History of Groupon - Origin, Business Model and Current Situation - Case Study Example

The paper “History of Groupon  - Origin, Business Model and Current Situation" is a brilliant example of a case study on business. The company name of Groupon is a combination of the words “group” and “coupon” and its business model is to offer deals and discounts to prospective buyers of its coupons at a substantial discount on certain popular items and services such as restaurant meals, massage spa and beauty treatments in salons. It was founded based on an idea by Andrew Mason using discounted gift certificates offered by local and national establishments and promoted to wide markets as a “deal of the day” with substantial discounts off regular prices, sometimes at 50% or more. It started operations first in Chicago in November 2008 and has since expanded to other kinds of deals and into foreign markets as well. It's business model essentially is sort of a marketing campaign using “Groupons” as a sales promotion tool to entice people to buy a product or a service featured on that day in a particular market niche or geographic area.

At first glance, it seems like a win-win situation for all parties: the buyers get the discounts, a merchant racks up increased sales revenues from the promotion and the Groupon Company is also ahead, as it splits every dollar of sales revenue that was being generated. However, there are some downsides to its business model and criticisms as to whether it is a viable or sustainable business model in the long run. Basically, what a deal with Groupon entails is that a certain number of people must have bought the coupons so the deal could proceed; otherwise, if the required number of buyers is not attained, then a deal is off since this minimum number of coupons to be sold serves as sort of a break-even point for the merchant. There were several instances in the past when a deal was quite successful; a relatively small merchant could suddenly get swamped by a big increase in customers which it cannot handle adequately; subsequently, a cap was imposed to prevent this bad situation.

The genesis of Groupon can be traced back to a social advocacy campaign Web site of www.thepoint.com and from its start in Chicago; it expanded quickly to Boston, New York, Toronto and soon established itself in more than 100 geographic markets in North America and another 100-plus market in Europe, South America and Asia. It also acquired a number of similar firms offering the same concept and re-branded them under the Groupon name such as MyCityDeal (Europe), Darberry (Russia), Qpod (Japan), SoSasta (India) and many others. Groupon has since expanded its product and service offerings to include mail-order items and gift cards, for example, but it's business model has remained essentially the same throughout. It enjoyed phenomenal growth in its first few years as the idea caught on among people who were sometimes just too busy to scout for bargains. Groupon offers a convenient way to do it, as merchants have been vetted by its staff. The logic behind Groupon is the tipping point when an idea becomes a trend and spreads like a wildfire; a number where enough people can participate to have any real impact by the use of quantity discounts, pressuring a merchant to give quality discounts (Gladwell 22). It became the darling of the business world, got a $6 billion buyout offer from Google earlier, while it was able to raise capital easily, and was once valued between the $6.4 billion to $7.8 billion range, but its stock plummeted to new lows lately due to its declining merchant base (O'Dell 1). 

Groupon is primarily a social marketing outfit and relies on social media networks to get the word out on its offerings, such as Facebook, Twitter and other digital devices like its wireless application protocol (WAP) for portable devices such as cellphones. It also utilizes text messages and e-mail alerts for its members. For newcomers who have no idea what Groupon is about, it is the rare chance to grab a big discount on fantastic offers, as similar offers might not come along for a while. The hope is that consumers will eventually patronize in the future the outlet, service or merchandise even without a discount, leveraging or exploiting the concept of herd mentality in the people's buying behaviors (Peng 46).