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Abstract: Groupon is one of the most successful Internet based companies in a social commerce industry. Proofs of its success include its markedly increased number of traffic, rapid expansion in the US and Europe and more than 100 million sales revenues in the span of barely two years. All these achievements are attributed to its social shopping concept, word-of-mouth marketing and judicious use of social networking sites that allows the company to pre-sell products or services while customers get a discount. All these make Groupon the best model company that incorporates many aspects of "social commerce" to launch and maintain its success.
About the Author: Roni Seulki Lee is currently a forth year undergraduate student at the University of Southern California's Leventhal School of Accounting. She is continuously developing her passion for accounting and love of learning at University of Southern California. After Graduating in December 2010, Roni looks forward to enhancing at University of Southern California her ability and knowledge in a desired professional field as CPA.
Social Commerce "Groupon"
The advent of "social commerce" has pushed shopping into a whole new level. Though its definition remains vague, that is, different people view it in various ways with its meaning still evolving, many agree that its key word is "social" (Decker); hence it involves the interaction between groups of people who participate in discussions to share their opinions and experiences via the worldwide net. And without a doubt, majority of the public view the driving forces behind the rampant spread of the so-called 'Social Networking' across the globe to be the websites 'Facebook' and 'Twitter.' Through these mediums, everyone gets to connect with each other and instantly know what their friends, relatives and co-workers are doing.
The next part of the concept "social commerce" is the interchange of goods or commodities; hence man's inherent need to interact and 'hang-out' has been utilized into a marketing strategy. It is a rapidly spreading service that augments the shopping experience for sellers by allowing their interaction with buyers to get the latter's opinions on how to improve their products, and for buyers to find their needed items while getting advice from trusted individuals by browsing thru positive and negative feedbacks and testimonials via the latest tools (Marsden) in customer ratings and reviews, forums and communities, social shopping (the act of shopping together online like group buying, co-browsing and the like), recommendations and referrals, social media optimization (advertisement of destination websites) and social applications and advertizing (paid ads). It may sound complicated, but once one gets into the hang of it, it seems as if he or she will continue to use it; that's why there's an increasing popularity in the service across the world. As a pioneer and because of its outstanding performance, Groupon is the best model company that incorporates many aspects of "social commerce" to launch and maintain its success. How it became successful and how "social commerce" aided in its success and rapid expansion will be discussed in the following sections.
On Groupon's History
Groupon's achievements can be corroborated from its short but eventful history. Its humble beginning is traced from the opening of the social community website called 'Thepoint.' Users of the website created little social communities where people could interact with each other to organize campaigns, solve problems and raise money for any reason from persnal causes like college funds to general concerns like disaster relief and environmental protection programs. Then its founder Andrew Mason decided to launch his own campaign to gather enough people to obtain discounts for certain goods and services because his research made him realize that companies will only agree to cost reduction if a required number of customers sign up for the promo. Thus he started to sell these cheap coupons online. After an initial success, CEO and founder, Andrew Mason realized the potential of this idea and opened the website called Groupon in November 2008. This website contains a social community where members can buy various coupons to enjoy discounts while retailers get to pre-sell products or services. It essentially employs the concept of 'Social Buying' or 'Group Buying' where the power of the crowd drives down prices to as much as 50%-90% as claimed by its website. This formula seems to work for despite being a young company of barely two years, Groupon has already been dubbed by an imminent business magazine as "the next web phenomenon" and "the fastest-growing company" in business history (Figure 1).
Its fast growth is reflected by the number of visitors frequenting the site, its projected sale revenues and the rate of its expansion worldwide. Since its launching, Groupon's traffic and sales keep increasing as shown well on the graph below (Figure 2). From June 2009 to January 2010, the average number of monthly visitors increased from 26,000 to over 2.1 million. Not only are more visitors coming to the site each month, but those visitors are also becoming increasingly active participants in the site's programs from over 1 million to over 2.1 million in seven months. Over the same period of time, each person went from making an average of 1.4 visits per month to 2.5 visits per month (Steinbach). It presently boasts 15 million subscribers and operates some 230 local websites in 29 countries (Anonymous, Business: Selling becomes socialble; Online Shopping) in Europe and the US. And just 15 months from its launching, it has already sold 1.2 million discount coupons, saving buyers more than $60 million, and is on track to make more than $100 million in revenue by the end of 2010 (McGuire). To handle the bulk of customers, the company now employs almost 1000 people and they are also planning to add 20 additional U.S. cities and locations in Canada and Europe before the end of 2010, as well as start expansion in Asia. As a testimony of its success, it has even prompted the creation of numerous copycats including LivingSocial, CrowdSavings, BloomSpot, Tippr and Scoop St. It even received a $5 billion to $6 billion buy-out offer from Google. (Anonymous, Report)
Factors Attributed to its Success
Groupon primarily owes its success to "social commerce" via several ways. First, it offers a win (consumers) - win (Groupon) - win (product providers) situation to all its users. The consumers get large discounts of 50-90% from their local manufacturers and stores. The company (Groupon) acquires 30 to 50% of the deal price and the rest of the money goes to the manufacturer who in turn acquires new customers and a lot of exposure (McGuire). Furthermore, the system helps increase the accessibility of the manufacturer's shops to the customers browsing the internet, gives them savings from posting ads and allows them to gain loyal customers who are likely to reuse their products or services (Stephen & Toubia). Hence, nobody loses anything. Because of this, 'Social Buying' has become intensely popular in major cities across the world including New York, Chicago and Loondon.
Next, Groupon offers the unique and enjoyable experience of "Social Shopping". This is how it works: If there is a new entrepreneur who wishes to promote his business and attract consumers, he can sign a deal with Groupon to offer coupons/discounted prices of his product to a 'target' number of consumers. That business's product will then become the featured deal on Groupon for a single day. However, the deal will only become valid if the 'target' number of people decides to purchase. As illustrated in Figure 3, after the deal is offered, interested people have to gather support from others from the various social networks like Facebook and Twitter to meet the desired number. If the target number is met, the deal goes through, and lots of moneys are exchanged hands. The credit cards of everyone who agreed to buy will be charged and they will receive a print-out coupon via e-mail. If the target number is not reached, then the deal is cancelled and the credit cards will not be charged. The fact that the entire process cannot push through with complacency as it requires people to actively gather support thru socialization makes this a unique, challenging and enjoyable experience for many people.
Therefore, the most important thing which has allowed Groupon to succeed in a short period is 'Word-of-Mouth Marketing.' This is especially important since Groupon's initial seven members, including Andrew Mason, who aside from finding enjoyment with communication had little experience in the business field. Thus their business would surely have failed if it is not self-propagated by recommendations from many people.
Word of mouth is the primary factor behind 20 to 50 percent of all purchasing decisions. Its influence is greatest when consumers are buying a product for the first time or when products are relatively expensive - factors that tend to make people conduct more research, seek more opinions, and deliberate longer than they otherwise would (Bughin).
Part of word of mouth marketing is member's testimonials and referrals. Relatives, friends and actual consumers' commendations assuring the quality and effectiveness of the company has assured Groupon many loyal followers and carved a niche for the company in the global market. Furthermore, Groupon is highly dependent on its members' referrals. Its basis in the online community are the social networking sites, such as Facebook and Twitter, which serve as one of the major sources of its referred traffic. Figure 4 shows that Facebook is the top referring site in January, comprising 44% of all referrals (Steinbach). Since facebook has more than 500 million active users and each user has an average of 130 friends (Facebook statistics), literally hundreds of people will be notified of the daily deal offered by Groupon if only one user posted this in his/her page. No wonder that as much as $35 million of the company's revenues came from Facebook angel investor Accel Partners (McGuire).
Strategies of Groupon
Finally, Groupon has developed several strategies to defend its present position of number one in the social commerce industry. The following are the main strategies numerous other similar companies are trying to take away from the Groupon Inc.:
It is true that people reduced spending with the global economic crisis. If many consumers come together in response to their relatives' and friends' calls via social networking sites to buy a certain product, people will be able to buy different cultural products at a much cheaper price. This is something that can benefit both the consumer and the provider. And it is ultimate goal for Groupon, the best model for social commerce.