Question

Case study

Chicago-based Groupon was launched in 2008 by Andrew Mason with the idea to email subscribers daily deals of heavily discounted coupons for local restaurants, theatres, spas, etc. Via the emails or by visiting the Groupon website customers purchase these substantially discounted deals in the form of electronic coupons which can be redeemed at the local merchant. Groupon brings exposure and more customers to the merchants and charges them commissions for the same. The venture rapidly grew into a daily deal giant and became the fastest-growing internet business ever to reach a $1bn valuation milestone and, thus, became a 'unicorn' (name for start-ups with valuations over $1bn). In 2010 Groupon rejected a $6bn (€4.5bn) takeover bid by Google and instead went public at $10bn in 2011.

While Groupon's daily deals were valued by customers - the company quickly spread to over 40 countries - they also attracted thousands of copycats worldwide. Investors questioned Groupon's business and to what extent it had rare and inimitable resources and capabilities. CEO Andrew Mason denied in the Wall Street Journal (WSJ) that the model was too easy to replicate:

'There's proof. There are over 2000 direct clones of the Groupon business model. However, there's an equal amount of proof that the barriers to success are enormous. In spite of all those competitors, only a handful is remotely relevant.

This, however, did not calm investors and Groupon shares fell by 80 per cent at its all-time low in 2012. One rare asset Groupon had was its customer base of more than 50 million customers, which could possibly be difficult to imitate. The more customers, the better deals and this would make customers come to Groupon rather than the competitors and the cost for competitors to acquire customers would go up. Further defending Groupon's competitiveness, the CEO emphasised in WS) that it is not as simple as providing daily deals, but that a whole series of things have to work together, and competitors would have to replicate everything in its operational complexity":

'People overlook the operational complexity. We have 10,000 employees across 46 countries. We have thousands of salespeople talking to tens of thousands of merchants every single day. It's not an easy thing to build.

Mason also emphasised Groupon's advanced technology platform that allowed the company to 'provide better targeting to customers and give them deals that are more relevant to them'. Part of this platform, however, was built via acquisitions - a route competitors possibly also could take.

If imitation is the highest form of flattery Groupon has been highly complimented, but investors have not been flattered. Consequently, Andrew Mason was forced out in 2013, succeeded by the chairman Eric Lefkofsky. Even though Amazon and other copycats left the daily-deals business he struggled to explain how Groupon would fight off imitators. The company was forced to exit over 30 international markets. Lefkofsky later returned to his chairman role and was followed by Rich Williams in 2015. He managed to turn Groupon profitable for the first time ever in 2017, but still did not regain investors' confidence with the share price still below $4, far from the $20 IPO price. Williams, however, was optimistic:

'[Groupon) is one of the first unicorns. It got a lot of praise and attention it didn't deserve at the beginning. We've not recovered from that. Over time, the numbers will speak for themselves.'

NOTE " ANSWER IN SRTATEGIC MANAGEMENT WAY "

4. Evaluate the strengths of the industry's entry barriers according to Porter's criteria.

Answer 1

When we talk about Groupon's business model and talk about the strengths of this industry's trade barrier, we will evaluate on a point-by-point basis of Porter's criteria.

Porter's criteria is a five force framework applied to investment analysis.It helps analyze a firm's competitive stance in its industry. Porter's forces examine industry-specific conditions and help investors determine how well a corporation is positioned to adapt to changes in its target market.

The five forces of Porter's criteria on the basis of which we will evaluate the strengths of the industry's entry barrier are:

• The threat of substitute products or services
• The threat of increased competition from rivals in the market
• The threat of new entrants into the market
• The bargaining power of suppliers
• The bargaining power of customers

On the basis of  threat of substitute products or services, which was highlighted as a model that was "too easy to replicate" in the Wall Street Journal; Groupon's CEO Andrew Mason argued that eventhough there are over 2000 direct clones of the Groupon business model, there's an equal amount of proof that the barriers to success are enormous because only a handful competitors were remotely relevant.

On the basis of threat of increased competition from rivals in the market , Groupon's rare asset was their 50 million customer base which also gave the company the bargaining power of supplier. The bigger customer base implied better deals and this would make more customers come to Groupon rather than the competitors and the cost for competitors to acquire customers would go up.

On the basis of threat of new entrants into the market, the business model is not as simple as providing daily deals but involved a greater operational complexity which puts Groupon at an advantage. Their 10,000 employees in over 46 countries hint at their wider network in the market which is difficult to establish for any new entrant.