015). The product Groupon VIP is a membership program thatinvolves a payment of $30. The paid membership gives members`privileges such as prior notification of deals before non-members,returning deals and accessing expired deals.

TheGrupon Rewards are a United States loyalty product that seeks topromote loyal members and users of the business model. The productrewards customers for repeat purchases with items of their choice.The company also launched the Groupon Gnome tablet point of saleproduct. The point of sale product was intended to increase theaccess to the deals by customers. However, the company dropped theapplication for the trademark as it was alleged to infringe on therights of another product with other companies with the same name(Kirk, 2012). These new products did not lead to the success of thecompany’s business model because they did not succeed in increasingthe number of deals, and the size of the deals. However, the productswere effective for individual customers that found the business modelpreferable to their own tastes and preferences.

Conclusion

Groupondeveloped a deal-of-the-day business model that involved sign upswith customers and merchants to organize and sell discountcertificates as coupons. However, the firm has recorded lowperformance characterized by a reduction in the share price of thefirm to significantly lower levels. The success of the business modelis perceived to be affected by a number of factors leading to lowerperformance. The behavior of the customers towards the model, thefeatured products and merchants, as well as the satisfaction from thedeals could have affected the performance of the firm. In addition,the reaction of merchants to revenues from the deals and the businessmodel is among the factors. Despite the firm’s introduction of newproducts, the success of the model affected the share price of thecompany to its current form.

References

Blackwell,M (2006). Consumer Behaviour(10th Ed.). Thomson Learning

Foxall,G. (2005). Understanding ConsumerChoice. Baingstoke. PalgraveMacmillian

Girotra,K., Marinesi, S., &amp Netessine, S. (2013). Can Groupon Save ItsBusiness Model?

RetrievedFrom, &lthttps://hbr.org/2013/12/can-groupon-save-its-business-model&gtMarch 18, 2015

Groupon,2015, Retrieved From, &lthttp://www.groupon.com/press&gtMarch 18, 2015

Kaplan,P. (2011). TheBusiness Model Innovation Factory: How to Stay Relevant When TheWorld is Changing.New York: John Wiley &amp Sons Kirk,J. (2012). Groupondrops `Gnome` trademark claims after Gnome Foundation braces forbattle. RetrievedFrom,&lthttp://www.pcworld.com/article/2846632/groupon-decides-to-leave-gnome-trademark-alone.html&gtMarch 18, 2015Osterwalder,A., &amp Pigneur, Y. (2013). BusinessModel Generation.New York: John Wiley &amp Sons

Schiffman,L. G., &amp Kanuk, L. L., &amp Wisenblit, J. (2010). ConsumerBehavior.New York: Prentice Hall

Sloman,J., &amp Jones, E. (2011). Economicsand the Business Environment, 3rdEdition.UpperSaddle River, New Jersey: FinancialTimes/ Prentice Hall