1 1. Building a Sustainable Business Model University of Southern California Marshall School of Business Strategic Management Professor Paik Fall 2011 1Rohan Agrawal Celine Fook Willie Kuo Andrew Nguyen Mimi Shih
2 2. 2 Introduction to the firm Launched in 2008 in Chicago with $1 million seed money One of the fastest growing technology companies of the decade Expanded aggressively to 44 countries and over 500 markets Launched IPO in November 2011 to raise $700 million How does such a company continue to grow, whencustomers are becoming less engaged and merchants see less and less of an incentive to run deals? Overview Industry Firm Implications Q&A
3 3. 3 Players have very limited power in this space Threat of new entrants High Anyone can start an online discount business with enough capital Buyer power Substitutes High Rivalry HighThere are low switching Many new players entering the costs for consumers. High landscape, offering deals Online discounting Fierce competition, doesn’t build brand based on territorial loyalty. expansion. There is little brand loyalty to deal sites. Supplier power Moderate There are low switching costs for merchants. However, merchants are at the mercy of group buying sites Overview Industry Firm Implications Q&A
4 4. 4It is difficult for incumbents to differentiate Major Industry Players Emerging Players Value added benefits Convenience (donations, local charities) Location Discounted luxury goods Overview Industry Firm Implications Q&A
5 5. 5There is fierce competition in acquiring customers Aggressive, quick Contingent on expansion expansion of merchants into new territories and consumers 2011, 37 acquisitions Limited by credit and with Asia as the next cash restrictions target. Overview Industry Firm Implications Q&A
6 6. 6The industry is growing amidst fierce competition Trends Affecting the Predictions Industry 2012 – Half of US online consumers Downturn of the economy will have used online coupons 263% growth in 2010 Consumers’ desire to spend less and save more 46 Billion by 2016 Social Media Boom of digital age, more and more apps are being used and users are going online Overview Industry Firm Implications Q&A
7 7. 7Groupon’s first mover advantage keeps it on top Value Rareness “hyper-local” • Expertise in telesales model • Human capital “attainable luxury” • Cost per acquisition (CPA) model Hybrid model Imitability Dual advertising space • History • First mover advantage • Numerous small decisions Network • Winner takes all externalities • Socially complex resources • Management Overview Industry Firm Implications Q&A
8 8. 8Groupon’s organizational structure will not hold Organization Overview Industry Firm Implications Q&A
9 9. 9Frequent merchants and new customers are key Run Groupon deals Leverage Slow distribution of social Profit revenues to Deals with media merchants merchants Acquisition of new customers Increased cash on hand Expansion Overview Industry Firm Implications Q&A
10 10. 10Groupon replicates its business model globallyGlobal Cost Efficiency Global Transnational International Multi-domestic Local Responsiveness Overview Industry Firm Implications Q&A
11 11. 11Groupon’s rapid expansion created weaknesses Customer not returning (non- repeat customers) Groupon rapidly Poor expanded toindustry maintain marketstructure position & gain new customers Merchants do not see value in the Groupon model (non-returning merchants) Overview Industry Firm Implications Q&A
12 12. 12Groupon must leverage network externalities 1 Add value to merchants 2 Lock in repeat customers Profile all subscribers, Forward repeat deals Segment merchants to to provide to customers, based provide a tiered personalized deal on historical advertising service recommendations purchasing data Overview Industry Firm Implications Q&A
13 13. 13Deal