Director Case

Online marketing has been the trending future of business marketing forcing traditional marketing strategies close to being extinct. Adults check their email more frequently than watching television, spend their time looking for further product information online than magazines, and shop online than browsing through flyers to find good product deals. The lean forward nature of internet that puts people in the driver seat to search and browse is the key reason online marketing is more successful and more targeted to the appropriate market. Given this profound nature of online advertising, consumers have changed their shopping habits and the perceived value given by the products.

Groupon, a company that provides daily deals through websites, has created a revolution in bringing bargain deals to consumers on a daily basis. The core strategy of the company is to bring heavily discounted deals to its subscribers. The company currently has operations in 48 countries with over 33 million active subscribers and 250000 merchants featured in their website. Each customer who uses Groupon can expect to save up to 87% of the regular retail price of the product or service that they are considering to purchase.

The current Groupon phenomenon has posed risks to both consumers and merchants if proper tools are not utilized. Factors that pose risks to merchants should be taken into consideration before using Groupon as a marketing medium. On the other hand, Groupon can be found beneficial for businesses that are a perfect fit for such promotions. A daily deal from Groupon can potentially be suitable for a business and turn the business around or it can be proven deadly.

Online deal companies have started a new wave of online media advertising. The fact that the media companies bear all the financial risk has allowed local businesses to run ads with no initial costs. Given this fact, many merchants who have limited or scarce financials resources have the ability in tapping into new consumers in a very short span time through large promotions they could never think of doing before. Part of the strategy Groupon uses to sell more vouchers is that the feature expires so quickly, forcing subscribers to act on it and passing the deal along friends and family to take advantage of it.

Groupon only makes money when a voucher or a "daily deal coupon" of the product or service is sold. Hence, to attract subscribers in buying deals, the price has to be very attractive to maximize the number of vouchers sold. To drive the sales of the vouchers, merchants agree to sell their products or services at a price that is considered attractive for Groupon to sell as many vouchers as possible. To generate corporate profits, Groupon's main aim is to maximize the number of vouchers sold in featuring merchants. However, certain factors increase the merchants' risk in reducing prices heavily.

The first risk a merchant is exposed to in featuring a Groupon deal is the sale of too many vouchers. While it is not harmful to sell enough vouchers, there is a risk if too many are sold than what the merchant is capable of handling. For instance, a bakery in London, England that featured a Groupon deal "$10 for $40 worth of cupcakes" had 8500 vouchers sold. Due to high number of voucher sales and a heavily discounted price, the owner had to hire extra workers that led to the loss of $3 per voucher redeemed. Local business advertising in Groupon can see a benefit to fill in the gaps to utilize its fixed costs. However, over selling of vouchers forces the merchants cross the "tipping point" leading to poor employee turnover and poor customer feedback. Furthermore, not realizing how each voucher will impact profitability can expose the business to steep losses and risk of bankruptcy.

Secondly, the risk of losing the brand value due to overexposure in Groupon or other deal websites is another point that needs to be considered. Groupon does what is supposed to do at best in featuring the products and services to all of its subscribers. The sales go up for the time being and bring new customers to the businesses' doors. However, bringing new customers from Groupon would not necessarily mean that they will be the same class of customers which the business attracts through word of mouth, referrals from networks or through brand education. Sometimes, the type of customers attracted, also called "voucher hoppers", from selling online deals just move from deal to deal and never come back. It was also concluded from survey from a number of small business owners that only a handful of customers became repeat clients and most never came back again. Thus, the company runs the risk of providing a great deal to customers who would never come back and pay the full price for the products or services. To better analyze the results from running a Groupon promotion, merchants need to tally the proportion of customer who come back and buy at the regular price. Such data will provide the results of running a Groupon ad.

Lastly, the price point at which the deal is offered is what can break a business. Groupon relies on selecting deals that offer a large discount to drive up the volume of vouchers sold. In addition, the negotiated revenue share plays a role in the setting the price point on which the deal has to be offered. All of these incentives are what Groupon considers to increase its revenues generated. However, it also puts several businesses in danger to accept deeply discounted deals from the salespeople since they are not suitable financially. For example, a restaurant that sold a $50 credit for $20 in Groupon was a bad deal for the merchant. In addition to a relative low price to cover its food and service costs, the restaurant minimizes its chances to up sell other products to the customers since the voucher price was enough to cover