Applying VRIO: The Rise and Fall of Groupon After graduating with a degree in mu

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Applying VRIO: The Rise and Fall of Groupon

After graduating with a degree in music from Northwestern University, Andrew Mason spent a couple of years as a web designer. In 2008, the then 27-year old founded Groupon, a daily deal website that connects local retailers and other merchants to consumers by offering goods and services at a discount. Groupon creates marketplaces by bringing the brick and mortar world of local commerce onto the Internet. Basically, the company offers a “group coupon.” If more than a predetermined number of Groupon users sign-up for the offer, the deal is extended to all Groupon users. For example, a local spa may offer a massage for $40 instead of the regular $80. If more than say 10 people sign up, the deal becomes reality. The users pre-pay $40 for the coupon, which Groupon splits 50-50 with the local merchant. Inspired by how Amazon.com has become the global leader in e-commerce, Mason’s strategic vision for Groupon was to be the global leader in local commerce.

Measured by its explosive growth, Groupon is one of the most successful recent Internet startups. It has over 200 million subscribers and works with over 500,000 merchants in the United States and some 50 international countries. Indeed, Groupon’s success attracted a $6 billion buyout offer by Google in early 2011, which Andrew Mason declined. In November 2011, just three years after its founding, Groupon held a successful initial public offering (IPO) and was valued at more than $16 billion with a share price of over $26. Just a year later, Groupon’s share price had fallen 90 percent to just $2.63. In early 2013, Mason posted a letter for Groupon employees on the web, arguing that it would leak anyway, stating “After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today.”

What went wrong? The implosion of Groupon’s market value can be explained by an application of the VRIO framework. Its competency to drum up more business for local retailers by offering lower prices for its users was certainly valuable. Before Groupon, local merchants used online and classified ads, direct mail, yellow pages, and other venues to reach customers. Rather than using one-way communication, Groupon facilitates the meeting of supply and demand in local markets. When Groupon was first launched, this type of local market-making competency was also rare. Groupon enjoyed a first-mover advantage. Its ability to use technology to spur local commerce was considered so valuable and rare that Google offered $6 billion to buy the company – ust a little over two years after Groupon’s founding! Things started to go wrong soon after that.

The multibillion-dollar Google offer drew the attention of many potential competitors to Groupon’s business model. As it turned out, Groupon was more of a sales company than a tech venture, even though it was perceived as such in the wake of the Web 2.0 boom. To target and fine-tune its local deals, Groupon relies heavily on human labor to do the selling. Barriers to entry in this type of business are nonexistent because Groupon’s competency is built more on a tangible resource (labor) than on an intangible one (proprietary technology). Given that Groupon’s valuable and rare competency was not hard to imitate, hundreds of new ventures (so called “ Groupon clones”) rushed in to take advantage of this opportunity. Existing online giants such as Google, Amazon (via LivingSocial), and Facebook also moved in. Spurned, Google almost immediately created its own daily deal version with Google Offers. Also, note that the ability to imitate a rare and valuable resource is directly linked to barriers of entry, which is one of the key elements in Porter’s five forces model (threat of new entrants). This allows linking internal analysis using the resource-based view to external analysis with the five forces model (which also would have predicted low industry profit potential given low or no barriers to entry).

To make matters worse, these Groupon clones are often able to better serve the needs of local markets and specific population groups. Some daily deal sites focus only on a specific geographic area. As an example, Conejo Deals meets the needs of customers and retailers in Southern California’s Conejo Valley, a cluster of suburban communities. These hyper local sites tend to have much deeper relationships and expertise with merchants in their specific areas. Since they are mostly matching local customers with local businesses, moreover, they tend to foster more repeat business than the one off bar gain hunters that use Groupon (based in Chicago). In addition, some daily deal sites often target specific groups. They have greater expertise in matching their users with local retailers (e. g., Daily Pride serving LGBT communities; Black Biz Hookup serving African American business owners and operators; Jdeal, a Jewish group buying site in New York City, and so on).

“Finding your specific group” or “going hyper local” allows these startups to increase the perceived value added for their users over and above what Groupon can offer. The problem is that although Groupon aspires to be the global leader, there is really no advantage to global scale in serving local markets. This is because daily deal sites are best suited to market experience goods, such as haircuts at a local barber shop or a meal in a specific Thai restaurant. The quality of these goods and services cannot be judged unless they are consumed. Since the creation of experience goods and their consumption happens in the same geographic space, there is really no advantage to having global scale.

Once imitated, Groupon’s competency to facilitate local commerce using an Internet platform was neither valuable nor rare. As an application of the VRIO model would have predicted, Groupon’s competitive advantage as a first mover would only be temporary at best (see Fig-2)[1].

Figure 2

The company’s strategic vision was to be a global leader in local commerce, based on a core competency that could be described as “local market making.” Numerous competitors took advantage of low barriers to entry and the easy imitation of Groupon’s combined competency of some technology skills with sales skills, so that Groupon found that its competitive advantage was only temporary. Groupon continues to compete but needs your advice on how to build dynamic capabilities that might help it pursue the vision of becoming a global leader in local commerce.

How might Groupon reinvest or upgrade its technology and sales skills so it builds a global customer base? For example, are there new products or services that would meet the needs of global clients in each of the local markets where the client does business? Brainstorm ways that Groupon might add value for its customers. How might Groupon build relationships with clients that are more socially complex, making Groupon’s competencies more difficult to imitate?

Explanation / Answer

How might Groupon reinvest or upgrade its technology and sales skills so it builds a global customer base?

Technology can play an important role in online platforms like Groupon. Right now most of their deals are manual feeds where they get information from client and they publish it on their portals. Technologies like Artificial Intelligence can actually predict the required deal for customers based on their recent search results and current market trend., Based on thet Groupon can connect with their client and can discuss about the required deal,Thus the deal itself can be recreated in a better way using technologies. Search engine optimisation, marketing analysitcs tool can also helps in capturing more customers to it and can enhance the platform to a global level. A customer base can be created so that they will get unique spot on offers based on their utilisation of platform and to their interest.

How might Groupon build relationships with clients that are more socially complex, making Groupon’s competencies more difficult to imitate?

Groupon on can use additional social medias help to canvas more client and make them more vibrant and active. Apart from the common webpade they can make use of application sin android in a better way to locate clients and give them exlcusive deal based on their interest and requirement. Client management can be done through systematic team for vendor as well as customers. Fedback, surveys, competitor market analysis etc can help to model their platform much more better and can become more customer centric. To mkake the platform more interactive can use webportal based discussion room where many cleitns can joint together to decided combo offers to customer which would be more lucrative.

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