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8B12M004
Teaching Note
GROUPON
Sayan Chatterjee, Sarah O’Keeffe and Alison Streiff wrote this teaching note as an aid to instructors in the classroom use of the
case Groupon, No. 9B12M004. This teaching note should not be used in any way that would prejudice the future use of the case.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written
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Copyright © 2012, Richard Ivey School of Business Foundation Version: 2012–02–13
SYNOPSIS
The collective buying industry has grown by leaps and bounds over the past several years, and Groupon
stands out as a major player that has revolutionized this market. This case study describes the beginnings
of Groupon, as well as the firm’s rise to power, the rise of its numerous competitors, its decisions and
expansion strategies, and the collective buying industry as a whole. Key demographic data about
Groupon’s customers (consumers and small businesses) are also described, along with recent
developments at Groupon and within the industry in general. While Groupon has undoubtedly discovered
a unique model that takes advantage of a ‘white space’ in sales and marketing to local businesses, it is
unclear what the future holds for Groupon. Will it be able to sustain its incredible growth rate, or is its
business going to peak quickly and then fade?
RESEARCH METHODS
This case was developed using publicly available information from journalistic and scholarly articles and
studies that were posted on the Internet or stated in publicly available interviews. All sources are
referenced in the case study’s footnotes.
COURSES AND LEVELS
This case is suitable for a capstone strategy course or as an advanced elective in competitive strategy at
the MBA level. We have also used the case with MBAs in classes dealing with strategic management.
Astute students will note the following:
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• Groupon’s ability to capitalize on the white-space intersection of social media/word-of-mouth
connectivity of consumers and small businesses’ need to increase local customer traffic.
• The growth strategy of rapid expansion through both acquisition and leveraging a skilled sales force.
• Groupon’s well-targeted consumer demographic and its contribution to the company’s impressive
success.
• The double-edged sword of a powerful but easily replicated business model.
The case is an excellent vehicle for developing the notion of capabilities as the means for achieving
competitive advantage and for exploring the ways new companies strategize to stay on top in an
increasingly contested space. This case can also be used to help students develop the customer outcomes,
competitive objectives, activities and resources (COAR) methodology (see Exhibit TN-1).
TEACHING AND LEARNING OBJECTIVES
We want students to learn and understand how the different components of a strategy combine together to
create competitive advantage. We also want to demonstrate that although competitors may be able to copy
one or more parts of a strategy, it is the holistic manner in which those parts combine that makes a
strategy inimitable and therefore difficult for competitors to copy. We also want students to learn how to
sift through different options, going forward. This case is best suited to a discussion format.
THEORETICAL CONTEXT
We use the outcome-to-objective methodology developed in the following article to analyze the case.
This framework represents an operationalization of the value-chain framework in that it explicitly links
activities (primary activities) and resources (support activities in the value-chain framework) to outcomes
that customers’ value. The key insight that comes out of this methodology is clarity concerning how
different activities interact to deliver value to the customer as well as to the shareholder.
Sayan Chatterjee, Core Objectives: Clarity in Designing Strategy, California Management Review. Vol.
47, No. 2 (Winter 2005): 33-49.
A brief description of the Outcome to Objective Methodology or COAR (Customer outcomes,
competitive Objectives, Activities, Resources) framework follows (see Exhibit TN-1).
Outcome to Objective
This brief synopsis of the CRM article will familiarize instructors with the framework.
The desired outcomes constitute a broader representation of customer needs. For the purpose of this
teaching note, we can think of outcomes and needs synonymously. The key feature of this framework is
that it forces a company to identify the specific and measurable high-level goals that will allow it to
deliver the desired customer outcomes. Moreover, since these goals are specific and measurable, they
allow the firm to track the execution of the strategy in real-time, thereby reducing the level of corporate
risk, since the firm gets an early warning if things do not go as planned. In the article cited above, these
specific and measurable goals are labeled as core competitive objectives.
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Core competitive objectives should clearly state how the firm will deliver the outcomes that its customers
desire. The key is to understand how the firm’s customers are different from other customers. In other
words, the customers have to be identified at a suitably detailed level in order for this process to be
successful. Finally, the core competitive objectives should collectively capture the firm’s method for
creating value for its shareholders.
Instructors can easily modify the analysis for use with other frameworks, such as SWOT. (A sample
SWOT is provided in Exhibit TN-2.)
DISCUSSION QUESTIONS
Discussion Questions
1. What is Groupon and how does it work? What is Groupon’s market? What does this company do and
how does it make money?
a. What does Groupon do that makes businesses willing to pay for its services?
b. Why is Groupon such a big deal? That is, why should consumers pay attention to what
Groupon has to offer?
2. Using Porter’s Five Forces as a framework, describe the competitive environment of the collective
buying industry, pre-Groupon and post-Groupon.
3. How should Groupon’s business model be classified?
a. What are the core objectives for Groupon, and what are the critical activities and resources
that support these objectives? (Outlined in COAR Map, Exhibit TN-3).
b. How does Groupon’s core customer segment fit with the company’s business model?
4. What is the viability of Groupon? Will this business survive in the long run, or will it fade away?
a. Is Groupon a pioneer? Does it have a first-mover advantage?
b. What barriers to entry is Groupon trying to create? Are they working?
c. What competitive advantages exist for Groupon’s potentially biggest threat (i.e., Google,
which tried to buy out Groupon)?
d. Groupon was started in November 2008. What are the long-term plans for maintaining and
creating company growth?
e. How would an initial public offering (IPO) affect the company’s go-to-market strategy?
Would an IPO alter the relationships Groupon has with local businesses in various cities?
OVERVIEW OF ANALYSIS
Company Analysis
Groupon started a phenomenon that spread like wildfire: an Internet coupon linked with an irresistible
social component and a hip approach to marketing. Groupon’s ability to maintain its growth and footprint
as the dominant deal-of-the-day vendor rests on its future ability to persuade businesses that they should
market their unique product and experience through Groupon rather than through the growing number of
alternative online coupon media options. Critical to Groupon’s value proposition is the fact that, in
offering deals through Groupon, a business gains exposure to a large volume of potential customers and,
just as importantly, to the right kind of customers. The right kind of customers would be those who would
be apt to expand their purchases beyond just the Groupon deal and revisit the business in the future.
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Industry Analysis
In the highly crowded space of the group-purchasing industry, it is difficult (and almost impossible) to
identify competitive advantages between firms. There are few technological differences between any of
the firms competing in the space and, for the most part, the deals offered by each company are
interchangeable as well. Groupon’s true advantage comes from its user base. By establishing its first-to–
market advantage, Groupon enjoys the luxury of the largest user base in the industry, a position that has
also helped the company secure large sums of funding from venture capitalists and other investors.
Groupon’s most recent $950-million round of financing will allow the company to further expand its
international operations and buy back shares from early investors and employees. This development
brings Groupon’s true competitive advantage — its international dominance — into focus.
DETAILED DISCUSSION QUESTIONS AND ANSWERS
1. What is Groupon, and how does it work? What is Groupon’s market? What does this company
do, and how does it make money?
Groupon is a company within the collective buying industry that offers customers attractive daily deals on
items such as dining, entertainment, or retail within a certain city or region. Local businesses are
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a. What does Groupon do that makes businesses willing to pay for its services?
Groupon provides its business customers with access to an entirely new client base and to free advertising
through Groupon’s daily e-mail to subscribers. This kind of promotion helps small and medium-sized
Groupon may make sense for a business with a large, fixed-asset expense base that is struggling to
maintain customer volume. Many of the businesses that Groupon attracts operate through service–
any initial investment by the small business itself.
Businesses do have to consider whether Groupon is right for them, however. Some businesses take a loss
of profit during a Groupon promotion and have to reconsider their strategy; how will the business
Businesses offering deals through Groupon also have access to a savvy, young audience that is often hard
to reach through traditional advertising campaigns. Subscribers read Groupon’s fun, colorful ads in their
While businesses do need to achieve expanded purchases beyond the initial Groupon deal and convert
those consumers into repeat customers, it behooves Groupon to assist its business partners in providing a
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b. Why is Groupon such a big deal? That is, why should consumers pay attention to what
Groupon has to offer?
As price-conscious consumers look for ways to save money on purchases, collective buying companies
offer a new venue for savings in the consumers’ local area. Consumers have the opportunity to enjoy a
great deal on a good or service that they might not normally know about or use, and the business has the
2. Using Porter’s Five Forces as a framework, describe the competitive environment of the
collective buying industry, pre-Groupon and post-Groupon
2008 — Time of Groupon Launch
2010 — Groupon expansion
Market Size
SMALL
Size
LARGE
Market Growth
MEDIUM
Growth
RAPID
Porter’s Five Forces:
Threat of Entry
MEDIUM
Threat of Entry
HIGH
Rivalry
NONE
Rivalry
HIGH
Buyer Power
(consumers)
LOW
Buyer Power
(consumers)
HIGH
Supplier Power
(Businesses)
LOW
Supplier Power
(Businesses)
MEDIUM
Number of Substitutes
LOW
No. of Substitutes
MEDIUM
3. How should Groupon’s business model be classified?
This company started as an idea — a software platform that used a tipping-point philosophy to spur
people to act. This root concept represents the classic beginning of an IP-based model, where the idea
needs to be protected and cultivated above all else and, if possible, provide the company with a premium
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While Groupon’s model did not allow it to charge a premium price, its first-mover status did allow it to
capitalize on the value of its original idea. The initial limit of One Deal a Day has allowed Groupon to
maintain its edge as a fresh phenomenon. The company was able to attract new businesses and new
a. What are the core objectives for Groupon, and what are the critical activities and resources
that support these objectives? (Outlined in COAR Map, Exhibit TN-3)
At its core, Groupon’s business hinges on targeted marketing at an individual level on a global scale. The
At the same time, Groupon has to be able to keep its consumers engaged. The consumer/subscribers who
participate in deal-buying are a crucial part of Groupon’s business. Keeping consumer/subscribers happy
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b. How does Groupon’s core customer segment fit with the company’s business model?
Groupon’s optimal scenario would be to bolster its installed base among its customers and among the
businesses with which it partners. Groupon aggressively researches the appeal of its deals to its typical
consumer demographic (i.e., young, well-educated, professional women) in order to maintain a desirable
4. What is the viability of Groupon? Will this business survive in the long run or will it fade
away?
Groupon, as it exists now, will not survive in the long run. There are simply too many high-caliber
a. Is Groupon a pioneer? Does it have a first-mover advantage?
Groupon can truly be considered a pioneer in the collective buying industry, coupled with enjoying a
distinct first-mover advantage. Groupon has become a household name that is synonymous with
collective buying, a phenomenon similar to “copies” and “Xerox” or “tissues” and “Kleenex.” Groupon
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b. What barriers to entry is Groupon trying to create? Are they working?
Given the nature of the collective purchasing industry, there are few barriers to entry for would-be
competitors. The Internet is free and, theoretically, anyone has the ability to partner with local businesses
or to establish an attractive website. The biggest entry barrier comes from the existing robust user base
controlled by Groupon and the company’s proven ability to expand this user base at a rapid pace. While
there are certainly consumers who would be willing to experiment with one of the countless numbers of
c. What competitive advantages exist for Groupon’s potentially biggest threat (i.e., Google,
which tried to buy out Groupon)?
Advantages
1. Google is a universal word — it is featured in the Oxford dictionary — and hence, it has a massive
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Disadvantages
1. From where we stand today, Google has a slight disadvantage when it comes to winning the group-
sales patronage of local businesses, since Groupon account managers have already established a
d. Groupon was started in November 2008. What are the long-term plans for maintaining and
creating company growth?
Since there are few barriers to entry in the industry, it would appear that Groupon’s competitors could
easily steal market share by offering businesses a larger cut than what Groupon currently offers. If
competitors opted to take just 25 per cent to 30 per cent of the revenue generated by each deal purchased,
e. How would an initial public offering (IPO) affect the company’s go-to-market strategy? Would
an IPO alter the relationships Groupon has with local businesses in various cities?
As the company expanded, Groupon’s management made a strategic decision to maintain internal control
of the company’s growth rather than outsourcing sales and marketing efforts. In order to execute this
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WHAT HAPPENED
Expansion of Product Offerings
With relatively low entry barriers to insulate the firm from copycat competitors, Groupon began to focus
on new product offerings, such as a concept called Groupon Stores, which allowed firms to offer their
own deals online at any time, through Groupon. Businesses could control the number, frequency and
amount of the discount deals. The benefit of this concept for Groupon is that it would allow expanded
IPO Offering
Groupon met with underwriters in early 2011 to valuate a public offering for later in the year, estimated at
$25 billion; Groupon filed in July 2011. By October 3, 2011, the IPO valuation was projected to decrease
to $3 billion from $5 billion due to questions raised about Groupon’s accounting practices, the costs of
acquiring new subscribers’ e-mails, and the turnover of management.
1
1
Douglas MacMillan, “Groupon’s Stumbles May Force Company to Pare Back Size of IPO.” Bloomberg Businessweek,
October 3, 2011. www.businessweek.com/technology/groupons-stumbles-may-force-company-to-pare-back-size-of-ipo-
10032011.html.
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Exhibit TN-1
COAR METHODOLOGY
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Exhibit TN-2
SAMPLE SWOT ANALYSIS
Helpful
Harmful
Strengths
Weaknesses
Internal
• Provides great deals
• Easy for customer to use
• Get young, educated hard-to-reach
customers in the door with the goal
of gaining their repeat business
• Working toward high customer
satisfaction and has guarantees
• Reach out to local businesses
• First to market
• Recognizable name
• Savvy, regionalized sales force
• Word of mouth growth
• Easily replicated model
• Dissatisfied business and
consumer customers
• Depends on trends and other
businesses
• Businesses didn’t know the strain
the Groupon would create on their
day–to-day business
• Hard to have quality control when
expanding so fast
Opportunities
Threats
External
• Occurred during recession,
allowing good deals to be highly
desirable
• Utilize social media and peer to
peer recommendations
• Chance to expand quickly
• Google
• Continued Recession
• Large number of competitors
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Exhibit TN-3 (continued)
OUTCOMES TO OBJECTIVES
Customer Outcome 1
Consumer gets deals s/he wants or is most interested in buying.
Objectives
1. Understand the consumer.
2. Present the right deals to the right people to increase the chances of a purchase.
3. Customize the deals based on geographic location, prior purchases, public information on various
websites, etc.
Activities that Support the Objectives
1. Collect data (as much is legally possible) from the “public” profiles of members (through social media
such as Facebook and other websites) within a certain geographic area.
2. Collect reviews after the member uses the Groupon. This approach can be used for future offers for a
repeat Groupon.
3. Use market analysis from prior deals/sales concerning which kind of deals sell the most. Try to
structure the subsequent deals similar to these successful deals.
Resources for these Activities
1. Talented data analysts and market research personnel.
2. Savvy and localized sales team that is in tune with what the young, professional audience
demands/likes; understands local culture/market.
Customer Outcome 2
Increase consumer traffic/volume for small businesses. The key here is to introduce new or first time
customers.
Objectives
1. Understand the local markets.
2. Increase the number of Groupon subscribers. This will ensure that the new crowd is reached —
basically use the hipness of Groupon to introduce new customers to Sally’s Nail Salon (which does
not have a mobile app and does not advertise on Facebook).
3. Leverage electronic marketing media tools (e-mail, mobile apps and social media) to reach more
customers than these small businesses can otherwise reach because of their lack of marketing and
advertising budgets.
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Exhibit TN-3 (continued)
Activities that Support the Objectives
1. Sales team should work closely with local businesses.
2. Use membership e-mails and social media for marketing to increase awareness about Groupon and
about the local businesses it promotes.
3. Create incentives for new customers to be subscribers and for current Groupon members to get their
friends to join. Offers for first purchase, every Xth purchase is free, etc.; each subscriber who gets a
friend to use a Groupon and become a subscriber receives $10 in Groupon money.
4. Secure financing
Resources for these Activities
2. IT and other technology, social media
4. Strategic public and private financing
Customer Outcome 3
Provide convenient and consistent solution for the small businesses.
Objectives
1. Structure the deal in a very simple and intuitive manner — no gotchas, no complicated algorithms to
determine the payment.
2. Continually create innovative deals so that the small businesses and the consumers stay interested.
Create consistency by continuously innovating the deal.
3. Maintain consistence in procedures and deal delivery. (Internally adapt the technologies to tailor the
deals for e-mail versus for mobile devices. The small-business customer should not see any
difference in the way he/she interacts with Groupon.)
4. Champion small business — make Groupon available in many local markets.
Activities that Support the Objectives
2. Recruit talented staff: Hire creative people who can put a new spin on deals. To reduce the learning
curve, hire employees who are in tune with the technology and programming for mobile devices.
3. Stay abreast of technological advances and capacity (with growing business) so the business is not
affected.
Resources for these Activities
1. Creative deal writers that understand and can communicate with the hip population
2. Personnel with long-term vision
3. IT resources
4. Strategic public and/or public financing