Groupon experienced explosive growth from a small startup in 2008 to a global enterprise with 11,500 employees in 48 countries by the end of 2011. However, Groupon operated at a loss every year in an industry that it started with total revenue rising twentyfold from 2009 to 2010 and fourfold from 2010 to 2011.
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This explosive growth, combined with a hands-off merchant interaction approach, caused Groupon to encounter occasional service failures and management challenges. The combination of Groupon’s growth and interaction approach lead to some merchants concluding that a partnership with Groupon was not actually profitable.
To solve this problem, Groupon needs to redesign its merchant growth strategy. In the short term, Groupon needs to slow its
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This will allow Groupon to ensure that sustained partnerships enable merchants to realize a benefit from leveraging Groupon by turning one-time deal hunters into returning buyers. Lastly, Groupon will shift its revenue model from a standard 50/50 split of voucher revenues to a model in which it receives a variable percentage based upon the operating margin. Essentially, Groupon’s revenue model will shift from “fee for service” to “value-based reimbursement”.
Groupon previously focused on building as many merchant partnerships as possible. Unfortunately, this resulted in poor end-user visiting patterns, spending, and customer mix, ultimately resulting in poor merchant relations with Groupon. [2]
Our proposed solution of strategically partnering with the merchants and fostering sustainable growth in key markets will ultimately provide merchants a business model that addresses their core concerns:
• We can’t scale to meet Groupon’s associated traffic spikes: Groupon offers merchant operations playbooks and consulting services according to the capabilities of the