The idea of Groupon is one that is fairly new and has left CEO and founder Andrew Mason at crossroads. Should he have taken the roughly $6 billion purchase attempt by Google to do what it has long been doing, acquiring small start-up internet businesses in order to further expand its capabilities, or should he attempt to try further growth in attempts for a sweeter deal in the future? Well it seems as though Mason has chosen the latter. Over this last year we have seen internet juggernauts such as Yahoo and Google throw money at the two-year-old "quantity discount" organization. Yahoo had their roughly $3.5 billion dollar offer counteracted by Google with the offer I previously mentioned. However, two days ago, Google was shot down by Groupon which shows that Mason believes in further expansion and an increase in the selling price.
So how does it work? I view Groupon similar to a supply chain management approach with regards to quantity discounts. In the supply chain, every member such as the manufacturer, distributor, retail store, etc. works together to supply one another what is needed at the best price possible for the purchaser. The idea of quantity discounts allows the buyer to receive each item at a lower price the more items they order. To associate quantity discounts with buyer-seller relationships encourages lower prices for the customer, while increasing inventory sales and brand familiarity for the seller. Groupon teams up with businesses in local areas and comes to an agreed upon price break. This price decrease is offered to the customers of that area where they (hopefully) will spread the word to their friends on the "great deal they got". With every person that the initial customer can lead to Groupon, they receive $10 worth in Groupon spending for future businesses.
Some opposed to the idea of Groupon argue that the class who chase this style of purchasing are those with little to no disposable income who are solely looking for cheap deals. This graph shows just the opposite, which proves larger markets to target in the future.
The idea of quantity discounts has long been used in the supply chain area and has proven to reap major benefits on both sides of the inventory transaction line. The major issue is whether or not Groupon will continue to flourish or will cease to acquire the necessary profits to stay afloat. It has recently been projected in an article by PCWorld that Groupon can expect to gain revenues of $2 billion. This does not take in to account all of these local businesses it has agreements with to pay back for the offering of the price reduction. The current and future growth of Groupon relies heavily on customer expansion in order to cover the price reduction costs. Hence, the supply chain quantity discount approach. The more items sold (groupons- customers attracted), the more likely the organization can move boxes off of the shelves and cover its costs (or costs spent on offering the discount in the first place).
With this comparison, I firmly believe that the idea of Groupon has taken the business-to-business approach from the supply chain side and just applied it to a business-to-customer approach out in the open market. The concept of word-of-mouth has been used through out time for any and all products. When a person looks to acquire a specific product, they rely on friends on family in order to find the "best deal" available. Groupon gives the best deal and encourages its customers to spread the word instead of waiting for a necessity. By offering a "deal of the day", Groupon facilitates buying that may not even be necessary at the time in order for customers to feel the need to purchase an item because of the "can't be beaten" deal. These internet juggernauts have realized the exceptional benefits that can be earned and I compliment CEO Andrew Mason heavily for holding on to his organization. I foresee even more growth in to the future and a larger selling price, if sought. I also see expansion of an online e-marketing service that may even exceed capacity to the likes of facebook and twitter which will allow Mason to increase profitability in to the future.
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