Mini Case – Groupon
Online coupon businesses have begun to boom recently in not only big cities in the U.S. but also in smaller areas around the country. With the growth of this business, though, comes competition, which is a major problem facing big online businesses such as Groupon and Living Social. Although these are the two largest rivals in the business right now, there are hundreds of other companies that have tried to take a piece of the pie by offering their own online coupons. Companies such as Groupon and Living Social have to find a way to get customers to buy from them, but also to get them to return and not just go to the next best competitor; return customers, which is another major problem those compaies face. Tim O'Shaughnessy, the founder of Living Social has been trying to stay ahead of the curve by making sure he hires in the right people that will not only work with the company’s core values but also live their personal lives through the company’s core values too. By doing this, companies such as Living Social and Groupon can differentiate themselves from the other competitors.
For a company to have a winning strategy they must pass three different types of tests; the fit test, the competitive advantage test and the performance test. Living Social has grown to around 200 cities across the U.S. which allows their competitors to rival them in many different areas. The company must take a look at the three winning strategy criteria to make sure that they are going to be competitive in that area. Living Social made sure that they knew what they were matched up against when they started the company, looking at the industry and knowing they would have to compete against the likes of Groupon along with many other smaller companies too. Living Social took right to advertising on the television, radio and internet to help them gain a competitive advantage. Knowing that Groupon was the industry leader, Living Social knew they would have to advertise to get their name out there and compete with the biggest company out at the time. The last test for a winning strategy is the performance test, which Living Social has passed with ease. Recently Living Social has been valued at around $3 billion, which has more than proved that they are producing good company performance. Groupon also has very strong showings in the sinning strategy criteria. Groupon was launched in 2008 and has grown to about 48 countries at this time including their headquarters in Chicago (Groupon). The company has shown to fit the industry very well, which is why they are the industry leader at the time, beating out all other competitors. Groupon has a strong competitive advantage, which is proven by their longevity. Although five years isn’t a long time for a company to be around, in that time Groupon has seized the leadership in the industry and now has a sizable lead on the rest of the competition, including Living Social. The performance test was passed long ago but now Groupon looks to be worth about $20 billion. The company has financial strength and also has the popularity to hold on to the competitive advantage too.
A company such as Groupon has to be proactive about how they stay competitive in a business. As a company Groupon based their business off of the idea that people did not want to go out and search for deals because there were just too many, so instead they brought all of the deals to one spot and let people pick from them, in turn broadening that persons buying horizons (Groupon). Groupon has nowhere to go but up in the industry though, with the growth of mobile shopping on smart phones, the number of people shopping with online coupons in just going to continue to rise. Over the past four years the number of adults that use digital coupons has gone up four to five million users a year, expected to grow again in 2014 (eMarket). It is easy to see why digital coupons are growing at such a rate with smartphones almost making other phones obsolete. Smartphones let users access deals on the go and have the capability to serve coupons that are highly relevant based on location, behavior and timeliness (eMarket). I think Groupon will continue to increase their accessibility for mobile users which will help to continually grow their business in the exploding market that is smartphones.
To have a strong business model a company must ensure two important elements; customer value proposition and profit formula. Groupon has to find a way to differentiate themselves from the rest of their competitors, which they have done for the most part, but with a business like Living Social, it can be harder to find a competitive advantage. Differentiation is when a company can distance themselves from their competitors by providing superior price, customer service or some other type of benefit. Groupon already has such a substantial lead over the rest of the industry that it’s hard to imagine their business model will not be successful over the short term. With more people than ever before redeeming mobile coupons according to Juniper Research, and the rise of Facebook apps, and databases of online coupon codes the short term success will continue to be on the rise (Technorati). On the other hand, although it is hard to find fact to back it up, I think the long term success will be tougher to maintain. It is almost a guarantee that the digital coupon industry will plateau at some point which will slow down the growth of Groupon, then forcing them to come up with even more unique strategies. Also, in the long term, there is a chance that other businesses will come along to rival or even take over the top spot in the industry. Unless Groupon can get a stranglehold on the industry, in the form that a Wal-Mart has, the competition might be too much to keep the growth rate they are experiencing at this current time.
The intensity of the online coupon sector is probably at an all-time high right now because of the demand. The industry as a whole is growing and is expected to continue growing in the near future, so much so that a recent report from Juniper Research suggesting that the mobile coupon market will be worth $46 billion by 2015, a large jump from the $5.6 billion projected for the industry in 2012 (BGR). Rivalry among competitive sellers right now seems to be weak because of the demand being so high. The rivalry between Groupon and Living Social will probably become fierce once the industry plateaus in years to come which will make those two fight over customers. The threat of new entrants seems to be pretty legitimate for Living Social, more so than it is for Groupon right now. Groupon is reportedly worth about $20 billion so the threat of another digital coupon business coming in and threatening them right now seems pretty low, and although that same threat is still pretty low for Social Living which is worth around $3 billion right now, they are at a higher risk of new entrants than Groupon. The threat of firms from other industries offering substitute products seems to be pretty low pressure for both Groupon and Living Social at this point. Online couponing is the substitute to couponing, and with it being so convenient with smartphones now, it doesn’t seem that there could be a more readily available offer than what is already being offered. The supplier bargaining power seems to be pretty weak at this point too, with an abundance of available supplies for both Groupon and Living Social. On the other hand, buyer bargaining power is very high at this point in time for both Groupon and Living Social. Buyers from each company could switch back and forth between the two businesses or even an outside business to find where the best deals are. There is no cost for a buyer to switch from one to the other and lots of these businesses offer the same standardized products that the buyer is looking for.
The industry is growing right now for digital couponing companies, with Groupon and Social Living leading the way. There are many different companies that pop up, usually in a small centralized area, but Groupon and Social Living are both spread out through the entire country, with Groupon expanding to almost 50 different countries. With the digital couponing industry growing at the rate it is now, expect these companies to continue to do well in the near future, especially with the expansion of mobile devices which allow people to conveniently purchase products for the best price from the comfort of their home.

References
BGR. (2011). Mobile Coupon Industry Will be Worth $46 Billion by 2016. Retrieved September 21st, 2013 from http://bgr.com/2011/11/02/mobile-coupon-industry-will-be-worth-46- billion-by-2016-analysts-say/ eMarketer. (2013). Mobile Spurs Digital Coupon User Growth. Retrieved September 20th, 2013 from http://www.emarketer.com/Article/Mobile-Spurs-Digital-Coupon-User-Growth/1009639
Groupon. (2013). About Us. Retrieved September 19th, 2013 from http://www.groupon.com/about
Technorati. (2013). Social Media & Digital Coupons Driving Industry Trends. Retrieved September 20th, 2013 from http://technorati.com/business/article/social-media-digital-coupons-driving- industry/