Business Trajectory of the Online Store Groupon - Case Study Example

Case summary The case study discusses the business trajectory of the online store Groupon. Groupon is a company that sells discounted goods or services through the technique of group selling. The sellers offer retail merchandise or services at discounted prices. Groupon and the vendor establish a minimum sale quota. Once that number reaches the sales are final and everyone that purchases the offer will get the merchandise. Groupon receives 50% of the sales total collected by the company. Groupon markets itself mainly through its subscribers encouraging them to share deals through social media websites such as Facebook and Twitter and through emails. The firm rewards its subscribers with Groupon dollar if they referred a non-subscribers friend to the firm. To improve the quality and effectiveness of its marketing efforts the firm has hired creative writers and copy editors to deliver the message of product uniqueness on its website and daily advertisements. The company has grown tremendously since its inception and it has become so popular that the firm has drawn the interest of major players in the technological industry such as Google. Google is currently considering acquiring Groupon. Current issues A lot of experts in the retail industry believe that the charge of 40% to 50% of the final price by Groupon is excessive and not sustainable in the long run. Evidence that the experts may be right is the fact that 32% of companies lose money on Groupon deals. Another issue the company faces is properly adjusting its business model to the cultures of foreign countries. The firm has expanded quickly and is currently operating in 39 countries worldwide. It is imperative for the company to study the cultures of its new markets to ensure the marketing techniques used by the firm are not offensive to the local customs. The majority of the customers of the company are located in North America. Groupon has 40 million subscribers in the North American region. The firm cannot duplicate the operating results of group buyers in the United States because buyers in other parts of the world are not as aggressive as America buyers and due to the fact that the database of customers of the newly penetrated countries is much smaller than in the U.S. Another issue for the company is that the male demographic sector has not been adequately exploited by Groupon. Only 23% of the customers are males. . Problem Statement Groupon has to decide whether to sell the company to Google or raise capital for expansion on its own. Alternative solutions Option one – Groupon can sell the firm to Google for a negotiated price. The bid the firm should accept should be 20% above the market value of the common shares of Groupon. Prior to making any price the demands the company should let the bidder make an offer first. It is possible that their bid might be higher than the firm’s expectations. Selling the company to Google is the option that maximizes shareholder wealth the best in the short run. Option two – a way for the company to obtain funds to utilize for the expansion of the firm is by selling commercial paper. One of the most popular debt instruments in the marketplace is bonds. A bond can be defined as a debt instrument for a period of more than one year whose purpose is to raise capital by borrowing (Investorwords). Groupon can raise the necessary millions of dollars to be used for the expansion of the firm through the sale of $1,000 face value bonds with maturity date of 10 years that pay a coupon rate of 8%. Option three - A third alternative solution for Groupon is the sale of common stocks to raise the necessary funds. The best way to raise capital in the marketplace is by gaining entrance into Wall Street through an initial public offering (IPO). “Initial public offerings introduce the companies to the market and give investors a chance to participate in the ownership of these companies” (Mclntosh). The firm should sell only a minority interest in equity during the IPO sale. The percentage of ownership sold during the IPO should not exceed 10%. Option four – A strategic alliance between Groupon and a corporation interested in the firm such as Google could provide the company with the resources it needs to achieve an expansion of its services. The four major categories of strategic alliances are product or service alliances, promotional alliances, logistics alliances and pricing collaborations. Groupon should seek promotional alliances and logistic alliances to expand its business in foreign marketplaces. Option five – The organization could form a joint venture with another company in order to share acquire resources and capital to form a new firm composed of Groupon and the joint venture partner. The slit of the joint venture would be 50-50. The new partner would have to buy into the joint venture by paying in. Optimal solution The best solution for the company to gain financial independence and to raise the necessary capital to achieve sales growth and international expansion is the sale of common stocks. The firm must hire a brokerage firm to handle its initial public offering. The sale of common stocks will enable the company the ability to raise capital in the initial public offering and to subsequently raise more capital in secondary market offerings. The firm should seek entrance in the New York Stock Exchange (NYSE). Being part of a prestigious organization increases the brand value of a firm. Conclusion Groupon is an innovative company that was able to introduce a unique sales service that focuses of both the needs of the buyers and the seller. The seller wants to gain a large number of customers in a short amount of time, while the buyers want goods and services at discounted prices. The advertising and marketing strategies of the company have been effective at focusing on the target market of the company. The firm released its first television commercial during Super Bowl XLV. The firm was able to reach hundreds of millions potential customers by investing in such a popular event. The best course of action for Groupon is to finance its expansion through the sale of common stocks in the NYSE. Work Cited Page Investorwords.com 2012. “Bond.” 3 December 2012. Mclntosh, K.A. 2012. “The Meaning of an IPO.” 3 December 2012 Read More