Groupon Business Model Canvas

Now that we know what they make money with, let’s gain some insights into the value proposition. As always with platform business models, we need to think about the value proposition to all sides of our multi-sided platform.

Value propositions to consumers

1. Savings and deals
2. Discovery of new things
3. New choices
4. Inspiration to try new things (editorial and email) and incentivising this with lower prices
5. Risk reduction to try new things due to the review system and Groupon as an intermediary
6. Ease of transactions (e.g. sourcing of vouchers and payment)
7. Local discovery on-the-go (via app): new things to see, eat, buy and experience
8. Price comparison
9. Ambition: to become the app for daily local commerce habits

Value proposition to merchants

1. Additional revenue
2. Marketing with no upfront costs: the ability to offer discounts at no upfront cost (compared to marketing via Facebook, Google where payment occurs based on impression or clicks of which only few lead to sales). With Groupon, there are no costs without revenues
3. Additional distribution channel to the customer, esp for discounts
4. Additional promotional channel to attract new customers
5. Word-of-mouth promotion (as in person-to-person but also via recommendation/rating on Groupon and social media accounts)
6. Prospect of cross- and up-sell once the customer takes up the discounted deal (in particular with in-store offers)
7. Engaging copy: ads written by Groupon-employed copywriters and direct channel to the customer (via email / notifications)
8. A range of marketing solutions (merchant products) and tools

Merchant tools

The benefits (value proposition) that these tools promise to the merchants:

1. Booking tool to help utilise business assets better (esp services, e.g. restaurants, spa, massage, beauty, repair, health providers, etc)
2. With certain bookable offers the risk of no-show shifts from service provider to user due to upfront payment
3. Creation of representative business pages that can be discovered by Groupon users
4. Campaign management / tracking tools: Trackability (visibility of which customers have come via Groupon whereas this is much more difficult to find out for other ad channels) and insights into geo-demographic segments
5. Ability to scale offer/promotion up or down (e.g. more offers on low days/day-of-times and less on peak days/hours. E.g. a restaurant may offer discounted deals to Groupon customers on weekdays and none on Fridays/weekend days)
6. Insights in terms of customer feedback/ratings
7. Interaction with customers – responding to feedback
8. Simple forms of inventory management and integration
9. API integration for other ecommerce tools to connect to (e.g. SellerCloud, Sello)

Note, that the various competitors offer similar types of products that are often more powerful. However, for local merchants, the simple forms that Groupon offers may be more suitable as to not add complexity to often quite simple businesses who are not exactly keen to provide training to often casual support staff.

Risks and limitations for merchants

The value propositions are compelling. However, it doesn’t come without risks for merchants:

1. On the flip side to no upfront costs are typically slim profits on the deals if any. Businesses have to significantly discount their offering to advertise on Groupon. On top, they need to pay their dues to Groupon for each deal taken up. This article to small businesses describes the potential pitfalls along with some tips
2. The use of loss leaders may be significant (numbers are not known). But this may not work for all merchants and/or only for a short period of time. If it doesn’t lead to repeat customers, many of the deals may effectively be a loss for the merchant
3. One-off bargain hunters that don’t take up cross or upsell offers
4. No repeat purchase or very low lifetime value customers
5. Risk of cannibalisation of own offerings or users

Groupon is very aware of the downside risks to the merchants and addresses these:

“46.2 million active users, $35 billion saved by consumers in North America 81% of customers say they are likely to return to the merchant again” Groupon, Q2 ‘19 fact sheet

This is one of the most significant topics which I will cover in more depth later.

Value proposition to both

1. Card-linked vouchers: A voucherless form of purchasing discounts through Groupon and payment (and cash back) at the merchant rather than upfront payment
2. Loyalty card-linked offers: rewarding consumers with 5-10% cash back / discounts for repeat visits
3. Aiming to initiate a virtuous cycle that leads to better communities
4. Social interaction and exchange
5. Stimulation of local economies

Risk to Groupon

1. Merchant/user will build direct relationships once Groupon has initiated contact (cutting out the middleman). This could probably happen through additional in-store loyalty discounts and/or after finishing off the Groupon campaign. It would be the ultimate goal of merchants to achieve this. Groupon’s loyalty card-linked offers are trying to find a win-win-win
2. One-off (or sporadic) users rather than habitual and loyal users

Many of the above fall into what economists call reduction of search costs and transaction costs which I will cover in-depth later.