EXECUTIVE SUMMARY
Groupon was first created in 2008 to support the demand for US customers’ need of discount and group coupons at local geographic scales. The sales promotion is run on in the form of a time limited, minimal number of purchase reached for activation of the specific coupon. Discounts are given at the rate of 50-70%. The final discount price projects a revenue model where Groupon profits from 50% commission rate, credit card charge and the remaining becomes the merchants’ profits. Groupons’ customization of deals and timing are also based on the Mass Customers’ preference, needs of followers on a specific company or subscribers’ recommendation. As deals are flexed according the customers’ behavior, the type of products or services purchased, when the purchase is made also effect Groupon’s business model.
Groupon users are mainly single females aged 18-34 holding either a Bachelor or Master degree and is hired full time. The social networking system such as Facebook, Twitter and Sena Weibo has the same demographics in almost every part of the world. Therefore, it effectively penetrates Groupon’s main users. As a result, it has decided to run its business model mainly from SNS to promote and complete the minimal level of sales. The strategy of SNS integration has proved to be successful. With large and consistently growing number of SNS users, it had earned huge revenues in the United States. As their business strategy proved successful in creating a drive to action, acquisition of foreign customers from networking and good track records they have decided to expand their businesses to international markets. Groupon in other countries have followed the same business model of subscription from SNS leading to a collateral huge profit alike the United States market.
With proven profits from SNS, Groupon took the correct step to give more focus on SNS usage. The web design gives ease for sharing on SNS and advertisements on Facebook, Twitter and Sena Weibo blocks all the communication channels on SNS. Groupon Ads, Fanpage and deals will become highly influential. Customers will be aware that there are daily deals consistently offered through ads. With SEM from Facebook, the ads displayed give a high customization and CTR to Groupon website. After each purchase the customers may leave the website for SNS and be repeatedly in contact with Groupon’s ads on SNS. As a result, users are trapped in the loop of Groupon’s SNS.
However, as customers look for localized experienced, a high commission rate greatly effects the supply for this demands. Local products or services are small companies or start-ups. SMEs aren’t capable of compensating for the loss from the commission rate. As SMEs realize that they aren’t able to afford the loss even though facing a high demand, Groupon would lose their merchants. Then the customers will become less interested. Groupon’s profit would start to decline. It’s recommended that Groupon slash their commission rate to 20% in order to maintain their SME merchants for localization experience. Nonetheless, to compensate for lost of profit from lower commission rate, Groupon should charge well-established merchants at 50%-70%.
Finally, Groupon had launched its mobile application, but with a particular duration before diffusion of innovation, Groupon should maintain its focus on users from SNS. SNS usage on mobile totals more than half of the mobile users. Therefore, Groupon has the opportunity to generate more income from new markets on mobile SNS plus existing users. Retaining both market will consistently generate Groupon profit before there is a diffusion of innovation, awareness of their application and actual usage.
INTRODUCTION“Groupon” is an e-commerce website for group coupons. It was launched on November 2008 in Chicago, USA. The company provides promotion coupons of products or services in categories of Consumer Packaged Goods, Accessories, Alcohol, Automotives, Beauty, Diets & Fitness, Electronics, Entertainment, Fashion, Health & Pharmaceutical, Financial and Travel. Its selected products are based on the most sought for products or services by mass customers, clients needs from the company their following or by the customers’ recommendation. Most importantly, it has positioned itself in assisting both locals and foreigners to “do, see, eat buy and explore” the best stuff in the city at the best price.
Groupon’s business model starts off with the firm hunting for local, reliable, presentable products or services that is in the interest of their customers. Next, they would deal with the merchants for a promotion. Consequently, the average discount would be 50-70%. Within the discounted price, Groupon takes 50-60% commission rate excluding credit card fees and the merchant would take the rest.
In the next step, they would promote the product or service through their website and the Social Networking System. Some of the Social Networking System the firm relies heavily on is Facebook, Twitter and Sena Weibo. Accordingly, Groupon relies heavily on the Social Networking System since the deals need to reach a certain number of buyers in order for the promotion to become available. In other words, group buying is the key strategy to successful trading. Moreover, the offer is also being given at a limited time.
As the customer decides to purchase coupons they would subscribe through their email and pay through their credit card. When the deals are successful, the customers would receive the coupon through their email and print them out for redemption. However, if the minimum number of buyers isn’t reached then the promotion would be discontinued. After the customers have redeemed their coupons, the merchants would receive their profit in “three installments over the life cycle of the deal.”
ANALYSIS
Groupon has acquired 35,000,000 subscribers worldwide mostly through the Social Networking Systems Facebook, Twitter and Sena Weibo. As its main users are single females aged 18-34 whom has either a Bachelor or Master degree and is fully employed with high spending power, SNS chosen by Groupon effectively penetrate their target group. Since, the users of Facebook widely support the niche market of women with 288 million female Facebook users, with average age of 28.2. This guarantees the effective penetration of target group. Leading to a solid and promising number of impression and click through rate.
Citing a case of Groupon’s (UBuyibuy) launched in Hong Kong on July 15th, 2010. For the first 9 days, relying only on Facebook it had made $59,865 HKD or $6651 HKD per day. Its number of fans is 20,000. As the revenue is generated by this limited number of fans it can be inferred that there is a high number of impression and click through rate which leads to the landing page of the Groupon website. Groupon HK has projected its revenue from Facebook to be $1.7 million HKD at the end of 2010. Until September 2010, UBuyibuy of Groupon has 97,965 followers since its establishment. This doesn’t include other Groupon’s website in Hong Kong. Accordingly, its predicted fans steady rate of an increase at 1000 Fans per day was proven correct. This correlation of increase in numbers of fans from Facebook (SNS) would result in a higher number of impression, click through rate and website sales conversion also. It can then be inferred that Groupon’s usage of Facebook (SNS) has high influence on their highly profitable annual revenues.
Groupon didn’t only acquire the mainstream users through Facebook or Twitter. The total numbers of Facebook and Twitter users have opened a new and large alternative target segments to them. With 596,371,760 Facebook and 200 Million Twitter users worldwide, Groupon is able to achieve an enormous number of customers. The large numbers of Facebook and Twitter users can be ‘connected’ through the networks of users from a single user. One or more users may know the other users within the same network then linking them together. This synergy gives an opportunity for Groupon to acquire their customers.
However, the total number of Facebook or Twitter users itself aren’t all the potential customers of Groupon. According to research by ‘exacttarget.com’, shows that within an age group, gender, or geography there exists 12 groups of social network users. Thus, only 5 groups with behaviors relating to community activity and discount/coupons search or purchase will become the potential customers of Groupon. These groups of social network users are, ‘DealSeekers (Heavy consumers of discounts and coupons)’, ‘Inner circle (Gives attention to communication with family and close friends)’, ‘Megaphone (Influential leaders who disperse news)’, ‘Shoppers’ and ‘Social Butterfly (maintain lots of online friendship and become a fan of lots of brands)’.
The research on social network consumer groups was conducted in the United States in 2010 with 248.6 Million Facebook Users at that time. In the research it has shown that the consumers belonging to the 5 social groups (Sample size 500; 100 per group) almost 100% plays Facebook and check their email daily. Nevertheless, the respondents belonging to any of these 5 groups would also search for coupon forums half of the time they are on the social networking system.
Furthermore, the usage of Twitter were to get updates of future products, stay inform of the activities of the firm, receive discounts, get news on upcoming sales, free samples and coupons. Out of these categories, each amounted 30% of the American users. Thus, as we sum up either two of the categories or three it would hold 60-90% of the majority activities done on Twitter. With a large number of Twitter and Facebook; plus, the targeting of willing (potential) users suggested by their behaviors it would lead Groupon (USA) to a possibly high amount of impression, CTR and website conversion.
Statistics from ‘compete.com’ shows that Groupon (USA) has 2,872,648 unique visitors with leading referrals from SNS (Facebook, Twitter), Search Engines (Google and Yahoo). There is also a change of +11.43% unique visitors per month. It’s possible to state that from increasing number of unique visitors from SNS per month and potential groups of social network consumers it can guarantee consistent impression of Groupon’s advertisements and fanpage. Having high impression rate will result in a sufficient number of CTR and conversion at Groupon.com. Revenues from January 2010 to January 2011 stated that U.S. monthly revenue increase from $11 million to $89 million. It allows us to assume that even though the total revenue may not come from only SNS; thus, with this $11 million and its high fluctuation, networking is a possible answer for acquiring customers. Facebook and Twitter users within the 5 social network consumer groups are significant enough to create and increase unique visitors; plus, a collaborative increase of revenue. A trend report done by ‘Knowledge networks’ shows that from 2008-2010, US citizens from 15-65 are interested in Digital coupons. The U.S. citizens of all age groups have actively redeemed digital coupons leading to a 65% Return of Investment for digital coupon sales promotion. Even though this 65% ROI doesn’t clearly states the ‘sender’ or owner of the coupon sales promotion Groupon can be considered as also generating ROI from their communication channels. Being able to generate ROI, may lead us to state that SNS does have an impact on the revenue of Groupon. As Groupon in other countries follows the same marketing strategy as the Groupon U.S.A and there is also a similar pattern of increase in profit, it can further convince us that SNS does have an impact of the revenue generation of Groupon.
Next, as the statistics have shown that Facebook users assist Groupon in maintaining regular clients and new visitors, the Groupon marketing has placed banner advertisements on Facebook. “We do Facebook advertisements, targeting people from 18 to 45 years old, as well as their interest.” Groupon strategic move to block all communication channels apart from their fan page through acquiring banner space from Facebook has proven to generate more awareness. The banner advertisement also creates desire and call to action for conversion. Groupon relies on SNS since the consideration and ‘key conversion point to purchase behaviors happens in social webs. Traditional media only focus on customers’ awareness and educating customers.” It doesn’t significantly lead to desire and action in comparison to SNS. With the substantial users of Facebook, fans of Groupons are able to create high impression and CTR from the advertisements and again conversion at their landing page. Therefore, we can say that Groupon’s advertisements on SNS create more purchase and generate their revenue.
‘iResearch Consultant Group of China’ had research that Groupon purchase is also related to the timing. Groupon daily purchases raises at two different period of the day. First is during 9am to 1pm and the again at 9pm until 11pm. The reason that there is a rise at 9am until 1pm is because consumers in preparing for lunch and desires to find good deals. Another peak from the period of 9pm until 11pm is due to the reason that consumers have arrived at home. They are about to go to bed thus, they are trying to find deals for tomorrow. Facebook, Twitter and Sena Weibo have high influence and interactivity due to their instant feedbacks. This factor has become the main factor for Groupon’s usage of SNS. Customers are able to communicate instantly to gather their groups and quickly close a desired deal before going to lunch or bed. As a consequence, SNS instant interactivity has an impact on rapid transactions (generation of revenues).
Within the Groupon website, in the top banner and top right hand column area is a toolbar and link for sharing through emails, Social Networks (Facebook, Twitter) and RSS. At the center page is the daily featured promotions. The discount price, time limit and minimum numbers of subscribers are clearly shown. This would create an urge for search of location to support their purchase, which is through the social networks. It has also created a sense of a required urgent action and panic for bargain. Customers would need to immediately communicate with their community in order to successfully purchase an item or make the conversion complete. Without the immediate connections (WOM) within communities and wide ‘networking’ that the Social Networking System provides, the promotion and sales wouldn’t be successful.
Groupon.com website also has additional deals placed in the right side of the web to attract more interest and call to action for customers. Customers are also able to share the deals immediately to their SNS. If customers are not interested then the users would leave the website. The top destination sites are again SNS such as Facebook or Twitter. As stated previously, Groupon’s strategy to bombard or block customers with Groupon’s advertisements on SNS is therefore unavoidable. Consumers would be under the influence from their own SNS. Where it may lead to the beginning of the sales funnel and ending with a purchase from a click through of Groupon’s advertisements or fanpage on Facebook or Twitter. We can therefore infer that SNS has influence on the purchasing cycle of consumers leading to generation of constant revenues.
RECOMMENDATION“Groupon has recently launched a mobile application which is available on Wap, Android, iPhone and Blackberry. This allows customers to buy and retrieve coupons directly from their phone.” Groupon should utilize their mobile marketing not only for applications but also on mobile Facebook and Twitter website or applications. Since 47% of Global Mobile users spends their time on new application (social networking, web browsing, map search and online games). A newly generated application doesn’t guarantee immediate awareness, reception from existing and new users plus existence. Therefore, it’s wise to acquire the majority of social networking (new application) users first and foremost. Gaining this segment of mobile users would result in not only an instant local revenue generation but a higher chance of grabbing wider group of audiences and better conversion rate. Apart from the mobile phone users whom use SNS that Groupon should maintain their strategy in their integration of SNS it should also maintain its usual strategy online. Since its user rates and endless connections have prove to expand their market and revenues since its establishment.
Groupon’s actual target was new start-ups and small retailers. However, with its high commission rate and large demand, small retailers or new start up couldn’t support this lose from their sales promotion. Nor could they support the instantly created large demands. It’s suggested that Groupon slash their commission to 20%. This would retain its small retailers and localization experiences. Another suggestion is to charge the same commission rate of 50% to large businesses. They are those that already have existing and thriving repeated customers such as Gap or Starbucks. Even though there is an unlimited number of SNS but if Groupon continues to charge a high commission rate, then maybe be a decrease in supply. A decrease in local suppliers (small retailers or start-ups) means non-localization jeopardizing the customers’ rate that is looking for local experiences. Large numbers of SNS users would be meaningless.
CONCLUSION In conclusion, a thriving base of SNS users has impact on Groupon where it promises prolonging subscribers that are engage in community activities and sales promotion. They are willing or potential customers would generate sustainable revenues. Second, the SNS users also have possibility to effectively maintain their existing customers. The statistics show SNS users are under the same demographics as Groupon users. SNS has an impact in the survival or retention of old profitable markets. Consequently, SNS has also proven to be an effective communication channel for their business model. Groupon Hong Kong has proven that revenue can be generated highly from SNS. If Groupon of other countries would follow the same tactic, SNS would have proof to create a huge impact on the Global revenue of Groupon. Furthermore, the web design of Groupon’s ease of connection between SNS and their banners had resulted in an overexposure of Groupon’s hard sales. Thus, it has still proven that SNS has an impact of leading the customers to restarting their purchasing process. Then it would end up as a constant cycle of revenue generation. Most importantly, as there is a time limitation and reliance of networking for a successful purchase SNS has proved that its instant interactivity and networking has high impact enough to create impulsive (Short-term) and long term annual revenues.
Nonetheless, Groupon profits are based on a high 50% commission rate. It would therefore be difficult to exist in the long term market. Enough there are large base users of SNS, but it wouldn’t generate revenue if there is short of supplies. This short of supplies is due to the customers’ need for localization. Non-localization is threatened by the high commission rate where small companies or start-up are not able to afford. If small companies or new start-up advertise on Groupon slowly rise up there would soon be a shortage of local products and services to supply the demand. Groupon would lose their customers. In order to survive it must lower their commission cost to 20%. Plus, maintain 50% commission for large companies in order to receive their profit from big firms. Apart from profit Groupon is able to maintain its big and small merchants. Instead of putting emphasis on the newly generated mobile application they should concentrate more on the SNS mobile users. Since a new mobile application would take a period of time before a diffusion of innovation or awareness and real usage by customers. Mobile SNS users generate instant revenues from both old and new customers. This is due to the factor of locality and timeliness. A better customer experience of SNS mobile users would result in maintaining and expanding new markets for consistent and increase of revenue creation.
---------------------------------------------------------------------------------------------------------------------------
APPENDIX
1. Machosky, Michael. “Groupon: Social networking expands to site offering coupons.” Pittsburgh Tribune-Review. June 22, 2010. April 20, 2011.
http://www.pittsburghlive.com/x/pittsburghtrib/lifestyles/fooddrink/s_687173.html
2. Ambani, Priti. “Groupon Now: Future of Mobile Marketing for Small Business.” Reuters - Business & Financial News. March 22, 2011. April 20, 2011.
http://www.reuters.com/article/2011/03/22/idUS221071843620110322
3. Chen, Vivian. “Let’s click together.” South China Morning Post – Life.
September 14,2010. April 20, 2011.
www.scmp.com
4. Townsend, Allie. “The Future of E-Commerce: Groupon Becomes Social Shopping Network.” Time – Techland. December 1, 2010. April 20, 2011.
http://techland.time.com/2010/12/01/the-future-of-e-commerce-groupon-becomes-social-shopping-network/
5. “About Us”. Ubuyibuy. 2010. April 20, 2011
www.ubuyibuy.com/HK/en/pages/about_us
6. ”Groupon”. Wikipedia.2010. Wikipedia, the free encyclopedia. April 20, 2011.
http://en.wikipedia.org/wiki/Groupon
7. “Twitter.” Wikipedia. 2010. Wikipedia, the free encyclopedia. April 20, 2011.
http://en.wikipedia.org/wiki/Twitter
8. Sviokla, John. “Groupon’s Four Keys to Customer Interaction.” Online Posting. September 14,2009. Harvard Business Review. April 20, 2011
http://blogs.hbr.org/sviokla/2009/09/groupons_four_keys_to_customer.html
9. “Digital vs. Traditional Coupons.” Knowledge Networks – Trend Reports. 2010.
April 20, 2011.
http://www.knowledgenetworks.com/coupons/docs/KN-Trend-Report-041711.pdf
10. “Four Major Factors Influence the Effects of Online Group Buying.”
iResearch Consulting Group. April 2, 2011. April 20, 2010.
http://www.iresearchchina.com/view.aspx?id=9099
11. “New Application of Mobile Phones Account for the Largest Proportion in Total Amount of User Time.” iResearch Consulting Group. April 6, 2011. April 20, 2011.
http://www.iresearchchina.com/view.aspx?id=9107
12. Rohrs, Jeff and Morgan S. “Social Profile Interactive Tools.” 2010. Subscribers, Fans and Followers. April 20, 2011.
http://www.exacttarget.com/subscribers-fans-followers/index.aspx
13. “Twitter X-Factor – Report #4.” Subscribers, Fans and Followers. 2010.
April 20,2011. http://www.exacttarget.com/
14. Verde, Amodiovalerio. “Facebook – Demographics.” Powerpoint. January 2011. April 20, 2011. www.slideshare.net
15. “Groupon: Collective Buying & Social Marketing. Powerpoint. 2011. April 20, 2011
www.slideshare.net
16. Dahlen, Christian. “Observation on Groupon’s business model – a primer.” Powerpoint. November 2010. April 20, 2011.
http://www.slideshare.net/dahlenc/groupon-business-model
17. Condurache, Andrew. “What is the Groupon Business Model?” July 28, 2010. MochaGuru. April 20, 2011. http://mochaguru.com/what-is-the-groupon-business-model/
18. Erik, John. “Groupon clones in Hong Kong.” July 15, 2010. Think27. April 20, 2011.
http://blog.think27.com/2010/07/groupon-clones-in-hong-kong/
19. Wu, Michael, Ph.D. “The 6 Factors of Social Media Influence: Influence Analytics 1”
Lithosphere. April 12, 2011. April 20, 2011. http://listhosphere.lithium.com
20. Dunham, Jamie. “Marketing to Women: Groupon or Groupoff? 10 Facts You Need To Know.” The Lipstick Economy. October 8, 2010. April 20, 2011.
http://jamiedunham.wordpress.com/2010/10/08/marketing-to-women-groupon-or-groupoff-10-facts-you-need-to-know/
.jpg)