If you were in charge at Groupon, what would you do?
Groupon's rise has been meteoric; the company made $1 billion in sales faster than any other company.
Once a day, Groupon sends an email to its 35 million subscribers offering a discount to a service provider in their city. The company offering the discount determines how many people must buy before the deal is activated. Buyers send the discount to friends, and if the deal is successful (and 95% are), the revenue is divided between the company and Groupon.
There are few cost effective ways of advertising at a local company's disposal; local companies only have to pay Groupon if the discount attracts enough customers to be successful. Groupon’s coupons reach wide audiences and filter deals based on subscribers’ ages and interests.
Groupon’s rise has inspired competitors like Living Social, Tippr, Bloomspot, Scoutmob, and BuyWithMe, as well as similar deals at Google, Facebook, and Walmart. Groupon's business has been reproduced in 50 countries (with over 1,000 remarkably similar companies in China).
Competitors threaten to steal much of Groupon's business, especially overseas. Since Groupon is going global, should it adapt its business to different cultures? Who ought to make key decisions? How should Groupon expand internationally? If you were in charge at Groupon, what would you do?
L. Chao, “Taobao to Launch Local Deals on Group-Buying Website,” Wall Street Journal, 23 February 2011, http://online.wsj.com/article/SB10001424052748703775704576161340839989996.html [accessed 15 May 2011]; B. Stone & D. MacMillan, “Groupon's $6 Billion Snub,” Bloomberg Businessweek, 13 December 2010, 6-7; B. Stone & D. MacMillan, “Are Four Words Worth $25 Billion?” Bloomberg Businessweek, 21 March 2011, 70-75.
Groupon, like most companies, runs the risk of growing too much too fast and losing sight of its reason for being. Like most other companies, including the ubiquitous Starbucks chain, Groupon will seek to expand until it determines that it has reached a point of diminishing returns, and that means expanding globally. Unlike other corporations, especially companies like Starbucks, Groupon does not have the luxury of presenting largely the same business model globally. More than others, it will need not just to master the unique cultural attributes of each foreign market it enters, but will have to develop intricate knowledge of every market it approaches. Its business model is dependent upon knowing the business and consumer profiles for each such market and those markets operate at the microeconomic level. While other multinational corporations like American fast food providers adapt their menus for local tastes, their operations remain largely formulaic. Groupon, in contrast, will have to remain far more flexible and far more responsive to local demographic transitions. It will have to monitor local business environments to track the comings and goings of disparate businesses as some emerge and others succumb to bankruptcy. So, the basic business model for Groupon can apply internationally, but the details will vary greatly from location to location.
The requirements of adapting to disparate foreign markets will be considerable. Personnel from each locality will have to be hired and trained and be willing to constantly monitor business developments within each office’s geographic parameters. Before solicitations to consumers can be dispersed, information on individuals and families will have to be collected so that the right consumers can be targeted for each participating business. Again, the requirements for such an operation conducted on a global scale will be more daunting than for the more formulaic industries that apply the same business model in every market they enter while contributing minor adaptations according to local tastes.
As far as licensing its web services to foreign partners, that will vary from region to region. Some countries may require local partnerships as a condition of entering their markets; others may lack the legal structure needed to protect intellectual property from theft and abuse. In such cases, retaining total control of its business model may not be possible, and copy-cat operations are a constant risk – one with which Groupon is already confronted in China (where such operations are a routine consideration) and in other countries with weak and/or corrupt legal systems.
Groupon should proceed with caution, and limit itself to those developed nations with strong economic ties to the United States, as that will help ensure, with some notable exceptions including China, that it is operating in regions with legal systems that are consistent with those in the United States and where enforcement of legal codes is uniform. The logical target markets, therefore, are those of Western Europe, especially the countries of the European Union, as well as Japan in the Far East.