Groupon’s 2011 estimated revenues are in the $3 billion to $4 billion range. Groupon Business Model The Groupon works as an assurance contract: if a certain number of people sign up for the offer, then the deal becomes available to all; if the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as quantity discounts, as well as sales promotion tools. Groupon makes money by keeping approximately half the money the customer pays for the coupon. There are different opinions regarding the success and sustainability of Groupon's business model.
According to a December 2010 report conducted by Groupon's marketing association and reported in Forbes magazine and the Wall Street Journal, Groupon was "projecting that the company is on pace to make $1 billion in sales faster than any other business, ever". However, a report from Forrester Research in October 2011 suggested that the Groupon business model was a "disaster". Information Technology - helps Groupon to compete Information Technology plays a vital role in Groupon's Business model as well as to compete with its competitors. Fig: Five competitive forces with potential strategic use of information resources.
Potential threats of new entrants one of the major drawbacks of the Groupon business model. In May 2011, there were over 450 competitor sites that offer discounted merchandise and services. Now worldwide, there are over 500 sites similar to Groupon, including over 100 in US. Notable firms operating in the market includes living social, Plum district, Jasmere. com, meerkatmall. com, and chi-spree. com. Though new entrants cannot be controlled, value addition by new technology is the tool to gain 'competitive advantage'. Groupon's has added many new features that the competitors have not yet developed.
Like, Groupon Now application, Groupon VIP, Groupon MerchantOS [Groupon Rewards, Groupon Scheduler, and Groupon Payments]. However, Groupon is among the first to provide customers with these services but it is not difficult for the competitors to copy it in future. Information technology also helps Groupon by giving an edge on bargaining power with buyers, as the price they can offer is already discounted and much lesser than the regular price or other available discount certificates. It also provides an advantage for suppliers as it is working as promotional medium for them apart from bringing in potential customers.
However, when it comes to industry competitors and threat of substitute products, Groupon loses is competitive advantage in long- run? They do not have any aspect that is unique to be offered to consumers nor are their business processes unique enough that the competitors cannot imitate. Even many successful other promotional methods are available if only marketing is concerned like, internet marketing, membership rewards. These methods have yielded profitable results to merchants. No sustainable competitive advantage I completely agree that, Groupon has no sustainable competitive advantage.
Gaining a competitive advantage at a particular point of time does not automatically mean that you can sustain it over a long term. Groupon has to continue to innovate and protect against resource imitation, substitution, or transfer. Groupon's business model allows to engage in continuous innovation but will not help in protection against imitation and substitution. For instance, giants like Amazon [living social] and Google [Google offers] who are investing in same business will have upper hand soon, as they will have more investment potential to sustain, develop and provide more savings to consumers.
Groupon fails to possess any unique aspect that 'only Groupon' can offer. Businesses like Walmart have complex logistics management that is embedded in both its own and its supplier operations. This structure is very unlikely to be copied by its competitors. Therefore, Walmart has a very high sustainability over its competitors. Groupon adds no value to the supplier companies. If we analyze the business model of Groupon, at an upper level screening we will see that Groupon provides a platform to companies to introduce and sell their services ; merchandise to a wider number of customers.
These customers will in turn become long-term users and will benefit the supplier company in long run. In addition, it provides the supplier company with a platform for sales promotion and marketing. However, a deeper research provides contradictory outcomes. Many smaller vendors find losses instead of profits. A study of 150 retailers showed that only 66% found the deals profitable. Furthermore, at the time of IPO, analysts find the Groupon's business model not sustainable. This does not ensure a continuous support to its suppliers in long run. There is no substantial value addition to suppliers.
The Supplying companies tend to have other advertising and promotional methods to reach to its potential as well as loyal customers. Profits even after paying 25% to Groupon must be more than what they make with their alternative promotional methods. Groupon- Now's impact on competitive advantage Groupon has developed an application aimed at smart phone and tablet users. This application consists of the two buttons: "I'm Hungry" and "I'm Bored”, which locates the closest and best deals for food or entertainment, respectively, using geo-location.
This is a value added service that will certainly make it very 'user friendly' for the consumers to locate nearby deals at their location instantly. This undoubtedly provides Groupon with a tool that makes them apart from competitors but only until the competitors develop similar applications. It is like the way GRid Systems made first ever-commercial tablets but later, all competitors [like AT&T, Apple &Palm] made their own versions. Next Applications As we know that Groupon can only continuously innovate for it to be visible to its customers, leaders of Groupon should invest in research and development of new application.
Groupon is already active in doing so. They have developed Groupon Now and Merchant OS. Merchant OS is a suite of products and tools for merchants running with Groupon. Groupon-Rewards is a loyalty program for merchants to reward customers for repeat visits with a Reward of their choosing. Groupon Scheduler is an online booking tool for merchants, allowing their consumers to seamlessly book appointments for services at the time of purchasing their Groupon deal. Groupon Payments offers merchants an infrastructure for accepting credit card payments at a low cost. They should develop application for consumer as well as merchant side.