Groupon Answers

Answers to Questions


   1.   How has an understanding of consumer behavior helped Groupon grow from 400 subscribers in Chicago in 2008 to 60 million subscribers in 40 countries today?




“Part of the reason that Groupon has grown as quickly as it has is because we really understand consumer behavior,” explains Julie Mossler, PR & Consumer Marketing Manager at Groupon.  Generally, Groupon consumers follow the same purchase decision process common to many consumer purchases.  In the future, Groupon’s strategies will require continued attention to understanding consumers around the globe.  Mossler explains, “Groupon has been heralded as the fastest growing company of all time, and the reason for that is that is because we have solved this unsolvable problem, which is how do you engage with local customers…the model really works anywhere as long as you adapt for local communities.”


   2.   What is the Groupon Promise?  How does the Groupon Promise affect a consumer’s perceived risk and cognitive dissonance?




         a.   The Groupon Promise.  The Groupon Promise states that any customer can return a Groupon, no questions asked—even if they used it—if they feel like Groupon has let them down.


         b.   How the Groupon Promise affects consumers.  The Groupon Promise reduces perceived risk; namely the “uncertainty” of unwelcome outcomes and negative financial consequences of a poor choice.  Similarly, the Groupon Promise affects cognitive dissonance by reducing post purchase anxiety or tension by offering a “no questions asked” return policy even if the Groupon was used.


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




The five-stage purchase process consists of problem recognition, information search, alternative evaluation, purchase decision, and post-purchase behavior. The purchase decision process applies to a Groupon user as follows:


         a.   Problem Recognition.  This is triggered by a Groupon deal-of-the-day e-mail offer for something that someone wouldn’t ordinarily do.  Groupon Now presents real-time offers on smartphone apps in response to an immediate need in a specific location.


         b.   Information Search.  A Groupon offer can initiate an “internal search,” whereby the consumer might reflect on prior experiences with merchant making the offer.  Also, a Groupon offer can activate an “external search,” leading to on-line comparisons with competitors, or discussing the offer with friends on Facebook or Twitter.


         c.   Alternative Evaluation.  Many Groupon customers focus on price as the most important evaluative criteria, although other aspects of the offer, such as quality or time restrictions, may also apply.


         d.   Purchase Decision.  The purchase decision is made online and then confirmed when the deals tip.


         e.   Postpurchase Behavior.  After the purchase and use of the Groupon offer, consumers compare the purchase and use experience with their expectations and are satisfied or dissatisfied.


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




Psychological, sociocultural, and situational factors also influence Groupon users’ purchase behavior.   The recession has increased the importance of personal values such as thriftiness, so deal-prone people who were attracted to websites such as Gilt in fashion and Woot in consumer electronics are also attracted to Groupon.  The typical Groupon user is an 18-34 year-old woman with an average income of about $70,000.  This is significant because this group’s affinity to social media enables the use of Groupon, which depends on e-mail and smartphone apps to reach its customers.  Specific situations, such as planning entertainment activities, finding a close restaurant for lunch, or buying a gift, are 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 process provides offers that are more likely to be of interest to consumers and allows Groupon to serve more merchants.


   5.   What challenges does Groupon face in the future?  What actions would you recommend related to each challenge?




Groupon faces three challenges in the future:


         a.   Groupon use and repeat purchases.  Some consumers buy the coupons but never use them, eventually leaving them dissatisfied and unlikely to use Groupon again.  Some consumers use the coupons but do not become regular customers.  Because of the deep discounts used to sell the coupons, most of the deals are not profitable for the merchants, so they are dissatisfied if the Groupon users do not make repeat purchases.  Actions that may address this challenge include:

    ·   Reminder messages to consumers who have not used their coupon.

    ·   Reduced restrictions on the use of the coupons.

    ·   Better segmentation to ensure that consumers who receive offers may become repeat customers.


         b.   Rapid growth.  The company has expanded into Europe, Latin America, Asia, and Russia by acquiring local daily-deal services.  As a result, Groupon currently has more subscribers abroad than in the U.S., although more deals are still sold in the U.S.  Actions include:

    ·   Expand the number of deals available outside the U.S.

    ·   Develop a comprehensive understanding of the differences in international buying behaviors.


         c.   Competition.  The daily deal technology is not very sophisticated and the model is easy to copy.  Other daily deal companies, such as LivingSocial, and manufactures, large retailers, and small businesses, are all trying the concept.  Groupon can consider several actions:

    ·   Groupon Now may be one answer to this challenge because it is much more difficult to replicate.  “We have always been thinking about how to solve these fundamental problems of our model.  We have known since very early on that some form of real-time deal optimization is where his had to go” Mason explains.

    ·   Provide incentives for increased use of Groupon (a loyalty program).


Students may offer other ideas for actions that Groupon could undertake to address these challenges.