E-COMMERCE STRATEGIES OF GROUP

BUYING WEBSITES,

Case study: Groupon Inc.

LAHTI UNIVERSITY OF APPLIED

SCIENCES
Degree programme in International Business
Thesis
Spring 2013
Linh Dang
Lahti University of Applied Sciences
Degree Programme in International Business

Linh Dang: E-COMMERCE STRATEGIES

OF GROUP BUYING
WEBSITES,
Case study: Groupon Inc.

Bachelor’s Thesis in International Business, 75 pages, 6 pages of appendices

Spring 2013

ABSTRACT

Group buying business model has an increasingly high growth rate, surpassing any model
in history. This business is fundamentally the brokerage between businesses and
customers and receives commission fees from the transaction. However, the model has
been criticized by consumers and local businesses for being unprofitable and
unsustainable. Thus, the target of this thesis is to find a way to improve strategies of
group buying websites based on online consumers’ behavior. In order to achieve the goal,
the 5C analysis of websites and the application of value disciplines are fully studied.

The paper has used qualitative method with the support of quantitative data from 35
respondents who participated in a structured questionnaire. Additionally, the theoretical
evidences are obtained via published and electronic sources of journal articles, books,
websites and well-known blog.

Upon completion, the research has found that online consumers are majorly price-
sensitive as of deal-seekers, and prone to be affected by information quality and user
interface of the website. Moreover, the study has also shown the possibility of mining
data from the purchasing patterns of the customer.

Finally, the data was analyzed, and the conclusion was drawn that consumer behaviors
and purchasing patterns are to be used to meet the customer demands and needs. As a
broker, the group buying websites have to please both the local merchants and the end
customers. Thus, by utilizing the data given above combined with the in-hand resources,
group buying websites can opt for suitable strategies. The case example of Groupon has
shown valuable insights of how a group buying websites can tackle the problem.

Key words: Groupon, group buying websites, 5C Analysis, value disciplines.

CONTENTS

1 INTRODUCTION 2
1.1 Background of the thesis 2
1.2 Thesis objectives, research questions 3
1.3 Scope and limitations 3
1.4 Theoretical framework 4
1.5 The structure of the thesis 6

2 BUSINESS STRATEGIES AND ELECTRONIC COMMERCE 7

2.1 Business strategies 7
2.1.1 Definition of business strategies 7
2.1.2 Porter generic strategies 7
2.1.3 Value disciplines 9
2.2 Electronic commerce in business 11
2.3 Consumer behavior in the online world 12
2.4 Group buying model 14
2.4.1 Advantages and disadvantages of the model 14
2.4.2 Group buying model strategies 16

3 CASE COMPANY: GROUPON INC. 18

3.1 Company profile 18
3.2 Business model 19
3.3 The 5Cs Analysis – An analysis of the website 20
3.3.1 Company 21
3.3.2 Content 28
3.3.3 Community 30
3.3.4 Connectivity 32
3.3.5 Collaborators 33
3.4 SWOT Analysis 34
3.4.1 Strength 35
3.4.2 Weakness 36
3.4.3 Opportunity 36
3.4.4 Threat 37
3.5 Porter 5 Forces Analysis 38
3.5.1 Threat of New Entrants 39
3.5.2 Bargaining power of Suppliers 40
 3.5.3 Bargaining Power of Buyers 40
3.5.4 Threat of substitution 41
3.5.5 Competitive rivalry among existing competitors 41

4 CASE STUDY: CUSTOMER BEHAVIORS TOWARD GROUP

BUYING WEBSITES 43
4.1 Research design 44
4.1.1 Survey 44
4.1.2 Design the measurement 44
4.1.3 Process of gathering information 45
4.2 Data analysis 45
4.3 Research question and results 46

5 CONCLUSION AND RECOMMENDATIONS 48

5.1 Conclusion 48
5.2 Recommendations 49
5.2.1 Increase merchant retention, reduce cost 49
5.2.2 Increase customer retention rate 52
5.3 Reliability and validity 55
5.4 Suggestion for future research 56

6 SUMMARY 57

REFERENCES 58

APPENDICES 66
LIST OF FIGURES

FIGURE 1. Theoretical Framework ........................................................................ 5

FIGURE 2. Value disciplines (Treacy & Wiersema, 1992) .................................. 10
FIGURE 3. Groupon's Business model ................................................................. 19
FIGURE 4. Adapted 5C Analysis .......................................................................... 20
FIGURE 5. Lower part of the deal (Groupon 2013) ............................................. 29
FIGURE 6. Communication steered by Groupon (Groupon 2013)...................... 31
FIGURE 7. Ticker illustration (Groupon 2013) .................................................... 32
FIGURE 8. Unique visitors of Groupon in 2012 (Compete 2013) ....................... 37
FIGURE 9. Porter's Five Forces (Porter, The Five Competitive Forces That Shape
Strategy, 2008, 8)................................................................................................... 38
FIGURE 10. Growth of Daily Deal Services (Moran 2010) ................................ 40
FIGURE 11. Threat of substitution (Moran 2010) ................................................ 41
FIGURE 12. Research Method .............................................................................. 43
FIGURE 13. Groupards (available in various colors) ........................................... 52

LIST OF TABLES

TABLE 1. Porter Generic Strategies (Porter, 1980) ................................................ 8

TABLE 2. Advantages and disadvantages of the group buying model ................. 15
TABLE 3. Group buying strategies ....................................................................... 16
TABLE 4. Company key statistics (Nasdaq 2013) ................................................ 18
TABLE 5. Products offered by Groupon (US market) .......................................... 21
TABLE 6. Groupon's commitment to community ................................................ 30
TABLE 7. SWOT Analysis of Groupon .............................................................. 35
TABLE 8. Porter's five Forces affecting Groupon ................................................ 39
TABLE 9. Benefits for local merchants ................................................................ 50
TABLE 10. Top Features of Groupard .................................................................. 53
TABLE 11. Electronic models .............................................................................. 66
TABLE 12. Questionnaires ................................................................................... 68
TABLE 13. Value package .................................................................................... 70
TABLE 14. Bonus table ........................................................................................ 70
TABLE 15. Example of calculation ...................................................................... 71
1 INTRODUCTION

1.1 Background of the thesis

Traditional marketing has increasingly brought customers closer to producers who

conventionally are responsible for their product advertising. It is often difficult
and impossible, for small and medium sized enterprises, to place properly their
products in customers’ minds due to the shortage of capital and resources
(Gilmore & Grant, 2001, pp. 6-11). Meanwhile, large companies and corporations
have enough human powers, capital and production scale to split the marketing
cost into a tiny amount per product, which allows firms to be profitable and to
continue their operation.

Thus, the group buying business model has proved to be a life-saver for SMEs by
brokering the producers and customers together. Traditionally, SMEs rely on the
existing partnership to conduct their own marketing and to sell their products
(Pallab, 1996). In this model, the brokers will ask the producer to offer a solid
discount (30 to 70%) to prospective customers and then the brokers will display
the offer in their website for a limited time and quantity with terms and conditions
applied. If the quantity demand exceeds the lower threshold, the deal is on for
everyone and customers will benefit. Moreover, to attract customers to get to
know the deal, the broker sites must advertise themselves using Search Engine
Optimization (SEO). Hence, instead of developing their own marketing strategy,
the business partners can focus only on production and after-sales services.

With that being said, the group buying market is an extremely large area and
concentrated market with thousands of new sites imitating the original model.
According to DailydealMedia, a consolidated source, there were almost 10000
sites by the end of 2011. However, this number has bounced up and down in
different regions but has overall shrunk down to a smaller amount (Wauters
2012). Given the nature of the industry, opening a group buying website is not a
difficult task, nor is its the operation or termination. The website contains virtually
no physical assets and inventories, thus, making the market entry tempting for a
start-up. Nevertheless, to scale up the business into a nationally or internationally
known company is a whole different matter. There are thousands of new sites
opening and closing ever year, due to the low barrier entry and exit of this model,
showing no interest in pursuing sustainability. Consequently, many customers,
who bought the deals but have not redeemed the coupons, cannot use the vouchers
anymore because the local merchants stopped allowing redemption from troubled
firms. Eventually, other group buying websites suffer from the false belief of
previous dissatisfied customers.

1.2 Thesis objectives, research questions

The primary objective is to improve the business model of the case company,
which will then increase profitability and performance. The improvement will be
based on empirical research of a group of customers and secondary data from
local merchants. Moreover, the research will explore the current E-commerce
strategies employed in fast-growing and successful group buying websites in
order to benchmark the case company itself.

As stated earlier, this paper aims to analyze the strategies that facilitate the group
buying model to develop sustainably and profitably. In order to achieve these
objectives, these following sub questions are identified:

 Which factors affect the buying decision of the online consumers?

 What are the current strategies that the group buying sites implement?
 How do the group buying sites improve their models regarding the
customers’ need?

1.3 Scope and limitations

Due to the limit of time and network, the survey is assumed to capture only a
certain age group’s perspective (18-25) while targeted customers of the case
company are young, urban and Internet savvy females (Muehlhausen 2011). In
addition, the lack of commissioning contract with the case study renders the data
used in the paper less accurate and reliable. Hence, the result of the survey may be
quite general and only partially applied to the research. However, given the
circumstances, all respondents are assumed to have the same characteristics as the
targeted customers who live in cities, and actively participate in online social
networks. Moreover, the time constraint of the survey poses a threat to the
insufficiency of data reliability. The survey needs a certain number of respondents
in order to produce a convincing result that can apply to the whole population.
Within the period of the research, however, the author can only manage to collect
a portion of respondents which is required to have 10% margin of error.

Last but not least, the author assumes that the case company has superior
domination over other competitors and any actions taken by competitors do not
affect the case company. Hence, the competitor analysis is only superficially
mentioned in order to show the stakeholders of the case company.

1.4 Theoretical framework

The theoretical section of this study is divided into 2 parts: business strategy in
electronic commerce and group buying model. Business strategy in online
business stems from conventional strategies incorporated in a corporation which
can be a click-and-mortar business or a fully-engaged online business with no
physical appearance. It is the strategy that emerges and adapt in a virtual
environment that connects consumers and producers without middlemen. As an
emerging online business model, group buying websites has gained the reputation
of the fastest growth and bringing values to customers. Nevertheless, the growth
bubble starts to explode as the growth is likely to wane down. Thus, when looking
for the case company problems, the author has seen the key issue lying under the
strategy of the group buying model.
 E-commerce Group buying
Strategy model

Case company
problems

Unprofitability Low retention rate Unsustainability

Improve customer and

merchant retention rate

Survey Result Recommendation

Customer
Intimacy

FIGURE 1. Theoretical Framework

For the gathering and analyzing of the research data, the authors chose to use 5C
analysis, Porter’s Five Forces Analysis and SWOT Analysis. 5C analysis will be
used to analyze the internal and external environment of the website, while
Porter’s Five Forces Analysis will be employed to analyze the group buying
industry. SWOT Analysis will be used to analyze the case company.
1.5 The structure of the thesis

Chapter 1 describes a brief introduction of the purpose and the context of the
thesis. In addition, it states the thesis questions and objectives that will be
answered in chapter 4. Then, chapter 2 defines all necessary terms and
relationships exercised in the thesis.

Chapter 3 discusses and analyzes the strategies that are employed in the case
company. The case company analysis serves to provide a model example of group
buying websites which need improvement and consolidation.

Chapter 4 explains the research approach, how the data are collected, processed
and shows the process of designing survey. Then the result of the questionnaire is
interpreted and compiled to help answer the research question and deduce the
recommendation for the case company. Finally, chapter 5 examines the possibility
of integrating new strategies into the business model to align with customers’
expectation. The last section also suggests for the case company four possible
recommendations which are the application of the compiled data and the value
disciplines.
2 BUSINESS STRATEGIES AND ELECTRONIC COMMERCE

2.1 Business strategies

2.1.1 Definition of business strategies

According to Watkins, business strategies are the basis of the decision making
pattern which guides people in one company to allocate resources to achieve the
key target. Strategy is not to be mistaken for vision, mission or value of a
company. Business strategies are the way that resources are allocated to achieve
goals (mission) to create value for stakeholders (value) in order to provide
incentives and reasons why people in companies should perform at a high level
(vision). (Watkins 2007). Meanwhile, Johnson and Scholes define corporate
strategy as the way to achieve advantage of an organization by employing
resources to meet the needs of customers and stakeholder’s anticipation (Johnson
& Scholes, 2006).

Electronic business strategy also shares similarities with corporate and common
strategies in general. Dave Chaffey describes e-commerce strategy as the
approach by which applications of internal and external electronic
communications can support and influence corporate strategy (Chaffey, 2011,
230). However, companies often incorporated e-business strategies within the
functional strategies, which is dangerous that E-business strategies may not be
recognized at a management level.

2.1.2 Porter’s generic strategies

In general, Porter’s generic strategies are the combination of the competitive

advantage of a firm and the scope of the market that firms are doing. The strength
of the firm is proposed by Micheal Porter as cost advantage and differentiation.
Together, the generic strategies comprise of 3 different ways to follow: cost
leadership, differentiation and focus strategy.
TABLE 1. Porter Generic Strategies (Porter, 1980)

Target Scope Advantage

Low Cost Product Uniqueness
Broad Cost Differentiation
(Industry wide) Leadership Strategy
Strategy
Narrow Focus
(Market Segment) Strategy

Cost Leadership Strategy

This particular strategy guides the firm to reduce cost as much as possible without
damaging the quality of the products. The company can sell a product with a price
lower than the industry average, thus obtain more market share and customers and
may even force small, low-tech firms out of the market. In order to achieve these
results, the firm needs to apply in industry-wide scale. Moreover, internal
strengths and potential powers are required to succeed in this strategy. By gaining
access to a huge deposit of low cost material, achieving Sig-sigma improvement
and lean manufacturing, the company can sustain a competitive advantage over
competitors based on cost leadership.

Differentiation Strategy

Unlike a cost leader, a differentiator can offer customers innovation and

amazement. Firms that follow this strategy have to develop a product or service
that is unique and brings added values, which are perceived by customers.
Normally, firms want to charge a premium price to cover the cost R&D and to be
also unique. In order to accomplish this target, firms have to be reputable and
excellent in their product qualities. Moreover, firms also have to spend strongly in
R&D and have a highly-creative development unit, which combines with a robust
sales team, will together generate immense ROI.
Focus Strategy

Lastly, if firms cannot maintain strong advantage in a broad, wide market; they
will have to focus on a niche market where customers can be better served and
more satisfied. Targeting a small market and following either cost leadership or
differentiation strategy can discourage other firms from competing directly. This
strategy applies well to firms who do not have enough resources or accesses to
dominate an entire market and who can tailor-make a broad range of products to
adapt to a narrow market segment. However, firms are under serious threats of
ever-changing segmental preferences and the adaptation of market leader to
compete directly.

2.1.3 Value disciplines

The three value disciplines are a recent development from generic strategies of
M.E. Porter. It is comprised of three generic disciplines which are operational
excellence (delivering quality, price, and ease of payment), product leadership
(providing best products/ services) and customer intimacy (meeting customers’
demand) (Treacy & Wiersema, 1992). Many companies have pursued only one of
3 strategies, but the possibility of employing both two disciplines is still an open
choice. For example, P&G and Pepsi have combined customer intimacy and
operational excellence to reduce cost and increase profit through tailor-made
processes and efficient operation (Byrnes 2011).
 Value
disciplines

Operational Product Customer

excellence leadership intimacy

FIGURE 2. Value disciplines (Treacy & Wiersema, 1992)

Operational excellence is the strategy in which companies aim to excel in

operation, resulting in optimal business processes across organizational and
functional limit. Companies that follow this discipline pursue a cost leadership
position in which friction and transaction costs are reduced, and disintermediation
is occurred. For examples, in the past, Dell Computer has outmaneuvered both
IBM and HP by optimizing delivery system. Dell has provided build-to-order
service, which removed the middleman of the supply chain, making the products
cheap and quickly available to customers.

Customer intimacy strategy serves best in firms whose interest is to satisfy

customer’s strict demands. In order to pursue this strategy, one must be able to
customize and tailor order to fit customers’ definition of the products. The whole
process can be terribly expensive, but the value brought to customers can
compromise. The long-term loyalty with multiple transactions is the key factor for
which firms are looking

Product leadership is adapted to companies who want to produce state-of-the-art

products and services. To be able to pursue this strategy, first firms must be
innovative to invent the business idea and capitalize it into core business to
generate profit quickly. After gaining first-mover, firms should be able to provide
solutions to improve their products or services for better quality.
To conclude, in electronic business, firms have to struggle to achieve these
disciplines for several reasons. First, because their channels are virtually
intangible, so firms are under greater risk of assuming the resource and capital
needed for operation. Secondly, online businesses are expected to scale fast in
order to grow a large customer base compared to brick-and-mortar businesses.
Finally, it is difficult for new venture businesses to compete with existing online
companies, many of which already have enormous resources and operational
capabilities. (Mather, Golding, & McDowell, 2001)

2.2 Electronic commerce in business

There are various definitions of e-commerce available in the theoretical world.

Firstly, Gartner Advisory Group, a market research and consulting group has
described the computer and the Web are the two fundamental and essential
element of the Electronic Commerce. Firms must commit themselves into the
external business using computer interactions and Internet participation (Gartner
Advisory Group 1999). Alternatively, Damanpour et al, concluded that electronic
commerce is the business that utilize the electronic channel which enable firms to
reduce transaction cost, delivery times and also improve customer services
(Damanpour & Damanpour, 2001). Meanwhile, according to Schneider, E-
commerce consists of many trading activities, internal process that companies use
to operate the core business with Internet technologies (Schneider, 2011).

Currently, only several main E-commerce business models prevail. According to

Rappa, most of the E-business in the world falls into 7 main categories which is
described in table 11(Rappa 2000). However, one firm can employ a mix of 2 and
3 models at the same time to fit the company’s core competency. For example,
Amazon adapts itself into 2 models: merchant and manufacturer. It is one of the
biggest online retailers in the world that moves into selling its own Kindle.
Meanwhile, NY Times is supported by both advertisers and subscribers, which
allows readers to contribute less than actual bundle they would have to pay if
there were only subscription model available.

The growth of E-commerce has sharply changed the way we do business. Thanks
to advanced technologies, companies’ strategies and operations have been fiercely
reshaped. Costs have been reduced; companies are able to do business
internationally without middle men, prices are reduced thanks to more
competitive market and companies have to choose which market to focus on.
(OECD 1999)

Firms’ manufacturing process has shifted towards lean manufacturing from

traditional method. The usage of EDI and POS system has linked all echelons in a
supply chain. Hence, if there is a need of particular products, those systems can
help to predict the right quantities to produce. On the other hand, firms’ cost
structure will be dramatically changed (Deeter-Schmelz, Bizzari, Graham, &
Howdyshell, 2001, 4-9). Traditional costs may be decreased, but many new costs
will be realized. For examples, sales cost can be cut using Internet conference,
email and mobile application. There are many online shops that have no physical
appearance but only a website listing all products with related information. These
shops can reduce their fixed costs as well as miscellaneous charge occurred when
renting a slot in a shopping mall. Moreover, marketing cost can be reduced by
implementing an online community in a social network (FB, Tweeter) along with
traditional channel (newspaper, TV and radio) (Kempe, Kleinberg, & Tardos,
2003, 140).

2.3 Consumer behavior in the online world

Traditionally, consumer behavior often involves the psychological processes that

consumers go through in recognizing needs, finding ways to solve these needs,
making purchase decisions, interpreting information, making plans, and
implementing these plans (Gupta, 2009, 365). However, in an online world, the
purchasing process may be a little trickier. Some processes are subjected to
disappear, some are lengthened and time-consuming. The consumers can control
which web page they can browse, how long they can stay in one page and what
information they want to know. Hence, the crucial point is to provide an
informative, entertaining and effective website to keep them stay as long as
possible. (Mazaheri, Richard, & Laroche, 2012, 540). For instance, in a search-
based service such as an online bookstore, viewers want to get valuable
information of the book from the website, even the review of the books, to
evaluate the service. On the other hand, as an experience-based service,
restaurants’ websites should aim to entertain their users – the prospective
customers who seek that entertaining atmosphere and might visit the actual
restaurant. Meanwhile, a bank’s website is expected to provide its customers
necessary information due to the nature of high risk and customization.

Factors affecting online consumer behavior

First, not to mention the information, the User Interface (UI) of the website must
be neat and uncomplicated. It is the first thing that appears to customers and
directly affects the “first-time impression” of the company and website. The
website should be user friendly, unsophisticated and adaptable to many online
environments. Running many fancy applications (Flash, HTML5) may force
customer to leave your website due to the lack of plug-in and browsers’ support.
Moreover, these applications require a lot of bandwidths which takes forever to
load a website full of Flash and Java Script. In addition, many smartphones
(running iOS, Android, Symbian, and BlackBerry OS) do not support these apps
viewing, which directly lead to no image or information

Secondly, according to Park, information quality is a crucial issue to improve

(Park & Kim, 2003, 16-29). Again, it should have sufficient amount of
information in clear, simple format, and when needed, there is a link to a full
description or explanation that viewers want to know. The information of a
website is divided into production information and service information. The
product information provides viewers the products’ specification, reviews while
the service information includes FAQs, membership, delivery information and
promotion. The information about the product must be up-to-date, relevant and
consistent in presenting choices and options. On the other hand, the service
information is expected to provide helpful answers and guidance’s and easy to
understand.

Thirdly, online customers are victims of serious online scam and fraud which cost
them over $3.4 billion in 2011. Noticeably, the number of fraud has decreased
over the past 3 years, but the dollar volume is on the rise, according to Cyber
Source Corp., a unit of Visa Inc. (American Banker and Source Media Inc. 2012).
Thus, the perception over Internet security is higher than ever; customers are
reluctant to share their card information with the website unless verified by
reputable organizations and carefully reviewed.

On the other hand, consumer behaviors are also subjected to their demographic
characteristics. (Wu, 2002, 36-53). Their personalities, lifestyle, perception needs
and past purchases account for their purchasing patterns which play a highly
crucial role for marketers to meet customer’s need. In addition, how familiar we
are to a source of information in the online world may not influence your
purchasing decision compared to traditional Word-of-Mouth marketing (Dwayne
D. Gremler, 2001, 45).

2.4 Group buying model

The Group buying model belongs to brokerage groups in which the websites act
as middle men between companies and customers. Traditionally, it often occurs in
B2C sector but now it has grown into B2B market where thousands of companies
can acquire a single package or solution with reasonable price but lest often
(Prweb 2011). The model begins with a merchant who want to popularize its
reputation, product or services. It will contact with the group buying Website to
formulate a deal with terms and conditions applied. The deal is normally
discounted to 50% of the original price, which could surge the demand. Then, the
Group Buying Website publishes the deal and invites customers to buy and refer
to their friends. Finally, the customers redeem the voucher at the local business
and create the win-win-win situation.

2.4.1 Advantages and disadvantages of the model

It cannot be denied that this model saves billions of dollars for customers and also
for local business. It has helped connect manufacturers/ service providers and
customers together so that every party in this transaction is beneficial and happy.
First of all, end customers are the ones who benefit the most, which they can save
from 30 up to 70% of the listed prices. On the other hand, some business in the
service industry utilize the group buying model to exploit the off-peak hour when
they still have to pay for other fixed cost. Others employ discount deal to attract
customers’ price sensitivity and to increase brand awareness and customers’
purchases. Meanwhile, some retail stores can clear out their perishable inventories
in mere several days with the hope of selling more complementary products (Dean
2010). A rush of customers within a limited time is the only thing they expect to
empty the warehouse.

TABLE 2. Advantages and disadvantages of the group buying model

Advantages Disadvantages

Merchant  Get more new  Cut fee for broker

customers  Initial loss
 Clear the inventory  Damage the old customers
 Increase popularity
End  Get massive  Discriminated and mistreated
customers discount  Bad and inaccurate deal
 Know more places information

However, this model is also subjected to many criticisms from the merchants’ and
end- customer’s points of view. Firstly, it has sharply changed customer behaviors
in the online world. Most of the consumers become price-sensitive and deal-
seekers, not loyalty-seekers which is the goal of the seller. Secondly, 30 to 50% of
the revenue of the discounted price has dropped into brokers, leaving the tiny
piece to the vendors. For instance, a spa deal with 50% off from $40 will have a
price of $20. However, the seller can take only $10 of revenue in a 30-days
period, and the website earns $10 and is able to utilize $10 in the one-month
period to leverage its financial position. Thirdly, it is often said that low price
products come with low quality. The premium price of a product or service, in
most cases, guarantees its unbeatable quality. If that product is underpriced, the
consumers will not perceive real value of the premium. Eventually, the deal could
possibly damage the brand awareness and loyalty perceived by customers. Last
but not least, running a deal in a short period may put your staffs under a great
pressure. The employees must serve vast amount of brand-new customers who are
not familiar with the business and consequently it results into low satisfaction and
low attitude in employees towards couponers. Consequently, the coupon
purchasers are likely to be mistreated and discriminated by the merchant’s
employees.

2.4.2 Group buying model strategies

Together with Groupon, Living Social and Bloom spot are currently dominating
the group buying market (Novack 2011). Hence, a quick glance of how these
companies are doing will reveal some of the most influential strategies are
currently employed.

TABLE 3. Group buying strategies

Group Strategies Key notes

buying
website

Groupon  Expansion through hostile  Outbid everyone else on

takeover paid acquisition
 Reward program and  Increase loyalty and
vendor lock-in with over- involvement
one-year contract
Living  Providing a wide range of  Target many segments
social products  Differentiate itself with
 Launching high-end events premium products

Bloom spot  Cooperating with  Ensure profit for merchants

merchants  Earn points to purchase
 Loyalty points for every deals later
deals

Groupon has used their first mover advantage to dominate the market and create a
solid brand awareness to customers. After conquering domestic market, it has
expanded to over 250 markets in 44 different countries in the world through
hostile takeovers (Inc 2010). In each country, Groupon sets own subsidiaries with
similar website layout and appearances, leaving only texts and logos in native
languages. This is done to ensure both the localization and the globalization of the
company’s existence in developing countries. In addition to that, Groupon has
increased involvement of the local merchants by cooperating in a Reward
Program that, in the long-term, both parties will gain benefit.

Meanwhile, Living Social is launching a full scale attack on all segments in the
markets. Its customers range from general users, tourists, to and family groups
and adventure-seekers. This strategy applies well in a second-mover position in
which customers are already familiar with the leader of the market. Moreover, the
runner-up also offers premium deals ($100 - $200 meal) in luxury places. The
offers are only introduced by selected high-end merchants who are well-
recognized and capable of delivering the service.

On the other hand, Bloomspot prefers more intimated strategies to ensure the
sustainability of the business. First, it has cooperated with the local merchants to
guarantee a profit for the marketing campaign. The company’s specialized
algorithm has allowed merchants to generate a holistic view of what will end up
after running the campaign. In case of losses resulting from a deal for the
merchants, Bloomspot compensates them. This is, compared to their competitors,
a remarkably sustainable and innovative way of collaboration. Second, Bloomspot
introduced a loyalty plan called Bloombucks which will accumulate the bonus
point for every dollar spent on the deal. The process of accumulating points is
even made electronically for ease of use. Customers can just take a picture of their
receipts and upload it via their smartphones application.
3 CASE COMPANY: GROUPON INC.

3.1 Company profile

Groupon Inc, originally started as “The Point” in Chicago in 2008, is the market
leader of the group buying industry. The company has dramatically grown since
2009, now with nearly 40 million active customers and over $2.2 billion of
revenue in 2012. Though it showed tremendous growth, the company has found
itself into an overgrowth trap in which the growth of new customers and the
revenue have slowed down in the past several quarters. Nevertheless, the industry
is still new and potential which is the reason why Groupon still holds investor’s
belief of prosperity.

TABLE 4. Company key statistics (Nasdaq 2013)

Established 2008 in Chicago, US

Revenue (2012) $2.3 billion

No of employee (2012) Est. 11470

Market capitalization $3.7 billion

Y/Y Revenue growth rate 39.8%

Customer network (2012) (unique 39.5 million

visitors)

As the latest report came out, Groupon has again made a loss in the last quarter
despite an enormous profit gained in Q3 2012. Nevertheless, the company has
done a good job of keeping marketing expenses low while push the revenue as
strikingly high as $638 million in Q4 2012. The fact is that the company has
struggled for the past 3 quarters as every growth statistics are falling. The
problems that Groupon faces are the over expense of sales and marketing in the
new markets while low merchant and customer retention rate in the old markets is
reported (Richter 2013). Thus, these known issues have dragged the leader of the
industry into, respectively, unprofitability and stagnant growth.

3.2 Business model

In step one, the final consumer purchases a deal on Groupon.com. For this he or
she pays money to Groupon who in turn send the coupon to him or her. In the
second step, the consumer redeems the coupon when checking in the hotel and in
turn, receives a service from the hotel. The third step describes the contracts
existing between Groupon and the hotel. These contracts specify e.g. Groupon’s
service fees, amounting to around 50% of the deal price and, the other way round;
they specify the terms and conditions of Groupon’s transfer of money to the hotel.

Groupon Contract
Service
fee

Coupon

Consumer Hotel Consumer

Service Evaluation

FIGURE 3. Groupon's Business model

These terms and conditions vary from country to country. In Germany Groupon
pays the money only if the coupon actually is redeemed. However, in other
countries they pay it directly after the customer paid for the deal. The great
advantage of the German model is that Groupon can “double-benefit”: Firstly, if
people do not redeem their coupons, Groupon does not need to transfer any
money to their merchants. Instead, Groupon keeps the money paid by those
consumers or gives them a credit usable for other deals. Secondly, if people do
redeem their coupons, they will usually do so after some time elapsed since the
purchase. This allows Groupon to work with the consumers’ money for at least
some time. Thus, Groupon can invest the money and increase their assets. In step
four, the roles change: The hotel and Groupon become the “customers” of the
coupon purchasers, in which the customer can recommend their friends to get
points from Groupon and the hotel can get customers’ feedback after they use the
service.

3.3 The 5Cs Analysis – An analysis of the website

The 5C Analysis originally consists of 5 elements of internal, macro and micro

environmental situation. : Company, Collaborators, Customers, Competitors and
Climate. However in an online environment of electronic business, the author
saw the necessity of adapting the analysis with steady changes. The adapted 5C
Analysis comprises of 5 different aspects of an electronic business: Company,
Collaborators, Community, Content and Connectivity. While Company and
Collaborators have remained the same, Community, Content and Connectivity are
newly introduced to provide better understandings of the elements of a website.

Company

Collaborators Content

5C
Analysis

Connectivity Community

FIGURE 4. Adapted 5C Analysis

3.3.1 Company

 Product

There are a number of products offered such as Groupon Locals, Groupon

Getaways, Groupon Goods, Groupon Gifts, and Groupon Grassroot. Groupon
offer deals in different branches such as Health and Wellness, Food and Beverage,
Leisure, Events, Retail and others Deal Channels.

TABLE 5. Products offered by Groupon (US market)

Products Features Introduced

in

Local Deals The basic services offered to customers Daily local 2008
deals with expire date up to 3 months

Grouponicus Annual wintertime celebration brings you deals 2009

that are perfect for giving and strategic hoarding

Getaway Travel deal with a package of transportation, 2011

Deals accommodation and culinary services

Groupon Now Instant deals and redemption at day 2012

Groupon Donation for benevolent causes that affect local 2012

Grassroot community.

Groupon The program uses normal bank card to enable the 2012
Reward loyalty benefit. After spending a fixed amount of
money, customers can receive a free voucher from
the same restaurant.

Local Deals is the basic service that Groupon offer to its customers. Although
having started with offering local deals limited to specified cities, Groupon have
expanded their business by “National Deals”. This initiative was taken to meet the
needs of consumers from one city who were also interested in deals of other cities.
An example of a typical local deal would be discounted haircut, whereas a
national deal would rather focus on products or services that are available online
such as POSTER XXL or retail chains like THE BODY SHOP (Groupon 2011).

Getaways Deals, this brand new concept of Groupon was launched in July 2011
and is currently only available for US and Canadian residents. The merger of
Expedia and Groupon offers travel deals. For Groupon subscribers, this merger
offers a wide range of hotels available, given the immense data base of Expedia
with around 135.000 hotels worldwide. As with all other deals Groupon´s travel
deals offer discounts of around 50 percent. (Ford 2011)

Groupon NOW! was another striking innovation of Groupon but its timing was
not right. To customize consumers and merchants with this service, there are
introductory videos on both the main website (www.groupon.com) and on the
merchant website (www.grouponworks.com). The idea behind this service is that
merchants can publish deals on the Groupon site on short-term when customers
stay away unexpectedly. This can play a significant role for merchants having
excess capacities and dealing with perishable goods such as vegetables, fish or
flowers. Merchants wanting to publish a Groupon Now! deals do this via the web
or their smart phone. These deals, within proximity of the merchant’s business,
target subscribers who can receive Now! deals on the website and their smart
phone while on the road. A customer-friendly map of the area where the consumer
is currently moving makes it easy to choose the right deal at the right time.
Groupon NOW! was launched in the second quarter of 2011 in 25 North
American markets. Although CEO Andrew Mason confidently called the new
service “Groupon 2.0”, it did not perform as expected. From its launch to
September 2011 Groupon Now! has not collected more than $2, 6 million of total
gross billings and less than $1 million of net revenue. This might also be due to
the decreased commission rates. In contrast to the usual 40-50%, Groupon charges
only 15-20% for the Groupon Now! service.

Groupon Reward was firstly introduced in 2011 as a beta program and was
launched officially in May 2012. Unlike other loyalty program offered in
supermarkets or drugstores in which customers receive customer card to swipe in
every purchase, the Groupon Rewards utilized the ubiquitousness of debit and
credit card to penetrate among both consumers and merchants. After an amount of
money has been spent, the customer can unlock new voucher provide by the
merchants. However, this program has some considerable flaws in perceiving
purchase behavior of Grouponers.

 Price

Apparently, the greatest benefit of a deal goes to the customer purchasing the
deal. With an average price per product of $25.37 compared to Living social’s
price is $30.29, Groupon’s deals are even cheaper than its competitors’ (Online
Marketing Trends 2011). However, Groupon was blamed several times for
artificially inflating the prices before discounting them to make the customers feel
satisfied and to encourage them to purchase the deal. The truth becomes obvious
when we compare prices on the market. For example, a cleaning service was
offered at $45 from normal $200, but in reality, however, the usual price in the
given service area was quoted at $106. In the end, Groupon was officially blamed
for five of such cases while Living Social additionally accounts for three such
cases (Davis N. 2011).

On the other hand, the fee charged from Groupon for their intermediary services is
perceived as extremely high. Taking away 50 percent of an already discounted
price seems to leave nothing over for the merchants if not only advertising. First,
this is mainly due to the high costs related to the business model. Groupon highly
depends on their subscriber base and, therefore, keen to increase it. Consequently
the substantial costs result from marketing activities, which were even higher than
half of total revenue of each year. Marketing costs accounted for 39, 85 % in 2010
and even 45, 8% in 2011 of the total operating expenses (SEC 2011). According
to Groupon’s report to SEC Government Achieves, the money consuming
marketing activities are mainly due to the acquisition of new subscribers and
merchants, maintenance of existing subscribers and merchants, expansion of the
amount and variety of their products and deals and the increase of their brand
awareness (SEC et al). In February 2011, Groupon paid around $3 Million for
their advertisement during the Super Bowl Final on TV (CNN Worldsport 2011).
Further marketing costs are incurred from affiliate programs that put Groupon’s
daily deals on their homepage in order to attract new customers. Therefore,
Groupon has to pay a certain fee, resulting in increasing costs of marketing.
Moreover, Groupon employs many people for marketing issues, like attracting
and consulting potential merchants. Second, Groupon considers itself to obtain a
competitive advantage due to their pure high subscriber base which allows
merchants to benefit from a broad audience. While both Living Social and
Groupon charge 50% of the total amount of the money earned by the deals, Living
Social has a subscriber base of 26 Million people compared to roughly 142
million registered on Groupon (SEC et al). Hence the apparently high fee is
mainly due to exceptionally high operating costs and the global leading position
concerning the subscriber base.

 Promotion

In the beginning of Groupon’s history, they started with social network and word-
of-mouth advertising due to the fact that these types of promotion tools were
significantly cheaper than traditional advertising methods (Dholakia, 2010). By
implementing social network advertising, Groupon was able to reach a broad
audience and enhanced word-of-mouth promotion. This advertising method is said
to be fast, direct, and free of geographic boundaries. Groupon’s strategy is to
provide subscribers with a deal they can do together and thus talk about it. A real
life example could be a couple purchasing a Groupon for a dinner in a restaurant,
telling friends to purchase it as well in order to save money first and second to
enjoy a dinner together. The discount offered to customers in conjunction with
gaining social experience makes people excited and talk about it.

However communication among friends or family members does not creat global
leading position in the couponing business. It put all effort in the conversion of
private mouth-of-mouth promotion to a public and far-reaching communication.
To do so, Groupon started to implement social networks like Twitter, StudiVZ or
Facebook in their promotion strategy. According to readwriteweb.com this
method is extremely successful proven by the fact that from 2009 to 2010, hence
in only one year, Groupon’s subscribers have grown by 2500% from 2 million to
over 50 million (Melanson 2011).
The most famous and successful example of Groupon’s social network
commitment is Facebook. First, Groupon places active ads on the right hand side
of the Facebook webpage along with other advertising. These ads denote the
currently available deal and enable people to either click on the advertisement to
buy the deal which will be displayed in Groupon page or as a second option, to
click the like-button. The latter action implies that people will automatically post
on their wall “ABC likes Groupon”, which could inform the deal to average 16%
of the total friends (Constine 2012).

Second, people that purchase a deal on Groupon’s homepage can also make use of
the “Tell my friends on Facebook” option to get €6 (or $10) discount for the next
purchase. Moreover, people are able to become fans of Groupon on their
Facebook page. In only 4 years Groupon obtained 652 474 fans on Facebook
worldwide (Facebook 2013). In addition to all these points, Groupon thereby have
the chance to observe the target group’s needs, preferences and purchasing
behavior and thus adapt their promotion strategy accordingly.

Despite the fact that it has attracted an outstanding number of people, Groupon is
currently trying to shift its promotional activities to more traditional tools, which
include television, radio and print advertising, loyalty and affiliate programs
(Davis 2011). However traditional promotion strategy is a double-edged sword. If
the conventional advertising is used properly, it is able to present more
information in a short time and avoid an audience from ignoring the information,
which might happen with online marketing. Consequently while, social network
marketing targets only a limited target group traditional promotion reaches
customers from many different segments. On the other hand, traditional
promotion tools are terribly expensive. For instance when it comes to TV
advertising, companies have to purchase TV spots and limited airtime. Next, there
are regulations and taboos in some foreign markets which make it difficult to
promote in foreign markets. Just in the beginning of 2011 Groupon experienced
such a challenge in which it nearly lost their hard earned reputation. In this
campaign, Groupon tried to expand its popularity and to establish a better brand
image through broadcast advertising during the 45th American Super Bowl
football finals. However, it was viewed as the worst Super Bowl ads (Anderson
2011). (See Appendix 1)
  Place

The online presence of Groupon is divided into internal and external parts. There
appears a reminder for a registration whenever one accesses the homepage he or
she can see the daily deal and all other available features by clicking outside of
the presented information field. However people that are not subscribed are
exempted from purchasing the deal. Hence, Groupon uses its homepage as an
information platform and distribution channel. Instead of just informing people
about the deal of the day, the homepage gives visitors the chance to see and
purchase deals from all participating cities, just by selecting the respective city.
Further Groupon use their homepage to sell national deals, deals nearby, gift
voucher and if available Deal Channels and Self-Service Deals. The deals are
displayed on their local homepages in a quite enjoyable way. The title and
description of the products is kept remarkably straightforward and clear.

In addition, Groupon employs mobility as a platform for its key product.

Presently, people increasingly become owners of smartphones. They can not only
receive information via Email, but also have the chance to access Groupon
directly through an application. The application works on all popular operating
systems for smartphones at no additional cost. The mobile application “Groupon
Deals” simplifies the access of information about the deals, the purchase process
and the redemption. The app was launched in March 2010 and was downloaded
roughly 20 million times (SEC et al).

The daily email including a description of the daily deal, sent to their subscribers
is crucial for Groupon to get their potential customers informed on a daily basis.
This channel is along with the homepage, the most prominent one since it ensures
that each single subscriber gets a personalized message with detailed information
about the daily deal and has almost no chance of getting uninformed. The email
includes a direct link to the daily deal. Thereby Groupon builds constant customer
relationships to obtain customer loyalty and thereby generate revenues. In order to
sell even more coupons, Groupon sometimes attaches an additional link leading to
“More Great Deals Nearby” where subscribers can see additional deals that can be
realized close to his home.
On the other hand, almost every coupon seller currently uses social networks as a
distribution channel due to the increasing number of subscribers registered in
these networks – so does Groupon. Hereby, Groupon profits from an already
existing customer base which they can use to broaden their base and further are
able to keep in touch with their current subscribers. In order to fit into the
corporate design of the underlying platform, Groupon’s notifications are adapted
to the respective format. Groupon currently is present on Facebook, Twitter,
netzwertig.com and many other famous networks.

Last but not least, Groupon has several partnerships with a vast number of online
shops, news services or auction houses. These partnerships enable them to display
and promote their deals, i.e. embedding Groupon’s widget into the partner´s
homepage. People can then click on the icon and become directly transferred to
the official Groupon website where they can purchase the deal. For this particular
channel, Groupon has to pay a certain commission to partner in order to
successfully use his underlying customer base. Groupon is working with partners
from different size. They collaborate with gigantically firms like eBay, Yahoo or
Microsoft while it also works with smaller ones like Redbox, a video rental
service. In December 2010 Groupon used Redbox’s customer base to promote a
deal and profited from an acquisition of 200.000 new customers. In March 2011,
Groupon gained 290.000 new customers when they used eBay to display one of
their deals (SEC et al).

 Financing of the business

Groupon undertook their Initial Public Offering (IPO) on November 3, 2011.

With a share price of $20 per share on the first day of public trading, Groupon
earned about $700 million and was valued at $12.7 billion. At present, the Book
value per Share is 1.22 while the market value per share is $5.27. The fact the
market value of Groupon exceeds the book value by far leads to the assumption
that Groupon is overvalued and questions the transparency of the real financial
situation to investors. Another indicator that has to be considered is Earnings per
share (EPS) which represents the amount of profit generated per share. At the
moment, Groupon’s EPS is -0.06 which means the company made a loss of 6
pennies for every share it issued. This ratio had increased strongly since the
beginning when it recorded a loss of $2.74 for every share outstanding.
(NASDAQ 2013)

 Profitability

In the past three years, the company has experienced an enormous growth in
revenue from a mere $ 15 million in 2009 to approximately $2.2 billion in 2012.
However, in the previous year, the revenue grew by only a single-digit percentage
for the first time in the company’s history; prior to this, number has increased by
two or even three digits. Groupon’s slow growth in revenue might be due to the
increasing saturation of the couponing market. Hence, the company will soon
have to come up with new strategies to ensure future growth. Along with the
revenue, the profitability index has no brighter view as Groupon made a loss
every year. However, it is expected that Groupon will be able to reduce these
losses in the future (Richer F. 2013).

3.3.2 Content

The structure of Groupon’s homepage is characterized by a rather uncomplicated,

however, appealing appearance. The colors black, green and blue dominate the
overall theme, leading to a relaxed and comfortable atmosphere while orange is
used to stress anything that importance. The homepages of all European countries
in which Groupon is available share the same outline, construction and design.
However the Canadian and the US homepage differ a bit, which is due to
additional services available there. Nevertheless most of the online presence is the
same. The amount of information on the home website is kept within a limit,
which is the focus lies on the current daily deal. The design of the start screen is
always the same, just the deal itself changes: Each deal is divided into two parts,
an upper part with an overview of the deal, and a lower part with more detailed
information. The lower part of the deal consists of a longer text describing the
offer in detail by using emotive language. This is done to convince readers from
the uniqueness of the deal. For example:

“While it's attractive to have chiseled features, you'll get the opposite
result by actually chiseling your features. Resurface your face with this
Groupon.” (Groupon 2013)
The usage of emotional and extreme language might result in different behaviors
from consumers. What is very helpful, however, is the “Ask a question” button
below the text. Potential purchasers can ask questions about the specific deal,
which are then answered by either the merchants themselves or Groupon staff.

FIGURE 5. Lower part of the deal (Groupon 2013)

In conclusion, given that the design of deals is always the same, shoppers can
navigate very easily and find their way quickly through the site and the offers,
making online shopping supremely convenient. There is no need for searching for
information for a long time because the side bar on the left side of the upper part
briefly visualizes the most notable facts for interested shoppers. The color and the
style of the text are remarkably clear and sincere (black font color on a white
background) and thus perfectly readable. As the information per deal page is
limited to that specific deal, the shopper only has to scroll a little bit and stays
focused on deal. The only distracting element is the “Groupon says” section as it
often does not have any relation to the offered deal.
3.3.3 Community

In this business model, customer interaction plays a vital role for Groupon:
Firstly, spreading the news of a deal in a wide community helps attracting enough
people needed for realizing a deal, and secondly, maintaining a community helps
protect against competitors. Thus, cultivating an own community is a key part of
Groupon’s marketing strategy.

TABLE 6. Groupon's commitment to community

Features Started
in

Live Off A story of how to live with only Groupon voucher 2010
Groupon in an entire year

Groupspawn A dating service among Grouponers, from which 2010

participants can benefit

Groupon+ Share photos of customers when using Groupon 2011

Flickr

Groupon’s business relies on socializing Groupon subscribers and purchasers who

have the power to attract or tempt others. Communication about Groupon is
organized in two ways: self-organized by Groupon’s final stakeholders or steered
by Groupon. When searching the home website for any means of communication,
one can discover that Groupon offer many interacting and networking
possibilities. Not only does Groupon steer communities, but also does it organize
itself. Interaction among Grouponers takes place via the “reviews “part of a deal
where they can evaluate a deal or a merchant according to past experiences.
Steering their communities is crucial for Groupon because it can actually actively
generate or influence the information they want to be communicated.
FIGURE 6. Communication steered by Groupon (Groupon 2013)

For example, a blog called “Live Off Groupon” tells the stories of a “Grouponer”
living only with Groupon vouchers for an entire year. This blog is highlighting the
economic benefits shoppers can get when purchasing as many Groupons as
possible. With its 13.783 fans on Facebook, this is a critical strategic marketing
tool for Groupon. (Stevens 2013)

Meanwhile, the page “Grouspawn” is as the name suggests, a dating website of

Groupon where subscribers fulfilling certain requirements (e.g. minimum age of
18 years) can meet and date (Groupon 2013). The strangeness of the name, the
design and above all the motto of the site make many users curious. The page
itself serves for posting one’s profile, and potential dates can directly comment on
a profile using their Facebook account.

Altogether, one can say that the Groupon site is well connected to social networks
and that the company actively and successfully promotes socializing and building
communities among their subscribers. Among all the community-forming and
maintaining measures taken by Groupon, the most powerful one is a strategic
marketing element: the ticker showing the “Time Left to Buy”, the amount of
Groupons bought and the information whether or not the deal is on.
 Time

Quantity
Meter

FIGURE 7. Ticker illustration (Groupon 2013)

The ticker, by indicating how long the deal is still offered, creates a feeling of
“pressure”, implying that one has to hurry up to purchase that deal before it is
closed. Another element, the quantity meter, encourages purchasers to animate
others to buy that deal, as long as it is not on yet. The fact that they can only
profit from the deal if a certain minimum number of people purchase that deal is a
perfect marketing strategy.

In conclusion, users start promoting Groupon without the company making any
extra effort – a particularly cheap and highly effective way of advertising for
Groupon, who swear by this strategy: “We believe our brand is trusted due to our
dedication to our customers and our significant investment in customer
satisfaction”.

3.3.4 Connectivity

When searching on the web for “Groupon”, the search engines provide an
enormous amount of correct hits. Google gives 277.000.000 results, Bing
23.700.000, Yahoo! 23.500.000 and AOL 110.000.000. The hits from Google
even show direct links to specific Groupon cities: Stuttgart, Munich, Berlin,
Cologne, Hamburg and Frankfurt. The Groupon.com site can be accessed from all
popular browsers (Windows Explorer, Mozilla Firefox and Google Chrome).
Anytime when switching on the computer and browsing for www.groupon.com,
one has to choose a city and enter one’s e-mail address. Thus, no one can just
“visit” the page without leaving some personal data, which is truly user-
unfriendly. Especially when being on the website for the first time, giving one’s
mail address without even knowing what’s behind the page might discourage
some visitors. There are two ways to browse through the Groupon page: by just
entering one’s e-mail address on the start screen or by signing in. However, there
is no substantial difference between both ways except for a “profile” section
where one can leave some personal details and track one’s Groupon purchases.

Navigating through the website is facilitated by two navigation bars; one on the
top, listing different deals, and one at the bottom, giving background information
about Groupon such as information about the company and services offered. The
first navigation bar is used for easy and fast browsing: the Groupon logo, which
always stays at the same position, serves to get to the start screen, showing the
“Featured Deal” (the deal of the day). When clicking through the navigation bar,
the currently chosen link is marked in blue, with the font changing to bold. This
again gives a good contrast to the rest, so that the consumer recognizes well where
he is browsing. The navigation bar on top also serves for changing the city for
which one is searching deals.

A big short-coming of the page is that there is no search engine service, by which
the user can search the entire page for a certain term. Given the load of
information, this would be hugely helpful. Including a search engine function in
the page would thus, be a good idea for the future.

3.3.5 Collaborators

To conduct its business, Groupon relies on different kinds of partnerships with

merchants, data centers, and internet platforms. Partnerships with merchants
form the basis of Groupon’s business as merchants provide the deals offered at a
discount. Thus, at present, Groupon partnered with over 250,000 merchants
worldwide with the majority based in US (Groupon 2013). The company also
provides technical support platform for its partners by offering tailor-made
services and sales software like Breadcrumb. On the other hand, partnerships with
data centers are becoming increasingly crucial for Groupon as the growing
number of Groupon subscribers demands more sophisticated technical equipment
and a higher storage capacity. This is why Groupon work together with specialists
in the U.S. (Miami, Florida and Dallas, Texas) for the Northern American area
and Asian and European data centers for the other markets (Dignan 2011).
Internet platforms such as search engines or social networks, and especially
Facebook, are crucial partners for Groupon, given their enormous influence on
internet users: Teaming up with search engines, e.g. Google gives Groupon a
competitive advantage as their ads will pop up first in the advertisement bar and
those of competitors further down. Facebook is an extremely valuable partner for
Groupon as the latter have their own Facebook pages and use this social network
as the main communication platform with subscribers.

3.4 SWOT Analysis

According to Albert Humphrey, the father of the famous SWOT matrix, SWOT
is an outstanding tool to discover the future opportunities in current strength,
eliminate the upcoming threat by knowing the weakness (Foresight Business
Consulting Inc. 2008). The SWOT analysis helps give businesses a clear view of
their current strategy, which means to understand their internal strengths and
weaknesses, as well as their external opportunities and threats. The authors find
that the SWOT Analysis is a useful tool when analyzing external and internal
information about the case company.
TABLE 7. SWOT Analysis of Groupon

Strength Weakness

 Market leader  Public company

 Large capital  Undifferentiated offerings
 Market diversified, popular brand  Over leveraged finance
 Large users and merchants
network

Opportunity Threat

 Technological advancements  High customer acquisition cost

 Lower marketing cost  Economic recovery
 Generate profit  Declining customers’ involvement
 Tech savvy generation

3.4.1 Strength

Groupon is now the largest company of the industry followed by Living social
and Bloomsport. Moreover, it also has a pool of $1.14 billion from the venture
capital (Techcrunch 2013) when held privately and now it has a market value of
$3.1 billion (Nasdaq quote 2013). Thus, Groupon has the power and finance to
leverage itself and to create general trends to consumers worldwide. On the other
hand, it is presented in over 48 countries (Groupon 2013) and 500 different
markets and 5 continents. In addition, the name Groupon came as a portmanteau
of Group and coupon in which it reminds consumer of its basic functionality and
popularity. Last but not least, with a network of over 39.5 million of registered
users and 250 thousand of merchants worldwide (Groupon 2013), this daily deal
website has a massive advantage to increase revenue and reduce new customer
acquisition cost.
3.4.2 Weakness

Unfortunately, being a public company means that Group has to disclose financial
data and profitability figure. Revealing annual report and financial data cause
Groupon to be vulnerable to public rumor and general economic trend.

Moreover, as the market leader of the industry, however, with hundreds of

competitors, Groupon faces massive competition for the market, which is the
result of undifferentiated services offered by group buying websites. Moreover, it
is also difficult to create unique services or technological advancement to hinder
newcomers. For example, the website is easily built on a CMS platform (Drupal,
Magento) or even simply created in Wordpress with Plugins (Jonathan 2011).

Finally, Groupon is pooled with over $1 billion from different venture capital
funds and debts (Raice & Ovide, 2012). The consequence is high debt/equity ratio
which results into high cost of capital. Thus, Groupon is getting more and more
difficult to leverage its finance and obtain more debt in the future.

3.4.3 Opportunity

In the past, Groupon has acquired roughly 40 local group buying sites per year.
However, due to the fierce competition comes from native market; Groupon has
switched to acquire technology firms such as Kima Labs (mobile app),
Breadcrumbs (POS solution), etc... All of the solution aim to improve customer
and local merchant relationship and to ease browsing experience. Hence, it is
expected to create a technological difference to prevent Groupon clones jumping
in the market.

During the first three quarters of 2012, Groupon has made a profit of over $13
million compared to a net loss of $375 million in 2011. Moreover, it is a shining
sign of profitability after about 3 years of losses due to enormous foreign
investment and marketing expenditures.

The number of smartphone users and Internet users has grown tremendously in
the past couple of years, especially in developing countries (Canalys, 2013). On
the other hand, Groupon are fully engaged with their smartphones application and
Point-of-Sale solution to provide to customers and local merchants. The usage of
smartphones and tablets are increasingly encouraged as consumers can check
instant deals from nearby shops, purchase and redeem instantly.

3.4.4 Threat

Unique visitor in 2012 (in millions)

20

18

16

14

12

10

8
Jan Feb Mar April May June July Aug Sept Oct Nov

FIGURE 8. Unique visitors of Groupon in 2012 (Compete 2013)

This cost has risen over time as it has gone to $9 per customer in 2009 and spiking
to $52 in 2012 (Cohan 2012). It is predicted to rise again in the upcoming year
due to harsh competition and economic recovery while the number of unique
visitors is on the verge of decline. Hence, the waning customers’ activity
undoubtedly poses a challenge to Groupon. In addition, though it is common for
normal industry to get the benefit when world economy recovers, it is the opposite
truth that group buying model depends on the economic crisis to prosper
(Marrinan-Hayes 2012). As the economy is slow down, consumers have
incentives to buy discounted products while local businesses want to get rid of
their old inventory and to introduce their brands. Hence, it could be challenging
for Groupon to cope with this upcoming economic recovery.
3.5 Porter’s 5 Forces Analysis

Industries may appear on the surface quite different from one another, but the
underlying drivers to attain profitability are the same. Therefore, to better
understand industry competition and profitability, one must analyze the industry’s
underlying structure in terms of the five forces determined by Porter. The below
figure is a graphic presentation of Porter’s Five Forces Analysis.

Threat of
New Entrants

Rivalry
Bargaining Bargaining
Among
power of Power of
Existing
Suppliers Buyers
Competitors

Threat of
Substitution

FIGURE 9. Porter's Five Forces (Porter, The Five Competitive Forces That Shape
Strategy, 2008, 8)
TABLE 8. Porter's five Forces affecting Groupon

Forces Level Key notes

Threat of New High  No market entry or exit

Entrants  Really low cost to enter market
 But high cost to scale

Bargaining Power of High  Low switching cost

Buyers  Many alternatives
 Not a necessity

Threat of Low  Different channel from conventional

Substitution advertising

Bargaining Power of Medium  Large number of local business in large

Suppliers cities
 Lack of uniqueness

Rivalry Among High  Low switching cost

Existing Competitors  Multiple entrants
 Price sensitive users

3.5.1 Threat of New Entrants

Though the daily deal business has strikingly low barriers to entry, not every
player in this industry can scale to Groupon’s size due to the large number of
players in the market and high customer acquisition cost. Though the cost to start
a daily deal website is just under $100, which is not a solid obstacle to hinder new
entrants, the cost of sales and marketing and expand to other markets are
strikingly high (Robles 2012). For instant, Living Social, the biggest competitors
of Groupon, alone has spent nearly $2.3 million on Google AdWords on June
2010 and just to maintain the current number 2 position in the market (Learmonth
2010).
3.5.2 Bargaining power of Suppliers

Due to the fact that this service industry does not physically manufacture, there
are no real suppliers in the market. However, the supplier in this context is
perceived as the local merchants who supplied the products/services to the end
customers. A merchant’s power is largely based on the size of the market they are
in and the reach of the daily deal sites. In small markets, merchants have seen
greater control and higher bargaining power on commissions to deal sites while in
big cities, merchants have to queue for their turn. Merchants also have strong
preferences to do deals through sites with high unique visitors. Although, there are
many reports that the effectiveness of the deal campaign is not clearly shown, the
number of deals is outpacing the number of sites, which signals merchants’ strong
demand for daily deal sites (See Figure 10).

FIGURE 10. Growth of Daily Deal Services (Moran 2010)

3.5.3 Bargaining Power of Buyers

An individual customer has no effect on Groupon but since this is a group buying
business, the aggregate power of the entire customer base becomes significant.
The non-unique nature of daily deals combines with uncompelling consumers
creates price-sensitive users who often sign up with multiple deal sites to find the
”best” deal in their favorite location. However, because many sites are closing
down and small sites usually offer low-quality deals, consumers have to be loyal
to a cluster of influential players in the market, which steadily reduces their
control over where to purchase.

3.5.4 Threat of substitution

Daily deals have corrupted the local advertising market, which have relied on
print media, and face little threat from the status quo. Interestingly, it is the
opposite influence that print and mass media have to fear the threat of daily deals
as shown in Figure 11. Over 40% of local business told that they preferred
running a group buying deal to spending money into other forms of media. The
statistics shows that many entrepreneurs found the deal campaign particularly
helpful and worth running.

Spending less on other forms of

advertising after running a deal

43
57
Yes No

FIGURE 11. Threat of substitution (Moran 2010)

3.5.5 Competitive rivalry among existing competitors

Harsh competition in every area of the daily deal market has narrowed down the
competitive environment. Smaller players have attempted to relieve their
competitive pressures through focusing exclusively on a niche market.
Meanwhile, bigger players have focused on scaling their business to as many
markets as possible through company Merger & Acquisition. However,
competition is unlikely to dissipate in the near future. Moreover, traditional
commercial companies who have already established a user base and sales team
have begun to enter the deal market and will likely further customize deals for
their user base. Recently, some corporations like Adidas, implemented along the
lines of Groupon’s concept a group buying option for their own businesses. They
encourage people to purchase the “deal” and promise that, with each previously
defined level of quantity achieved, the price will decline. However, because this
requires an enormous effort in advertising and results in only a limited effect, this
model has not become too popular (Eliason, Frezgi, Khan 2010).
4 CASE STUDY: CUSTOMER BEHAVIORS TOWARD GROUP BUYING
WEBSITES

There are two popular research methods. These are deductive and inductive
reasoning. Deductive reasoning is the science of logical thinking from a general
theory to a particular idea. On the other hand, induction is the way of reasoning
from a detailed fact to a general principle. In this paper, deductive reasoning is
employed to sufficiently meet the requirement of the research question.

Research
•Deductive Methods •Primary: Observations,
Survey
•Qualitative •Secondary: Literatures,
Articles, Internet

Research Data Collection

Approach Methods

FIGURE 12. Research Method

This thesis is based on qualitative research method in which the main goal is to
provide a thorough report that offers an in-depth analysis of the current status quo
and recommendations for the future. A qualitative research is always based on
real experience from which the case company can benefit. It also guides the
company to understand the issues that can be better developed. The theoretical
part is based on several literal and electric sources written on the subject of
electronic commerce and group buying. The empirical part is implemented by a
survey of over 30 questions in which the respondents are LAMK students who
can represent the targeted customers of the case company.

Research data will be collected from both primary and secondary sources. Primary
sources are mainly collected by authors’ observation and survey data as the
empirical part. On the other hand, published sources such as literature, articles,
journals and information gathered from Internet are used and considered
secondary sources.

4.1 Research design

4.1.1 Survey

The survey is based on the 5C analysis framework which covers the external and
internal perceptions of customers of the company. In addition to 5C framework,
some demographic questions are included in the end of the survey to gain insights
into personal preferences.

The 5C analysis consists of 5 different perspectives of internal, micro and macro-

environmental factors of the company. The Company section describes the value
and the performance of the website from which the customer can get the value and
benefit. Next, the content of the website is a crucial part of communication; it is
the user interface and information quality that affect consumers’ satisfaction and
relational benefit (Park & Kim, 2003, 16-29). On the other hand, if the content
provides information to buyers, the community built around the consumers will
encourage them to make the purchase. Moreover, as part of electronic business,
the websites must maintain a stable connectivity with their subscribers since there
are virtually no physical stores for customers to go shopping. Hence, customers’
preferences and satisfaction are the decisive factors that influence companies’
strategy. Last but not least, demographic questions are essential to the study as it
provides insights into segmentation and market

4.1.2 Design the measurement

This thesis aims to improve the strategy of group buying websites by reflecting
customer perspectives. To analyzing the behavior of the respondents who will do
the survey, two types of question will be created to suit with the right data. First,
in the open question, respondents are asked to give their own opinions or
experiences about using the online vouchers. On the other hand, close questions
require the participants who do the survey to answer the question about the factors
affect their buying decision, their behavior, or give their ideas about the wish
prices of these coupons. In addition to those two types above, Likert scale
question will be employed to measure mostly purchaser satisfaction and other
psychological factors (See Appendix 3).

4.1.3 Process of gathering information

The survey was sent via email to 155 people and only resulted in 35 responses.
However, due to the time constraint and scale of the research, the number of
respondents could be sufficiently satisfying. The author has made a request to his
supervisor in order to gain access to the student mailing list. Although, a small
reward randomly chosen for 2 participants has been announced, a low number of
responses is unexpected. In addition, the author managed to directly contact his
friends in other countries to take part in the survey without any compensation.
Surprisingly, the number of his friends responding to the survey accounts for
more than half of those respondents. Thus, direct contact is proved to be more
efficient and inexpensive than sending emails to anonymous contacts

4.2 Data analysis

According to the statistics from the survey, the featured respondent is a young
urban female student (about 23 years old) spending around $5000 annually
(within her budget). She is single and loves to purchase daily deals when she has
free time. Her profile also matches with the targeted customer of Groupon, which
increases the reliability of the research.

Key notes:

 Only 28% of the respondents said that they would buy extra items from
the merchants.
 69% said that they would have come back if they had been satisfied with
the deal even without any discount.
 86% said that they would recommend the deal to their relatives and
friends.
  However, over half of the respondents buy deals a few times per month
and the rest buy deals in a less frequency.
 Over 80% of the respondents replied that they would seek deals from other
websites in which, on average, they spend under 2 hours to complete a
purchase
 Half of the respondents found the information in the website is not
sufficient. They redeemed the deal within a week.
 Most of them pay attention to deals belonged to Food & Drinks and Travel
categories. They also have knowledge of what they will buy.

4.3 Research question and results

Compared to theoretical evidence provided in chapter 2.3, the empirical findings

in regard to the influencer factors are quite identical, though, with minor
differences. Purchasing decision can be affected by several aspects of a website
and its stakeholders: website appearances, the website informativeness and
security. However, the most noticeable feature is the increasing price-sensitivity
of online consumers. Though nearly 70% of the respondents choose to come back
to the business unless they get a special deal, over 80% of the participants
compare deals from other websites to select the best offer. This percentage
indicates high ratio of deal-seekers among consumers.

The normal strategies that group buying websites are running are deals
segmentation, viral marketing through social networks. 83% of the participants
confirmed the fact that daily deal sites are sending them the deals according to the
preferences, the move that possibly prevents the marketing effort from going to
waste. This strategy is gradually becoming the standard of the industry. In
addition to the customization, group buying sites has taken advantage of their
online identity to immensely stir up the surrounding online social networks, said
92% of the respondents.

However, the industry as a whole is facing several problems. Many have

questioned and criticized the business model of the group buying sites for being
unsustainable and unprofitable. Thus, there is plenty of room for improvement,
especially when the group buying market is likely to shrink. First and foremost,
the websites have to increase customer loyalty by loyalty programs offered by
both websites and local merchants. In addition, raising service level from local
partners is a must because the satisfaction level scores just above the neutral line.
On the other hand, according to the data, half of the respondents find the
information in the website insufficiently. Thus, the websites should increase
support service on peak hours (4 pm – 9 pm) when most of the purchases are
made, and certainly, raise the customer involvement by actively engaging in
social network to facilitate the community.
5 CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion

The paper aimed to answer the above research questions and tried to solve the
problems that the case company is facing. There are three conclusions drawn from
this research. First, online consumers are more and more price-sensitive and
become deal-seekers. By utilizing the power of Internet, customers can compare
the price and appearance of products offered by different companies. Even if the
quality cannot be compared, there are thousands of reviews made by charismatic
newspaper and consumer reviews. Thus, providing added values and services can
diminish the price-sensitivity and increase customer satisfaction. Moreover, as the
consumers’ control over which websites to browse increases, the information
quality, user interface and privacy security plays a crucial role in determining the
success of a website.

Secondly, group buying websites are employing various strategies which they
believe best suit for their resources and capability. The market leader, Groupon is
enjoying its first-mover advantage with fierce expansion and acquisition. Based
on this leverage, Groupon is also increasing its bargaining power against local
merchants when signing contracts. Meanwhile, LivingSocial shows the ambition
to satisfy all customers by providing products that are designed for the targeted
groups. On the other hand, Bloomspot deploys rather partners-intimate strategies
in which local businesses and end customers will get more benefit and
satisfaction. However, all group buying websites share the same marketing
strategies: they all have customization deals sent via emails and online
communities facilitated by social networks.

Thirdly, strategy improvement is the most notable thing to consider when a

business gets into trouble. Depending on the resources and the core competencies,
a firm should follow a particular way to grow. Under three value disciplines, a
company should be able to find a suitable strategy to focus on, be it mastering the
product, be it smoothing operation or satisfying the customer. The improvements
of the case company can be found in the next chapter 5.2 in which potential
recommendations are presented to solve the problems.
5.2 Recommendations

The key problem of Groupon lies on both 2 ends of the brokerage model: end-
customers and local merchants. One provides the services/ products and the other
purchases those services/products. Thus, Groupon needs to increase the retention
rate of both tiers of the supply chain by increasing the value of the cooperation
under customer intimacy guideline. The recommendation here applies mostly to
restaurant, health care and tourism categories due to their business natures.
However, the increase of customer retention rate will anyway bring benefit to
Groupon and the service providers regardless of the category.

On the other hand, there are severe financial problems that Groupon are dealing
with. The overextension of the international market has led to immense financial
loss which accounts for the enormous amount of marketing expense in every
annual report. Moreover, the international markets always present weak economic
figures (revenue, retention rate, profit) compared to the U.S market. Thus,
Groupon is recommended to shut its expansion ambition and focus resources on
organic growth of new markets. However, due to the limited size of this paper, the
author decided to leave this issue for further research opportunity.

5.2.1 Increase merchant retention, reduce cost

Enhance merchant’s expertise

Usually, local businesses that run a deal campaign have little knowledge of how
much they benefit from this program. They often assume that they will lose and
be damaged, which results in poor impression about daily deals. Hence, in order
to promote the deal running scheme, Groupon should provide the business
expertise of the featured business. Many local businesses do not focus on doing
marketing; they just concentrate on their core business which is the basic value
that they can offer to customers. Groupon can teach them how to set up a mailing
list manager, how to run a loyalty program and other after-sales services that can
supplement the value of the products/services the local merchant is selling.

A ROI calculator would roughly show the potential profitability of the campaign.
The calculator will take many factors regarding the number of customers and the
cost structure of the business into consideration. For example, voucher price and
value, sales expected, number redeemed, total additional purchases… etc. will be
included in calculating the net revenue and conversion rate. Although the results
will be only a rough estimation of how the follow up number will be, it could tell
the merchants whether to run the campaign or not.

TABLE 9. Benefits for local merchants

Added services Key notes

Email manager A tool to manage the email that customers subscribe.

Promotion plan The calculator shows the merchants the potential result of
ROI Calculator the campaign.

Value package: Each package offers different price plans and services.
Bronze, Silver, Apart from Basic, the other 2 packages will apply a fixed
Gold rate plus commission fees from revenue with terms and
condition strictly adhered.

Groupon can also segment the merchants based on the value package: Bronze,
Silver and Gold value. The higher the rank is, the higher the fee is but the lower
the commission paid to Groupon. This classification will decide how much
commitment Groupon puts into the partnership (See Table 12). The Diamond
package offers featured deals on the home page, exclusive staff training and
decoration, business consulting for start-up business that often lacks experience
and customer network. On the other hand, the Silver package targets the middle
market businesses that survived their exuberant teenage phase and are troubling
finding their next step. The program includes expansion plan (open customer base
in other cities), marketing schemes (promotion, PR events, and advertising) and
business consultant. The Bronze package offers the basic daily deals and incurs
normal commission fee.
Data mining

The enormous customer network and email list bring a possibility of data mining.
Other retailers like Target or Wal-Mart have so far utilized data mining to trigger
customers’ need, which in an extreme case a father found out about his daughter’s
pregnancy due to the baby clothes coupons were sent to his house (Duhigg 2012).
The Target shop has predicted what to offer from the purchase pattern of the
young teenagers. Thus, there are a lot of possibilities to utilize those raw data and
turn it into beneficial and competitive advantages. There are 2 possibilities that
Groupon can exploit from its data base:

 Highly profitable markets and the most successful deal categories

 Purchasing patterns and preferences of active subscribers

Firstly, with data available in highly profitable market, Groupon can study the
characteristics of local businesses: merchant density, popular categories and
merchant behaviors; of local customers: seasonal spending, climatic features, and
local taste and purchasing behaviors. The correlation analysis will be employed to
compile the data which is stored for the past 4 years. Groupon then can base on
the analysis result to feature a particular deal that most suitable to the season,
local taste and merchant capability to ensure a successful campaign for the
merchants, as well as a long-term benefit for Groupon. For instance, in Finland
market where it is cold and windy in the winter, so-called cozy deals with a hot
drink and warm shelters are the ones people thrive.

Secondly, the purchasing pattern of active customers plays a vital role in deciding
which deal should be offered to them. Based on this pattern, Groupon can predict
a peak redemption period and inform the merchants to prepare. In addition, a deep
categorization of the preference from customer profile will likely show how many
people are interested in a particular product/service. For example, after carefully
analyzing the preference and purchasing patterns of active customers, Groupon
can estimate approximately about 200 people who will be targeted customers of a
Spanish restaurant plus the deal will be recommended to other 20 people (10% of
200) in a particular market. Thanks to the data, Groupon then informs the
prospective merchants about the estimation and the potential mutual benefits of
both parties.

5.2.2 Increase customer retention rate

Groupard – The 4-in-1Groupon customer card

FIGURE 13. Groupards (available in various colors)

To tackle the problem of low customer growth, the introduction of Groupon
customer card is necessary (see Figure 11). Unlike the current reward program,
the Groupard possesses additional promotion tool besides the advertising benefit.
First, the card itself is the bridge that connects 3 parties together and can bring
more benefits to the troika. The end consumers can get more discounts, be better
served, and receive points to further involve into Groupon. The local merchants
can sell more goods/ services and have the possibility to break-even instead of
making a loss while Groupon can attract more customers to its customer network.
Second, it will encourage purchases among Grouponers, which helps compensate
for the initial loss of local merchants. Thirdly, the card signifies the Groupon
images across the community whenever the card is used for normal purchase.

The Groupard has a basic 4 features that are included in one plastic card. First, the
card is a payment method which is like a normal VISA card. It also allows
customers to choose between 2 options: debit card or credit card. The card also
has 2 accounts, one for normal transaction and the other for bonus account. When
ones purchase Groupon deal, they can deduct the price with the bonus points
which are accumulated previously In order to use this card, the customers must
deposit a small sum (€10 or $10, depends on different markets) to maintain the
card and it can be withdrawn if the customers wish to end the service. This
amount of money can help to compensate the initial cost of implementing the card
campaign.

TABLE 10. Top Features of Groupard

Features Key notes

Payment The customer card acts as a bank card and have 2 services:
card
 Debit card: pay money you have in your account
 Credit card: purchase within the credit limit

Bonus card The bonus point is calculated as shown in table 15. However,
regarding to the amount of money spent on extra items, the
bonus point is calculated based on twice of that sum to give
incentive to couponers buying extra products. Moreover,
merchants will have to compensate to Groupon commission fee.

Preference The customer’s preferences about seat place, notes about the
storage card deal (special service) are listed to the local merchants.

Discounted If the service is not running any deal, the customer can still use
card the card to get a 5% off the list price on a given day or off-peak
hours (Monday, Wednesday, 9-11, 14-17).

Second, the card itself acts like a bonus accumulating card that calculates the
bonus points from the coupon value and the amount of money used to purchase
extra items. With regard to the data survey, over 70% of the respondents do not
want to buy anything when they redeem the vouchers. As a countering measure,
the value of the extra items will be doubled to calculate the point to reward in
order to incentivize Grouponers to purchase complementary products/ services. In
the end, the total bonus point is the bonus point from the coupon value and the
extra items (the products or services bought during visiting time) purchased.
Nevertheless, the bonus point can only be used to buy Groupon vouchers and
cannot be transferred to Cash Balance.

Third, it also acts as a preference storage card that allows waiters/ employees to
know any demanded specific services/ items or seat preferences in advance. Then
when the coupon is redeemed, the customer can enjoy the service without inquiry.
The extra items will be charged normally and accumulated into bonus points.

Last but not least, after a successful deal campaign, Groupon customers can use
the Groupard to have a discount of 5% down from the list price in off-peak hours
(9-11, 14-17) or on given Happy days (Monday, Wednesday). The discount will
act as local merchants’ good faith toward Groupon customer. However, the
discount is applied only to customers who have purchased deals from that local
business and no bonus points re stored up from this service.

At present, the current Reward Program can be used instead of Groupard. It is

more cost-efficient and convenient for current customers. The Grouponers can
scan his/her receipt to obtain points which are accumulated from extra items and
the coupon. However, the scanning method is quite tricky because not everyone
has access or owns a smartphone or a scanner. Only just over 50% of customers in
developed countries own a smartphone, and it will be a long time before it gets
widespread merchant and customer adoption (comScoreMobiLens 2012).

There is also an alternative method that can replace the card in the future. The
NFC (Near Field Communicator) devices (mobile phones, tablets) can be seen
ubiquitously in the next 5 years (Deloitte 2012). This mobile solution is perfectly
suitable for transmitting small amounts of information (payment, redeeming
vouchers) with ease and haste. However, at present, the infrastructure of NFC
service is not yet fully functioning for every retail service and even if the system
is installed everywhere, the usage of NFC devices is still required, in which case
most of the NFC carriers are unaffordable for the majority of consumers. Thus,
the plastic card is proven to be the betterchoice to the solution
Educate staff (raising service level, reduce customer discrimination)

As mentioned above, the customers with vouchers going to a restaurant are likely
to be mistreated by the staffs because the staffs do not get commissions from the
purchases of users and they have to serve the consumers in off-peak hours. Hence,
the mistreated customers will not come back to that place and their faiths in
Groupon deals are also decreased. This systematic problem leads to many
negative results. First, the deal campaign will be counterproductive and in vain.
While the aim of the campaign is to attract more new customers, the bad attitude
of the employees will not attract but only repel the new buyers. Second, facing
that discrimination, no one will ever try to purchase extra items from that
business. The fact is that if the merchants want to break-even, they have to rely on
complementary products/ services sold to compensate for the initial loss of the
deal.

Thus, to counter this problem, local merchants have to follow strict common code
of conducts that regulate the personal behavior of each employee to increase
service attitude. Moreover, a random check-in from undercover quality control
Groupon staffs (this could be outsourced) will inspect the service level of
business. If there are any unpleasant feedback or reviews from customers about
the service, Groupon will have to put that business a red list, and after several
times the business will end up onto a black list. In addition to the strict regulation,
it is the merchants’ responsibility to educate and train their staffs to understand
the campaign’s target. In the long-run, the more customers come the more
commission and benefits the staffs get.

5.3 Reliability and validity

The thesis data is gathered mainly from online sources which are considered
unofficial and secondary. However, due to the novice nature of the industry, the
author can only find few articles related to the study. On the other hand, since
Groupon is a publicly listed company, the author can find necessary information
regarding the operation and finance. The survey is conducted within a small
population (Finland and Vietnam) which severely impairs the validity of the data.
On the other hand, the characteristics of the respondents fit with the targeted
customers’ profile of the case company, which increases the reliability of the
research.

5.4 Suggestion for future research

During the research of the case company, the author has found several problems
as well as open opportunities regarding the group buying industry. The next study
can explore many aspects of group buying websites and go deeper into the
operation (technical service, sale service, etc.) of Groupon.

The future research should obtain data from a much larger sample size in order to
increase the reliability of the study. The minimum respondents must be large
enough to sustain a low margin of error. For example, 111 respondents can
represent a population of nearly 1700 while guaranteeing a 3 % margin of error
(Bartlett, Kotrlik, & Higgins, 2001). Additionally, getting expert opinion and
some key information from confidential sources are undeniably essential for the
next study.

As stated above, growth strategy is ignored in this paper due to the size of the
research. Thus, in the next phase, there is a possibility to examine the expansion
tactics that Groupon used. Currently, Groupon has grown inorganically in over 40
countries in just over 3 years, which costs a large sum of money. Moreover,
because the marketing cost makes up a large portion of the revenue of Groupon, a
reduction plan needs to be conducted in order to gain profit and competitive
advantage over other competitors.
6 SUMMARY

The main objective of this thesis is to thoroughly research the group buying
industry to improve the current strategies of group buying websites. The second
goal of the paper is to find out how consumers respond to online marketing, which
and how factors affect online customers using the 5C analysis and the quantitative
data obtained via the survey.

The study has successfully achieved the objectives and found several key
findings. Firstly, the online consumers are prone to be affected by website
information, user interface and online security. Furthermore, they are sensitive to
the price difference among online marketplaces in which price comparison is
inevitable. Secondly, group buying websites emerge as prominent businesses with
incredibly high growth and low investment. They all use segmentation tools to
better serve the customers who are also triggered by the online community built
by these websites. However, those similar websites are susceptible to market
saturation and customer indifference toward loyalty. Thus, group buying websites
must tackle these problems by differentiating themselves and increasing customer,
as well as merchant retention rate. The case example of Groupon has provided
potential improvements for the group buying companies as a whole.

To summarize, this thesis provides theoretical and empirical information on

factors affecting online consumer behaviors, the strategies that are currently
employed in group buying websites and how to improve the group buying
strategies.
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APPENDICES

Appendix 1: Groupon’s Super Bowl Ad

In the ad, Groupon made a joke about the plight of Tibetans. “Their culture is in jeopardy.
But they still whip up an amazing fish curry.” This ad suggests, while Ti-beta culture is
threatened by Chinese government and the people there are still suffering, the actor
Timothy Hutton enjoys Tibetan food with vouchers in Chicago Tibetan restaurants. After
broadcasting this ad, Groupon found them overwhelmed with thousands of critical
comments. Besides, it also brought a negative impact to Groupon’s expansion to China
Market, because local customers doubt Groupon’s creditability and resist the use of
Groupon. In the end, CEO Andrew Mason apologized and pulled the ad

Appendix 2

TABLE 11. Electronic models

Model Description Example

Brokerage Brokers are market-makers: they bring buyers Groupon
and sellers together and facilitate transactions. eBay
Brokers play a frequent role in business-to-
business (B2B), business-to-consumer (B2C),
or consumer-to-consumer (C2C) markets.
Usually a broker charges a fee or commission
for each transaction it enables.
Advertising The web advertising model is an extension of Yahoo
the traditional media broadcast model. The Google
broadcaster, in this case, a web site, provides NY Times
content (usually, but not necessarily, for free)
and services (like email, IM, blogs) mixed
with advertising messages in the form of
banner ads. The banner ads may be the major
or sole source of revenue for the broadcaster.
The broadcaster may be a content creator or a
distributor of content created elsewhere.
Infomediary Data about consumers and their consumption Double Click
habits are valuable, especially when that Cool savings
information is carefully analyzed and used to
 target marketing campaigns. Independently
collected data about producers and their
products are useful to consumers when
considering a purchase. Some firms function
as infomediary (information intermediaries)
assisting buyers and/or sellers understand a
given market.
Merchant Wholesalers and retailers of goods and Amazon
services. Sales may be made based on list Barnes & Noble
prices or through auction.
Manufacturer The manufacturer or "direct model", it is Dell Computer
predicated on the power of the web to allow a
manufacturer (i.e., a company that creates a
product or service) to reach buyers directly
and thereby compress the distribution
channel. The manufacturer model can be
based on efficiency, improved customer
service, and a better understanding of
customer preferences.
Community The possibility of the community model Wikipedia
depends on user loyalty. Users have a high Flickr
investment in both time and emotion. Frendster
Revenue can be based on the sale of ancillary
products and services or voluntary
contributions; or revenue may be tied to
contextual advertising and subscriptions for
premium services. The Internet is inherently
suited to community business models and
today this is one of the more fertile areas of
development, as seen in the rise of social
networking.
Subscription Users are charged a periodic -- daily, monthly Netflix
or annual -- fee to subscribe to a service. It is Economist
not uncommon for sites to combine free Financial Times
content with "premium" (i.e., subscriber- or
member-only) content. Subscription fees are
 incurred irrespective of actual usage rates

Appendix 3

TABLE 12. Questionnaires

Company Have you ever buy a deal from daily deal websites (Groupon, or
local group buying sites)

Do you buy deal only from 1 website?

Do you still purchase them without the deal if you are satisfied with
them?

Do you actively search deal in those groups buying websites?

Does the websites offer loyalty plan (cumulative bonus point, gift
cards, and vouchers)?

Content Do you pay attention to daily deal sites that offer discount?

Do you get enough information about the deal from the websites
without inquiring the customer services?

If you inquired the websites about the deal, would you get proper
response?

Do the websites categorize deal in group?

Which category are you interested the most?

Community Do you recommend the deal to your friends or relatives?

Do the websites have a FB/Tweeter or other social networking

account?

If yes, how often does the account update new information (status,
photo, video, and event) in estimation?
 How often do you buy a deal?

Do the websites offer customized deal to your email?

Connectivity How much time do you spend buying a deal?

Have you experienced disconnection or lagging, image disruption?

If yes, how often does it occur?

Do your local websites implement mobile application (iOS,

Android, BlackBerry)?

If yes, how satisfied are you with the mobile app (regarding user
interface, features, stability)

Collaborators/ Do you spend extra money on other related products/services when

Customers redemption?

How satisfied are you with products/services provided by the local

merchants?

How long do you use a deal after buying it?

When do you buy the deal?

If you purchase a deal, how familiar you are with that

product/service?

Demography Age

Country

Occupation

Estimated Annual Income (USD)

Marital Status

Gender
TABLE 13. Value package

Value Benefit Price plan

package

Gold Normal benefit 50% cut from the revenue

Platinum Expansion plan Annual fee of $4000 plus

Marketing plan 25% of the revenue (2-
Business consulting years contract)

Diamond Build customer network Annual fee of $10000 plus

Exclusive staff training and 15% of the revenue (5-
decoration years contract)
Business consulting

TABLE 14. Bonus table

Tier Value Range Points value Point / higher Point / lower

€ € limit % limit %

1 10 - 29 0.5 1.5 5

2 30 - 59 1.5 2.5 5

3 60 - 99 4 4 6.7

4 100 - 179 8 4.5 8

5 180 - 299 15 5 8.3

6 300 - 499 27 5.4 9

7 Over 500 50 N/A 10

Note 1. The further the deal value goes to a higher limit, the lower the percentage
the customer gets. The system hereby incentivizes people to purchase high value
deal to get more bonus points.
TABLE 15. Example of calculation
Items Value Bonus point calculated

Coupon for 2 people 20 (Real value 40) 0.5 (Tier 1)

Gourmet steaks with red wine

and mashed potatoes

2 potion of Pommes frites extra 5x2

2 glasses of Soft drink extra 2.5 x 2

2 portion of Salad extra 3x2

Total extra items 21 1.5 (Tier 2)

Total Cost 41 2 bonus points accumulated