Groupon Business Model has taken the world by storm almost over 10 years ago with its high-discount coupons. After many ups and downs, how is it holding up? Let’s take an in-depth look.
Groupon, founded in 2008, has gained fame and customers in several parts of the world, by offering up to 70% discount coupons and vouchers, on hundreds of products and services, from food to travel, mainly over local brick-and-mortar businesses.
Groupon’s business model, therefore, is based on a simple job: being the middleman. And, although many people believe the company is declining – and that it indeed has had some hard time over its lifetime –, Groupon’s figures keep quite positive, with more than 200 bi app downloads, 38 mi active users, and over 1.5 bi sold coupons.
But how does this translate into revenue for Groupon and value for its customers? That’s what we’re going to understand now when we analyze their business model!
A brief history of Groupon
The basis for what would turn into Groupon was settled when its founder, Andrew Mason, was a student at the University of Chicago. He actually left school, in 2007, after receiving a $1 million investment offer and started the company The Point.
The objective of the business was to improve the online fundraising experience. So the “tipping point” was established. The tipping point would be a certain quantity of money or signatures the fundraiser would set for the plan to get into action, and credit cards would not be charged before the goal was met.
That would be convenient for the fundraiser who would be able to check the donations growth and safe for donators, who could be sure where their money was going to. However, The Point was not focused enough, and it started drowning.
But one thing appeared to work out: group deals. The Point’s team would call hundreds of vendors a day to create daily deals, they called Groupons. And the deal would only go through when a determined amount of people bought it. The concept was a win-win situation for vendors, customers, and for the company.
So, in 2008, The Point gave room to Groupon, dedicated to advertising local businesses through limited-time deals. The next year, Groupon would expand from Chicago to other 28 American cities. Some more months, and it reached some European markets. In December of 2010, Google made an offer of $6 billion for Groupon – and it was declined.
Currently, Groupon has more than 26 million active customers, with over 1.5 billion groupons sold to date.
Groupon mission statement
“Our mission is to be the daily habit in local commerce. Community matters to us on an internal, local, and global scale—it’s fundamental to our company’s growth and to the well-being of the world at large. Within our walls, community means taking care of our most valuable resource: our people. We also know that our teammates need more than competitive benefits to feel supported, which is why we work to cultivate an inclusive environment where everyone can bring their whole self to Groupon. Outside of the office, we focus on paying it forward through volunteering, social responsibility, supporting local business, and community building around the world. If you’re ready to make an impact, you’re ready to be part of Groupon.”
How Groupon works
The discount coupons are loss leaders. A loss leader is any kind of product or service, at a very low price (capable of making the business lose money on), but that, on the other hand, will make the customers come over, get to know the place, spend money on other things and maybe become a regular.
The groupons (Groupon coupons) have always been targeted to young people who want to explore new possibilities in their cities, without spending too much. That’s why the bargains have been much more about things people want rather than what they actually need. Often, on businesses such as:
- Restaurants, pubs, and bars
- Hotels, spas, and resorts,
- Fitness activities (Pilates, yoga, dance, etc.)
- Beauty care (hair, nails, skin, etc.)
- Cosmetic procedures
- Local retailers.
The groupons always have expirations dates and they are usually limited to first-time customers. The first expiration date is about how long the deal is available for purchase, usually for 24 to 72 hours. The second expiration date refers to how long the coupon is valid for redeeming, often for 6 to 12 months.
Some businesses would also restrict the use to a specific product or service (only one dish of the menu or a single type of service in the salon, for example) and sometimes only one at a time (one coupon per table in a restaurant, for instance).
Another option besides the coupons, there are the card-linked offers. They are cashback or discounts received automatically as soon as the user links their debit or credit card to the app.
How to get a Groupon
On the app, you can get a virtual voucher before making the purchase (the app also sends you notifications about deals when you are near the businesses that are offering). On the website, you may print the coupons and take them to the place.
You can also have a coupon code, to use online. In this case, you just copy the code and make the purchase directly on the partner’s website. And, finally, there is the cashback and discount card-linked system, just by adding a card to make the purchase.
How Groupon makes money
Since Groupon is a multi-sided platform that stands for a middleman promoting businesses, it earns commissions on sales, from the companies they promote.
It typically gets 50% of all concluded sales. That usually represents a 75% loss to the merchant (summing up discount and commission). Either way, 97% of merchants ask to feature deals more than once.
Groupon Business Model Canvas
Customer segments of Groupon
Groupon business model can be defined as a multi-sided platform. Its customer segments can be divided into two great ones: merchants and consumers.
- Merchants, which are the businesses that hire Groupon’s service, can be subdivided into Business size (national brands vs local businesses); Business type (Food & Beverage, Health & Beauty, Home & Auto, etc.), and Business properties (types of deals, location, opening times, price, etc.)
- Consumers, who are the people that buy the coupons, can be micro-segmented into geodemographic, interests (especially referred to the type of coupons they acquire), and behavior (browsing history, social network sharing, rating habit, search history, etc.)
Value proposition of Groupon
Groupon has more than one customer segment than it also has one value proposition for each segment.
Consumers benefit on:
- Saving money while discovering new things. They can experiment with new products and services without having to pay the whole price for them. This allows them to get to know more places and try more products.
- Inspiring to try new things. As they are not going to spend much, they can explore new choices and also inspire other people to do the same.
- Risk reduction in experimentation. As Groupon has a review system, they can have an idea if the deal is really worth it, before purchasing. They can also compare prices and use Groupon as the platform for payment.
Merchants benefit on:
- Free marketing and advertising. The merchants can feature on Groupon’s website with no charges. Besides, Groupon sends e-mails to its thousands of subscribers with the new deals. Traditional advertising demands investment and offers no guarantee of sales.
- Free marketing and editorial assistance. Groupon has professionals who help merchants on how to best feature their promotion, to attract customers.
- Revenue with no sale. Studies show that 20% of people who bur coupons will never redeem them. In these cases, merchants will receive money without actually providing any service or selling anything.
Key partners of Groupon
Groupon has a wide variety of key partners. Among them:
- Local business – the local merchants are the priority for the Groupon business model.
- National brands – usually by offering codes, promotions, and card-linked offers, that can be accessed anywhere in the country.
- Search engines/social media – for advertising.
- Payment providers – especially the credit card companies that contribute to the card-linked offers.
- Affiliate network – promoters that insert banner ads and links on their websites. They earn up to 10% commission.
- Tech companies, regulators, investors, and lobby groups.
Key activities of Groupon
The greatest key activity is growing the marketplace, both by attracting consumers and adding merchants. Besides that, Groupon focuses on marketing and engaging customers (to achieve the first key activity), expansion (to get to new cities), improvement of merchant tools, advertisement, customer experience, support and maintenance, and others.
Key resources of Groupon
- Selection of deals and discounts, with photos, details, pricing, etc.;
- Relationship both with local businesses and big brands;
- Big user base (200 mi downloads, 38 mi active users);
- Branding and intellectual property;
- The platform itself (website and app);
- Consumers data;
- Human resources.
Customer relationships of Groupon
The customer relationships of Groupon, with both consumer and merchant segments, are based on:
- Marketing and promotion for free;
- Collaboration with merchant development;
- Merchant tools;
- Review system;
- Great variety of options;
- Issues management by a reliable brand.
Channels of Groupon
Groupon benefits from a wide range of distribution channels, which include:
- App and app stores
- Merchant portal and app
- E-mail offers
- Push notifications
- Card-linked offers
- AI voice assistant
- Customer support
- Search engines
- Social media
- Merchant tools
- Advertising means
- Development team
Cost structure of Groupon
Within Groupon’s cost structure, there are:
- Credit card and processing fees
- Technology maintenance
- Web hosting
- Online and offline marketing (advertising, affiliate programs, etc.)
- Sales commissions
- Team salaries
- Other general and administrative expenses
Revenue Streams of Groupon
As it has been seen above, Groupon’s revenue streams are based on commissions, taken from all sales the platform registers.
Groupon was launched 12 years ago and surfed a wave of popularity during the first years. Three years later, it went through an initial public offering (IPO). After that, the company’s revenue has been often in decline, nevertheless, its figures look still optimistic.
- Gilt City: based in New York City, the platform offers discounts for buying in groups. It has different deals every day, which are sent by email to subscribers. It demands a minimum of consumers registered for the deal to be assured.
- Scoutmob: headquartered in Atlanta, the platform works with over 1,000 independent manufacturers and lists more than 10,000 items of different categories.
- Yipit: also from New York, it is an aggregator that filters the best offers from more than 850 providers, according to consumers’ locations and interests. Its catalog includes coupons from Groupon, Gilt City, and Google Offers, for example.
- Coupon X: it belongs to Save Smart, a grocery store operator present in California and Nevada. It provides deals, discounts, and rebates, and, besides that, allows getting cashback and gift cards through its coupons.
- Woot: acquired by Amazon in 2010, it suggests special daily discounts and other limited-time offers for all kinds of products, released every 30 minutes. It has free standard shipping for Amazon Prime subscribers.
- DealNews: one of the most popular deal websites, with thousands of daily offers, and visited by tens of millions of customers. Its experts verify each discount that is published on the platform.
Groupon swot analysis
Strengths of Groupon
- Workforce: Groupon invests in training and learning programs in order to develop highly skilled and motivated employees.
- Brand: Groupon has made to build a strong name and that can be useful if the company wants to expand into new products.
- Suppliers: Groupon has a reliable supply base that allows it to offer a wide range of products and services.
- Automation: automated processes have brought quality and consistency to the company.
- Community: Groupon has a loyal consumer community that relies on its offers.
Weaknesses of Groupon
- Innovation: although the product is still a success in terms of sales, Groupon is losing space for direct and indirect competitors (such as big e-commerces). The company must invest in new technologies and processes in order to keep its market share.
- Expansion: the structure is not compatible with expanding to new product segments.
- Research and development: despite the investments in R&D, Groupon is being left behind by other players in terms of innovation and is bringing nothing new to the industry.
Opportunities for Groupon
- Transportation: lower shipping prices can enable the company to increase margins or attract new customers by passing the lower costs to the end consumer.
- Recession: this period after recession and lockdown measurements is an opportunity for the company to capture new customers.
- New markets: new government agreements and taxation have allowed Groupon to enter other markets while increasing its profitability in the current ones.
Threats for Groupon
- Competition: the simplicity of this business model gas increased the number of players in the industry, forcing lower margins and reducing market share.
- Shortage of workforce: the shortage of skilled employees able to develop Groupon proposition around the globe can harm the company.
- Laws: laws are different in each country and Groupon may face issues depending on the acceptance of its policies inside the nations.