This case study looks into the factors which contributed to the growth and success of Groupon after years of great customer and revenue increase. It delves into the promotions of the company and its advantages for local merchants as well as its customers. It seeks to find out whether the company would still be successful with the increasing competition.
Sunil Gupta; Ray Weaver; Dharmishta Rood
Harvard Business Review (511094-PDF-ENG)
March 22, 2011
Case questions answered:
Case study questions answered in the first solution:
- What were the key factors behind Groupon’s early success?
- Explore the dimension and the company’s business model.
- Discuss value to merchants.
- What’s your opinion on Mason’s consideration that the company should become one of the great technology brands that define our generation?
Case study questions answered in the second solution:
- What should Groupon do moving forward?
- Pros and Cons of the company to customers
- Pros and Cons of the company to merchants
- What is the current status of the company in 2017? What is the current competitive landscape for the company in 2017? Who are the main competitors of the company? The time frame for this question is the current time, now in 2017.
- What is an example of a best practice in terms of a firm using Online Social Buying/Group Discounting (beyond just Groupon)?
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Case answers for Groupon
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1. What were the key factors behind Groupon’s early success?
Groupon was founded in November 2008 and within just three years after an impressive growth story managed to complete its initial public offering (IPO) in November 2011. Its early success is thereby primarily rooted in two factors: The focus on local, primarily small merchants, and the restriction of the number of promotions to one per day.
This combination helped the company to deal with minimal scale and resources and thus to increase the attractiveness of its initially rather small community. Establishing the business model by the city – not by country – and offering only deals from local merchants, on the one hand, increased the relevance of deals and thus the attractiveness for the company’s early subscribers.
On the other hand, local merchants often very restricted in their marketing budgets with more than 50% of them spending less than US$2,500 per year on marketing appreciated the idea of promotion without up-front expenses. Thus, while large global firms with significant marketing budgets would have not been attracted by the company’s business model at least in the beginning, focusing on small local merchants in order to leverage their budget constraints significantly enhanced Groupon’s early success.
Simultaneously, limiting the number of deals to one per day reduced the disadvantage of an initially rather low number of subscribers by steering all subscribers’ attention to this one deal and thus increased the attractiveness for local merchants. All in all, Groupon’s early success is therefore primarily rooted in…