Case Study - Groupon: Helping Consumers with Purchase Decisions

University of Chicago graduate student, Andrew Mason was in a rut. "There's so much to do in Chicago," he explains,"but I found myself going to the same movie theaters and restaurants."

To help people like him try new places, Mason started a website that offered coupons to large groups. He reasoned that people would try something new if the price was low enough, and that businesses would offer low prices if they knew they could sell a large quantity. The result was Groupon, a company that offers "group coupons" in deal-of-the-day offerings for local or national businesses. Consumers love the concept, buying everything from restaurant certificates, to yoga lessons, to tickets to a museum exhibit. "We think the Internet has the potential to change the way people discover and buy from local businesses," says Mason. 

The Company and Groupon Concept  

Mason launched Groupon in October 2008 with a two-pizzas-for-the-price-of-one offer at the Motel Bar, a restaurant located in the same building as his rented space. The concept quickly grew in Chicago and Groupon expanded into other U.S. cities, and then onto other countries. Today Groupon is available in 375 American cities and 40 countries, and its subscriber base has grown from 400 in 2008 to 60 million today. According to Forbes magazine, Groupon is the fastest growing company in history. 

Part of Groupon's success is the simplicity of its business model-offer subscribers at least one deal in their city each day. The unique aspect of the concept is that a certain number of people need to buy into the offer before the coupon discount is valid. Approximately, 95 percent of group offers "tips", or reach the number of buyers required by the merchant. Once the minimum number is met, Groupon and the merchant split the revenue. Many of the deals have generated extraordinary demand. The company's attention to customer satisfaction ensures success stories like this. "We have a policy called "The Groupon Promise" that any customer can return a Groupon, no questions asked - even if they have used it - if they feel like Groupon has let them down," explains Mason. Groupon's success has attracted many more merchants that it can accommodate. In fact, only about 12 percent of all merchants that contact Groupon are selected.  

In addition to the deal-of-the-day offerings, Groupon has several other services. First, it is the testing a concept Groupon Stores which allows merchants to create their own deals and send them out to their own audience. This allows more merchants to participate in a regular basis. Second, the company has recently introduced a mobile service, called Groupon Now. To use the service, consumers log in to the app on their smartphone and select one of two options: "I'm Hungry." or "I'm Bored." The phone then transmits its location to the Groupon servers and displays a list of nearby deals at restaurants or entertainment venues. The Groupon Now offerings represent a combination of Yellow Pages advertising and newspaper coupons for price-conscious consumers. 

Using Coupons to Influence Consumers' Buying Behaviour  

"Part of the reason that Groupon has grown as quickly as it has is because we really understand consumer behaviour," explains Julie Mossler, public relations & consumer marketing manager at Groupon. Generally, Groupon consumers follow the same purchase decision process common to many consumer purchases. TheUsing Coupons to Influence Consumers' Buying Behaviour "Part of the reason that Groupon has grown as quickly as it has is because we really understand consumer behaviour," explains Julie Mossler, public relations & consumer marketing manager at Groupon. Generally, Groupon consumers follow the same purchase decision process common to many consumer purchases.

The second stage, information search, may simply be a review of previous experiences with the merchant making the offer, online comparisons with competitors, or discussion with friends on Facebook or Twitter. In fact,the collective buying aspect of Groupon encourages subscribers to share promotions with family and friends to increase the chances of reaching the required number of buyers.  

In the alternative evaluation stage many Groupon customers focus on price as the most important evaluative criteria, although other aspects such as quantity or time restrictions may be considered. The Groupon Now offers, for example, may be valid on specific days or during short windows of time.  

The fourth stage, the purchase decision, is made online and then confirmed when the deals tip. This stage is unique for the consumers. Finally, after the purchase consumers compare their experience with their expectations to determine if they are 

satisfied or dissatisfied.  

Psychological, sociocultural, and situational factors also influence Groupon's users' purchase behavior. The recession has increased the importance of personal values, such as thriftiness. The typical user is an 18-to-34-year old woman. This is significant because this group's affinity to social media enables the use of Groupon, which depends on e-mail and smart-phone apps to reach its customers. Specific situations such as planning entertainment activities, finding a close restaurant for lunch, or buying a gift is also common to Groupon users. As Groupon has learned more about its subscribers, it has begun personalizing the deals they see. The company uses variables such as gender, location of residence or office, and buying history to match deals with the customers. This access provides offers that are more likely to be of interest to consumers and allows Groupon to serve more merchants. 

Using Coupons to Influence Consumers' Buying Behaviour  

As popular as Groupon has become, it does face several challenges. The first challenge is related to the use of coupons. Some consumers buy the coupons but never use them, eventually leave them dissatisfied and unlikely to use Groupon again. Come consumers use the coupons but do not become regular customers. 

Because of the deep discounts used to sell the Groupons, most of the deals are not profitable for the merchants, so they are dissatisfied if the Groupon users do not make repeat purchases. Some merchants are also concerned that frequent discounting could discourage customers from ever making purchases without a discount. Another challenge facing Groupon is managing its growth. The company has expanded into Europe, Latin America, Asia, and Russia by acquiring daily deal services.  

Finally, Groupon faces an extraordinary level of competitor. Part of the problem is that the daily deal technology is not very sophisticated and the model is easy to copy. Manufacturers, large retailers and small businesses are all trying the concept.  

Groupon's success is the result of a simple and effective business model and an insightful understanding of consumer behaviour. In the future, Groupon's strategies will require continued attention to understanding consumers around the globe. 

Adapted from source: Groupon: Helping Consumers with Purchase Decisions, in Kerin, R.A., Lau, G.T., Hartley, S.W. & Rudelius, W. (2013), Marketing in Asia, 2nd edition, New York, McGraw-Hill. 

Answer the following questions:-  

1. In what ways did the understanding of consumer behaviour helped Groupon grow from 400 subscribers in Chicago in 2008 to 60 million subscribers in 40 countries today? 

2. Describe the five-stage purchase decision process for a typical Groupon user. 

3. What are the possible psychological and sociological influences on the Groupon consumer purchase decision process? 

4. What challenges will Groupon face in the future? Provide four challenges. 

5. Based on your answer in question four, what actions would you recommend to address each challenge?