Groupon Inc (Case Study)

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Groupon has the capacity to maintain its leadership position in the group-buying industry by creating sustainable competitive advantages, despite the numerous competitive threats.

Groupon Inc, the group shopping website that features a new local deal every day, is the fastest growing company in the history of the Internet (Steiner, 2010) and it is now the leading player in the group-buying industry. Founded in 2008 by Andrew Mason, Groupon grew from $0 to $500 million in sales in only 18 months and it is now in 500 cities (Saporito, The Groupon clipper, 2011). Given the high growth potential, the negative working capital, and the low barriers of entry that characterize this business (Chan, 2010), many similar companies around the world tried to gain a share in this attractive and growing industry. The group-buying industry is expected to grow 138% to $2.66 billion in 2011 (Local Offer Network, 2011).
Groupon’s business model is scalable, which means that it is relatively easy to expand in different markets because the company can still use the same code and resources. Groupon should therefore leverage scalability and expand in new markets at a faster pace than its competitors, because a scalable marketplace is also attractive to new entrants and is likely to increase rivalry among existing players. Once a market is entered, it is crucial for Groupon to grow a competitive subscriber base.

Acquisitions and partnerships are additional competitive tools that Groupon can use to rapidly expand and establish a leadership position in a new market. For instance, Groupon’s purchase of the CityDeal allowed them to dominate the European market (Underwood, 2010). However, the company should not use acquisitions as a primary tool for growth because acquisitions tend to be more expensive than other approaches, and would also encourage new players to enter the industry. In countries in which cultural differences are a major issue, Groupon should seek to build partnerships as it did in China with Tencent and Yunfeng Capital (Saporito, Groupon heads to China, 2011).

The strategies outlined above will allow Groupon to continue to grow, but they cannot be successful unless Groupon develops true competitive advantages. In the period February-March 2011, for instance, revenues dropped 32% in major North American cities. One reason for this drop in revenue is the growing level of competition from companies such as LivingSocial, which during the same period experienced a 59% increase in revenue (Riley, 2011). In order for Groupon to maintain its leadership position in the group-buying industry, the company has to differentiate itself from the competition by focusing on a few key success factors. The success of Groupon is directly related to both the success of the merchants who run offers on the site and the satisfaction of those who buy the deals. According to a recent study 32% of the merchants surveyed were not profitable with the offer run on Groupon, and 40% said that they would not run a similar promotion again (McMahan, 2010).

Groupon should therefore continuously improve the quality of its service for both merchants and final customers. The company can achieve this goal by analyzing previously collected data to create a sophisticated model that can determine the optimal quantity for each deal at a certain price point.

In conclusion, Groupon should focus on expanding its customer base and maintaining its leadership position to reduce the competitive threats that characterize this industry and ensure long-term profitability for the company.

Case Study - Groupon

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