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Groupon: The road ahead
                         Anurag Jaiswal
                   Ignacio Muñiz Garcia
                        Mariana Penzini
                          Pedro Oliveira
                          Roman Viñoly
                       Shirley Kleinman
                   IE Business School
Agenda



1. Introduction

2. Situation analysis and challenges
 a) Internal analysis and challenges
 b) External analysis and challenges

3. Recommendation




                                       1
What is Groupon?
   Groupon is deal-of-the-day website that has grown exponentially worldwide


                                               Selected
                                              deals every
                                                 day!



                                                                                                                                           A minimum number of                                                        Groupon keeps
                                                                                                                                            people must buy the                                                       50% of the deal
                                                                                           30% to 90%                                        deal for it be valid                                                         value
                                                                                            Discount!



Groupon’s growth record                                                                                                                                              Rejects $6B buyout by                             Raises $950M funding
                                                                                                                      Expands to Latin                               Google, and expands to                             and expands to India
                                                                                                                    America, Acquires Clan                          HK, Singapur and Taiwan                            South Africa and Israel
                                                                                                                         Descuento
  500
                                                                                                                                                              Expands to Japan
  400                                                                                               Expands to Europe via                                     and Russia trough
                                                                                                    acquisition of CityDeal                                     acquisitions
  300                                                   Raises $30 M in a
        Deals launched in                                funding round
  200    major US cities

  100
    0
                   Apr-09



                                     jun-09




                                                                sep-09

                                                                         oct-09

                                                                                  nov-09




                                                                                                                                  Apr-10



                                                                                                                                                     jun-10




                                                                                                                                                                                  sep-10

                                                                                                                                                                                           oct-10

                                                                                                                                                                                                    nov-10
                                              jul-09

                                                       Aug-09




                                                                                                                                                                jul-10

                                                                                                                                                                         Aug-10
                                                                                                       Jan-10

                                                                                                                feb-10




                                                                                                                                                                                                                        Jan-11

                                                                                                                                                                                                                                 feb-11
                                                                                           Dec-09




                                                                                                                                                                                                             Dec-10
          mar-09



                            may-09




                                                                                                                         mar-10



                                                                                                                                            may-10




                                                                                                                                                                                                                                          mar-11
    Source: Groupon Reports and neXtup Research

                                                                                                                                                                                                                                                   2
Local Deals Market
The local deals market in the U.S. is expected to increase at a faster pace than the
overall Online ads market


                                        Local deals market in the US


                                3,620

                                3,120
Local Deals Market (Millions)




                                2,620

                                2,120
                                                                                             20% CAGR
                                1,620                                                                               3,069
                                                                                                            2,557
                                1,120                                                               2,131
                                                             272% CAGR                    1,776
                                                                                 1,480
                                 620                           1,000
                                              200
                                 120
                                              2009              2010             2011E    2012E     2013E   2014E   2015E
                                        Source: eMarketer and neXtup Research Estimates




                                                                                                                            3
Groupon Performance in the US
     The growth seens to be slower and even negative in the last month


          Groupon Revenues in US
          Millions USD
100                                                                                                                           88,9
                                                                                                            75,6     80,5
 80                                                                                                                                     61,7
                                                      18% CAGR                   52,8              54,5
 60                                                                                       45,5
 40                                                    26,4      30,5   29,4
                                              20,6                                                          5% CAGR
                       13,5          19,0
 20          10,8
     0
            Jan-10     feb-10       mar-10   Apr-10   may-10   jun-10   jul-10   Aug-10   sep-10   oct-10   nov-10   Dec-10   Jan-11    feb-11
          Source: Groupon website




         Groupon.com Unique visitors
         Millions
20
                                                                                                                       15,6    14,7      15,2
15
                                                                                                             11,2
                                                      22% CAGR                    8,3               8,6
10                                                                      6,5                7,6
                                                       4,6       4,9
 5                     2,0           2,5      3,1                                                           12% CAGR
            1,9
 0
          Jan-10      feb-10        mar-10   Apr-10   may-10   jun-10   jul-10   Aug-10   sep-10   oct-10   nov-10   Dec-10    Jan-11    feb-11
         Source: Compete



                                                                                                                                                  4
Agenda



1. Introduction

2. Situation analysis and challenges
 a) Internal analysis and challenges
 b) External analysis and challenges

3. Recommendation




                                       5
Groupon main challenges
Groupon is facing both, internal and external challenges




                                External Challenges
                                    Higher competition




                                Internal Challenges
                        Subscribers and Local business low service




                                                                     6
Problems in operations and services – local businesses and customers
     Leading to low level of satisfaction and loyalty


                       Local-businesses face             ..to upsell to customers       ...and to turn             Groupon’s customer
 Local                     difficulty to best                 for more than the      customers to repeat            profile changes from
Business                    structure and                     face value of the      full-price customers             deal-savvy to the
                           operate a deal                          coupon                                            general population
            Only   66% of deals were profitable                     Only   50% of customers      Only   31% of customers


                                                                                                Business NO willing
                                                                                                to collaborate again

                                                      Low level of satisfaction and                            42%
    Repeat customers                ?                   high level of Churn rate                                           58%



                                                                                                                       Business willing to
                                                                                                                        collaborate again




                         End-customers receive low quality                              Not redeeming vouchers
   End                      service and bad experience
customers                     from the local-business
                                                                                           ~   20% breakage rate
 Source: Jesse H. Jones Graduate School of Business                                                                                          7
Why revenues are decreasing
                 The internal service problems are damaging the number of deals and their value


                                                                                                                                                                     Bad service and experience
                                                                                                                                         # of subscribers           from subscribers decrease de
                                                                                                                                                                          number of deals
                                                                        Deal Subscribers
                                                                                                                                            Deal per
                                                                                                                                           subscribers   !                         Bad service and experience from
                                                                                                                                                                                     local business will damage
                                                                            # of deals                                                                                           Groupon’s negotiation power to offer




                                                                                                                                                               Business deals
                                                                                                                                                                                   deals with more gross price and
                                                                                           300 deals                                    # of Local Business                             discount to customers




                                                                                                                                                                  demand
                                                                                                                                                           !
                                                                 Deal Local Business
                                                                                                                                          Deal per Local
                                                                                                                                            Business

                Groupon Net
                 Revenues

                                $ 30.000                                                                                                 Discounted Value                         Gross price      !
                                                                                                                                                     $ 200                                   $ 500
                                                                         Net deal size



                                                                                                                                                                                                   !
                                                                                               $ 100
      Groupon Revenues in US                                                                                                                                                      Discount to
      Millions USD                                                                                                                      Share to Groupon
100                                                                                                                   88,9                                                        customers
                                                                                                    75,6     80,5
 80
                                            18% CARG                     52,8              54,5
                                                                                                                               61,7                   50%                                     60%
 60                                                                               45,5
 40                                           26,4    30,5     29,4
                           19,0    20,6                                                             5% CARG
 20     10,8     13,5

  0
       Jan-10    feb-10   mar-10   Apr-10    may-10   jun-10   jul-10    Aug-10   sep-10   oct-10   nov-10   Dec-10   Jan-11   feb-11
      Source: Groupon webside

                                                                                                                                                                                                                    8
Local Deals Industry analysis
     Due to the high profitability of the industry and the medium-low strength of the
     competitive forces, we expect the entrance of new competitors in the market

      Market characterized by network externalities
                                                                                                                           High strength
                                                                                                                           Medium strength
                                                Medium bargain power of suppliers                                          Low strength

                                                 Moderate power in the hands of the mass
                                                  social-media players
                                                  – Facebook and Google

                                                 Low power of the IT suppliers
Medium threat of new entrants                                                                       Medium Threat of substitutes

 Medium barriers to entry                                                                           Significant numbers of substitutes
 – low capital-intensive nature of the                                                               – Other communication tools
   business,…                                                        Competitors                     – Coupons catalogues
 – …but high network externalities




                                                  Low barging power of customers

                   Business                                                    Subscribers

                    Low bargain power of the business                          Low bargain power for the subscriber
                     – Low concentration of business, very atomize                 – Large number
                     – Unorganized nature




                                                                                                                                             9
Competition analysis
  Local deals market is heating up in the US

Our analysis shows that there are the following main competitors in the US.
Here is a comparative analysis with Groupon:


               Is deals their                                              Local
                    core             Offers           Types of deals     Operations Description
                 business?                                               Sales force


                               Offers of the day
                                                    Local services and
                                                         products           
                                                                           
                                                    Local services and              Amazon.com is stakeholder
                                Offers of the day
                                                        products                        300+ cities in US


                               Offers Catalogue
                                                    Premium Products
                                                       and services                   6 metropolitans in US



                    X           Offers of the day
                                 and catalogue
                                                    Local services and
                                                        products            X         BETA to be launched in
                                                                                        Portland, Oregon


                    X           Offers catalogue
                                                    Local services and
                                                        products            X         Businesses join for free




                                                                                                                 10
Competition analysis
A comparison of services offered


                          Matrix
                                                                  Size = subscribers

         High                                                                  Groupon


                                                     social
         % Gross Margin




                                   Google
                                                           Gilt City



                                     Facebook
         Low
                          Low         Customized service                          High




                                                                                         11
Competition analysis
A comparison of revenues

                                                                                               Size = Revenues




                                100%




                                80%
      Average margin per deal




                                60%




                                40%




                                20%




                                 0%
           -5                          0   5         10          15           20          25     30        35


                                -20%
                                               Average number of deals offered each day



                                                                                                                 12
Why revenues are decreasing
                 The competitive increase of the market is putting pressure in the margins


                                                                                                                                         # of subscribers
                                                                        Deal Subscribers
                                                                                                                                            Deal per
                                                                                                                                           subscribers
                                                                            # of deals




                                                                                                                                                              Business deals
                                                                                           300 deals                                    # of Local Business




                                                                                                                                                                 demand
                                                                 Deal Local Business
                                                                                                                                          Deal per Local
                                                                                                                                            Business

                Groupon Net
                 Revenues

                                $ 30.000                                                                                                 Discounted Value                      Gross price

                                                                                                                                                     $ 200                              $ 500
                                                                         Net deal size

                                                                                               $ 100

100
      Groupon Revenues in US
      Millions USD
                                                                                                    75,6     80,5
                                                                                                                      88,9
                                                                                                                                        Share to Groupon      !                Discount to
                                                                                                                                                                               customers
 80
                                            18% CARG                     52,8              54,5
                                                                                                                               61,7                   50%                               60%
 60                                                                               45,5
 40                                           26,4    30,5     29,4
                           19,0    20,6                                                             5% CARG
 20     10,8     13,5

  0
       Jan-10    feb-10   mar-10   Apr-10    may-10   jun-10   jul-10    Aug-10   sep-10   oct-10   nov-10   Dec-10   Jan-11   feb-11
      Source: Groupon webside

                                                                                                                                                                                                13
Agenda



1. Introduction

2. Situation analysis and challenges
 a) Internal analysis and challenges
 b) External analysis and challenges

3. Recommendations




                                       14
Recommendations
 Strengthen internal capabilities & differentiation to safeguard market-leader position

Recommendation        Description                                                                   Consequence
                       Advise the businesses on how to best structure and operate a deal
                        – cap size                                                                  • High quality of
 Deal management                                                                                      service
                        – Number of employees                                                       • Repeat
consulting services
                        – Upsell                                                                      customers
                        – Follow-up

                       Collect data about customers                                                • Coupon
 Deal customization    Offer each customer the most relevant deals                                   purchase
                                                                                                    • Threat of
                       Exclude the businesses’ existing customers                                    cannibalization


                       Provide a feedback platform to both businesses and customers
                                                                                                    • Quality of local
Filtering mechanism    Block particular customers or take corrective measures against businesses     businesses
                       Identify ”best” businesses and build stronger long-term relationships       • Quality of end
                                                                                                      customer



                       Loyalty programs                                                            • Customer loyalty
   Brand loyalty                                                                                    • Repeat
                       Improve the customer services to the end-customers                            customers



                                                                                                     • Revenue growth
                                                                                                     • Wider customer
    Higher value       Target the “luxury” businesses category                                        base
                                                                                                     • Breakage



                                                                                                                         15
Thank you!




             Q & A?



                      16

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Strategy Analysis - Groupon

  • 1. Groupon: The road ahead Anurag Jaiswal Ignacio Muñiz Garcia Mariana Penzini Pedro Oliveira Roman Viñoly Shirley Kleinman IE Business School
  • 2. Agenda 1. Introduction 2. Situation analysis and challenges a) Internal analysis and challenges b) External analysis and challenges 3. Recommendation 1
  • 3. What is Groupon? Groupon is deal-of-the-day website that has grown exponentially worldwide Selected deals every day! A minimum number of Groupon keeps people must buy the 50% of the deal 30% to 90% deal for it be valid value Discount! Groupon’s growth record Rejects $6B buyout by Raises $950M funding Expands to Latin Google, and expands to and expands to India America, Acquires Clan HK, Singapur and Taiwan South Africa and Israel Descuento 500 Expands to Japan 400 Expands to Europe via and Russia trough acquisition of CityDeal acquisitions 300 Raises $30 M in a Deals launched in funding round 200 major US cities 100 0 Apr-09 jun-09 sep-09 oct-09 nov-09 Apr-10 jun-10 sep-10 oct-10 nov-10 jul-09 Aug-09 jul-10 Aug-10 Jan-10 feb-10 Jan-11 feb-11 Dec-09 Dec-10 mar-09 may-09 mar-10 may-10 mar-11 Source: Groupon Reports and neXtup Research 2
  • 4. Local Deals Market The local deals market in the U.S. is expected to increase at a faster pace than the overall Online ads market Local deals market in the US 3,620 3,120 Local Deals Market (Millions) 2,620 2,120 20% CAGR 1,620 3,069 2,557 1,120 2,131 272% CAGR 1,776 1,480 620 1,000 200 120 2009 2010 2011E 2012E 2013E 2014E 2015E Source: eMarketer and neXtup Research Estimates 3
  • 5. Groupon Performance in the US The growth seens to be slower and even negative in the last month Groupon Revenues in US Millions USD 100 88,9 75,6 80,5 80 61,7 18% CAGR 52,8 54,5 60 45,5 40 26,4 30,5 29,4 20,6 5% CAGR 13,5 19,0 20 10,8 0 Jan-10 feb-10 mar-10 Apr-10 may-10 jun-10 jul-10 Aug-10 sep-10 oct-10 nov-10 Dec-10 Jan-11 feb-11 Source: Groupon website Groupon.com Unique visitors Millions 20 15,6 14,7 15,2 15 11,2 22% CAGR 8,3 8,6 10 6,5 7,6 4,6 4,9 5 2,0 2,5 3,1 12% CAGR 1,9 0 Jan-10 feb-10 mar-10 Apr-10 may-10 jun-10 jul-10 Aug-10 sep-10 oct-10 nov-10 Dec-10 Jan-11 feb-11 Source: Compete 4
  • 6. Agenda 1. Introduction 2. Situation analysis and challenges a) Internal analysis and challenges b) External analysis and challenges 3. Recommendation 5
  • 7. Groupon main challenges Groupon is facing both, internal and external challenges External Challenges Higher competition Internal Challenges Subscribers and Local business low service 6
  • 8. Problems in operations and services – local businesses and customers Leading to low level of satisfaction and loyalty Local-businesses face ..to upsell to customers ...and to turn Groupon’s customer Local difficulty to best for more than the customers to repeat profile changes from Business structure and face value of the full-price customers deal-savvy to the operate a deal coupon general population Only 66% of deals were profitable Only 50% of customers Only 31% of customers Business NO willing to collaborate again Low level of satisfaction and 42% Repeat customers ? high level of Churn rate 58% Business willing to collaborate again End-customers receive low quality Not redeeming vouchers End service and bad experience customers from the local-business ~ 20% breakage rate Source: Jesse H. Jones Graduate School of Business 7
  • 9. Why revenues are decreasing The internal service problems are damaging the number of deals and their value Bad service and experience # of subscribers from subscribers decrease de number of deals Deal Subscribers Deal per subscribers ! Bad service and experience from local business will damage # of deals Groupon’s negotiation power to offer Business deals deals with more gross price and 300 deals # of Local Business discount to customers demand ! Deal Local Business Deal per Local Business Groupon Net Revenues $ 30.000 Discounted Value Gross price ! $ 200 $ 500 Net deal size ! $ 100 Groupon Revenues in US Discount to Millions USD Share to Groupon 100 88,9 customers 75,6 80,5 80 18% CARG 52,8 54,5 61,7 50% 60% 60 45,5 40 26,4 30,5 29,4 19,0 20,6 5% CARG 20 10,8 13,5 0 Jan-10 feb-10 mar-10 Apr-10 may-10 jun-10 jul-10 Aug-10 sep-10 oct-10 nov-10 Dec-10 Jan-11 feb-11 Source: Groupon webside 8
  • 10. Local Deals Industry analysis Due to the high profitability of the industry and the medium-low strength of the competitive forces, we expect the entrance of new competitors in the market Market characterized by network externalities High strength Medium strength Medium bargain power of suppliers Low strength  Moderate power in the hands of the mass social-media players – Facebook and Google  Low power of the IT suppliers Medium threat of new entrants Medium Threat of substitutes  Medium barriers to entry  Significant numbers of substitutes – low capital-intensive nature of the – Other communication tools business,… Competitors – Coupons catalogues – …but high network externalities Low barging power of customers Business Subscribers  Low bargain power of the business  Low bargain power for the subscriber – Low concentration of business, very atomize – Large number – Unorganized nature 9
  • 11. Competition analysis Local deals market is heating up in the US Our analysis shows that there are the following main competitors in the US. Here is a comparative analysis with Groupon: Is deals their Local core Offers Types of deals Operations Description business? Sales force  Offers of the day Local services and products    Local services and Amazon.com is stakeholder Offers of the day products 300+ cities in US  Offers Catalogue Premium Products and services  6 metropolitans in US X Offers of the day and catalogue Local services and products X BETA to be launched in Portland, Oregon X Offers catalogue Local services and products X Businesses join for free 10
  • 12. Competition analysis A comparison of services offered Matrix Size = subscribers High Groupon social % Gross Margin Google Gilt City Facebook Low Low Customized service High 11
  • 13. Competition analysis A comparison of revenues Size = Revenues 100% 80% Average margin per deal 60% 40% 20% 0% -5 0 5 10 15 20 25 30 35 -20% Average number of deals offered each day 12
  • 14. Why revenues are decreasing The competitive increase of the market is putting pressure in the margins # of subscribers Deal Subscribers Deal per subscribers # of deals Business deals 300 deals # of Local Business demand Deal Local Business Deal per Local Business Groupon Net Revenues $ 30.000 Discounted Value Gross price $ 200 $ 500 Net deal size $ 100 100 Groupon Revenues in US Millions USD 75,6 80,5 88,9 Share to Groupon ! Discount to customers 80 18% CARG 52,8 54,5 61,7 50% 60% 60 45,5 40 26,4 30,5 29,4 19,0 20,6 5% CARG 20 10,8 13,5 0 Jan-10 feb-10 mar-10 Apr-10 may-10 jun-10 jul-10 Aug-10 sep-10 oct-10 nov-10 Dec-10 Jan-11 feb-11 Source: Groupon webside 13
  • 15. Agenda 1. Introduction 2. Situation analysis and challenges a) Internal analysis and challenges b) External analysis and challenges 3. Recommendations 14
  • 16. Recommendations Strengthen internal capabilities & differentiation to safeguard market-leader position Recommendation Description Consequence  Advise the businesses on how to best structure and operate a deal – cap size • High quality of Deal management service – Number of employees • Repeat consulting services – Upsell customers – Follow-up  Collect data about customers • Coupon Deal customization  Offer each customer the most relevant deals purchase • Threat of  Exclude the businesses’ existing customers cannibalization  Provide a feedback platform to both businesses and customers • Quality of local Filtering mechanism  Block particular customers or take corrective measures against businesses businesses  Identify ”best” businesses and build stronger long-term relationships • Quality of end customer  Loyalty programs • Customer loyalty Brand loyalty • Repeat  Improve the customer services to the end-customers customers • Revenue growth • Wider customer Higher value  Target the “luxury” businesses category base • Breakage 15
  • 17. Thank you! Q & A? 16