Case study 2 - Groupon - Grade: A PDF

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Running head: Groupon

MODULE 2 CASE ANALYSIS: Groupon Richard Hoefer University of Texas at Arlington INSY 5375-501 July 7, 2019

Running head: Groupon Founded November 2008 Groupon provides customers with discounts for events, services and other popular items customers may want to buy. Groupon start off targeting local markets of its customers by offering daily deals which where a 1 day only sale only if a predetermined number of customers purchased the coupon. In August 2010, Groupon launched its first nation wide deal partnering with Gap which sold over 440,000 coupons, and netting GAP and Groupon close to $11 million (Swallow, 2010). Groupon collects revenue by taking half of the revenue generated by a customer’s purchase of a coupon. This means if a coupon is 50% off services or goods, Groupon collects 25% while the business is discounting its goods or services 75%, and the customer is saving 50%. In the Fall of 2011 Groupon raised $700 milling at its IPO which instantly provided a valuation of almost $13 billion. Experts have claimed that Groupon has no sustainable competitive advantage while others see it as an innovative company with high potential (Cohan, 2011). Groupon relies on its information technology system to compete which is the framework of its operations. It creates and builds a database and network among the subscribed customers and the businesses that sell to communicate deals and helps attract potential customers to participate in those deals. With Groupon using computer-based applications IT professionals used to reduce the overall manual working of sending and receiving data. IT plays a big role in not only collecting data from customers and business, but it also sends notifications of new deals providing instant advertising. It tracks whether offer acceptance constraints are accepted or not, and it tracks when the coupons are used and not used allowing for payment from Groupon to the businesses. With the simplicity of its business model and use of its IT resources allowing Groupon to thrive, it does come with its draw backs. Groupon does not have a sustainable competitive advantage because the lack of exclusivity from competitors entering the market and providing similar services to the same business and customers as Groupon. They are no barriers of entry to help prevent the reduction of market share by competitors for Groupon. (Cohan, 2011) While the Group does innovate its services by offering itself as a premiere service provider this still does not allow them to have a competitive advantage in the market. With no sustainable competitive advantage many have requested that the SEC stop its IPO because it provides no value. Groupon has been reported to provide losses to its customers due to the number of coupons sold for services and goods that create an unprofitable situation for small businesses. However, in those losses Groupon does create value. Groupon creates value directly and indirectly by helping businesses gain visibility and new customers. With new customers businesses can create new opportunities for up-selling and cross-selling their products (Pearlson et al. 2015).

Running head: Groupon To combat the loss of market shares to competitors group launched a new app in May 2011 called Groupon Now. This app uses real time location-based software that gives customers information of time sensitive deals at merchants nearby. While this innovation gives a competitive advantage over its quickly growing competition base of over 450 companies including Amazon (Pearlson et al. 2015). This competitive advantage will not last long until the competition also uses the same type of software in its product. Once the competition catches up Groupon will need to find away to innovate itself again with a new application. Groupon should consider using big data to tailor deals to customers bases on preferences. Understanding that locations for businesses are not longer a main driver for commerce due to the increase present of an online marketplace, Groupon should focus its attention there. Groupon not only provides coupons but can also look for already provided deals that customers many not be aware of and actively apply them to save customers extra money that otherwise would have been spent. Groupon can become a vulture to the other smaller competition companies and using their data apply the deals that they provide and collect some of the saving that the customer saved. To further improve the Groupon’s competitive position, Groupon should use Porter’s five forces model to look at the major influences on its competitive environment. As stated above Groupon’s existing Industry Competition is growing through paid couponing services as well as non-paid, coupons from merchants themselves. However, the difference is customers must purchase the coupon before use, and Groupon keeps the money if the coupon is not used. Groupon faces a high threat of new entrants and a substitute product. Due to Groupon’s large size relying on its economy of scale to produce better services as a cost that new competitors cannot sustain would help its competitive position. Groupon may also reduce the fee to loyal companies who have used their services for many years to promote its competitiveness in the regards of switching costs. When looking at the bargaining powers of the buyers and suppliers Groupon also has a high risk in both aspects. The power of buyer comes from the customer looking for better deals and customer service whose driving forces is prices and quality a not through brand loyalty. There are no switching costs and customers may be one-time deal seekers/ buyers. There is no bargaining power as an individual customer, but all customers create bargaining power as the high demand is for the best deals. Supplier powers like customer powers increase as the number of suppliers increase who choose and create the markets themselves. The final products are the deals offered to the customers, and Groupon is a resource to reach those customers. If Groupon does not adapt their prices to meet their demand they will not be a good investment for suppliers. There is also a low cost or no cost of switching depending on the money collected by Groupon, and therefore there is low bargaining power over customers and suppliers.

Running head: Groupon

References:

Pearlson, K. E., Saunders, C. S., & Galletta, D. F. (2015). Managing and Using Information Systems: A Strategic Approach (6th ed., pp. 52-53). Hoboken, NJ: John Wiley & Sons.

Swallow, E. (2010, August 19). Groupon Smashes Sales Records with Nationwide Gap Deal. In Mashable.com. Retrieved from https://mashable.com/2010/08/19/gap-groupon/

Cohan, P. (2011, June 6). Memo to SEC: Groupon Has No Competitive Advantage, Stop Its IPO. In Forbes. Retrieved from https://www.forbes.com/sites/petercohan/2011/06/06/memo-to-sec-grouponhas-no-competitive-advantage-stop-its-ipo/#3287c3aa67ab...