Groupon Case Essay

2362 words - 10 pages

Groupon Case
25 points

This case is to be completed individually by each student in the class. No collaboration or discussion of the case with any other student in the class is permitted.

The due date for the case is at the beginning of class on Monday, April 29, 2013 (the last day of class). Only hard copies of the case should be turned in. If you will be absent for class on that day, have somebody else in class turn it in or put it in the professor’s mailbox on the 5th floor of the RCB building. No email submissions of the case will be accepted.

The two accounting standards pertaining to the case, SAB 101(SEC) and EITF 99-19 (FASB) have been posted on Desire2Learn in the same ...view middle of the document...

Once this critical mass is reached, prospective buyers have a specific time within which to buy the coupon. The coupon rate is negotiated by the Groupon salesman with the merchant vendor. From the merchant’s perspective, on the upside, they are guaranteed a minimum number of buyers for the discounted rate, who may spend more than the face value of the coupon, and if all goes well, have the ability to expand their repeat customer base. The downside, of course, is that if the discount attracts bargain hunters looking for a one-off deal and are not likely to return and pay full price in the future.

The value proposition that Groupon presents is the ability to match local deals to subscribers by zip code as well as by gender, along with a winning advertising copy by the over 400 writers at Groupon. The matching of offers by gender is instrumental in directing offers for manicures, pedicures, laser hair removal services to women, while offers for restaurants are offered to both men and women. Groupon is also known for writing unique descriptions of the products or services. The ad copy injects personality, often a clever turn of the phrase, a play on words – all designed to get the subscriber to buy the deal of the day. Here is an example of a catchy Groupon deal:

Item: Two 60-Minute Jump Passes at Sky Zone (a trampoline-filled entertainment center) in St. Louis
Retail value: $25

Groupon price: $12

Units sold: 2,228

Wisecrack: "Though it prohibits us from bench-pressing cars, gravity is the best thing for getting water out of the sky and the only thing keeping football stadiums from floating away. Escape its omnipresence with today's Groupon.
The more units sold by Groupon, the more money it stands to make. The financial arrangement between Groupon and the vendor is typically a 50/50 split. If a $100 restaurant voucher is sold at a discounted groupon rate of $50, Groupon collects the full $50 from the buyers, remits $25 to the vendor, and retains $25. At the end of the day, the restaurant in this example would have sold a $100 voucher, and collected $25 from Groupon in this marketing campaign. One of the more lucrative vouchers sold by Groupon was for a TreeTop Adventure Tour by North Georgia Canopy Tours in Atlanta, Georgia. With a retail value of $89 and a groupon rate of $44 per trip, 7,130 buyers bought the deal. Groupon collected $313,720 on this deal ($44 x 7,130) and retained $156,860, with the other half going to the tour company.

Clearly Groupon makes money as more buyers opt for the deals it markets for vendors. But it also carries a certain amount of risk with respect to the ultimate delivery of the service or product. Groupon is obligated to the customer. If the vendor is not able to provide the service, goes out of business, or if the customer is not satisfied with the deal, Groupon promises a full refund of the amount paid under a program called Groupon Promise. And so it is that Groupon takes care in selecting the...

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