Business class Principles of management

   83  WINDHAM  STREET    !    WILLIMANTIC,  CONNECTICUT  06226    !    860-­‐465-­‐5000  

 

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BUS  201  (04)  –  FALL  2014   PRINCIPLES  OF  MANAGEMENT  

INSTRUCTOR:  KAMESH  V.  CHIVUKULA    

 

ASSIGNMENT#  2  –  GROUPON     General  rules:  

1. Assignment  due  by  beginning  of  class  on  October  10,  2014.    Email  with  attached  Word  or  PDF  best  though   instructor  will  accept  hard  copies  as  well.  

2. Responses  must  be  typed  on  2  to  3  pages.    Please  use  reasonable  font,  line  spacing  and  margins!   3. Use  your  learning  from  all  Chapters  covered  so  for  from  the  textbook  (MGMT7,  Chuck  Williams)   4. This  assignment  will  count  for  12  points.   5. Please  address  the  following  3  questions.    You  are  welcome  to  touch  on  additional  issues  if  you  wish.  

A. [2  points]   What  are  the  main  issues  described  in  the  case?   B. [5  points]   List  and  describe  the  main  Principles  of  Management  involved  in  the  case.   C. [5  points]   If  you  were  in  charge  at  Groupon,  what  would  you  do?  

 

  From  400  subscribers  and  30  daily  deals  in  30  cities  in  December  2008  to  35  million  subscribers  and  900  daily  deals   in  550  markets  today,  Groupon  got  to  $1  billion  in  sales  faster  than  any  other  company.  Starbucks  CEO  Howard   Schultz,  who  was  an  eBay  board  member  and  is  now  a  Groupon  investor  and  board  member,  said,  “Starbucks  and   eBay  were  standing  still  compared  to  what  is  happening  with  Groupon.  I  candidly  haven’t  witnessed  anything  quite   like  this.  They  have  cracked  the  code  on  a  very  significant  opportunity.”  Eric  Lefkofsky,  who  chairs  Groupon’s  board   said,  “The  numbers  got  crazy  a  long  time  ago,  and  they  keep  getting  crazier.”  So,  what  is  propelling  Groupon’s   astronomical  growth?  How  does  it  work?     Groupon  sends  a  daily  email  to  its  35  million  subscribers  offering  a  discount  to  a  restaurant,  museum,  store,  or   service  provider  in  their  city.  This  “coupon”  becomes  a  “groupon”  because  the  company  offering  the  discount   specifies  how  many  people  (i.e.,  a  group)  must  buy  before  the  deal  “tips.”  For  example,  a  local  restaurant  may   require  100  people  to  buy.  If  only  90  do,  then  no  one  gets  the  discount.  Daily  deals  go  viral  as  those  who  buy  send   the  discount  to  others  who  might  be  interested.  When  the  deal  tips  (and  95%  do),  the  company  and  Groupon  split   the  revenue.     Why  would  companies  sign  up,  especially  since  half  of  the  money  goes  to  Groupon?  Nearly  all  of  Groupon’s  clients   are  local  companies,  which  have  few  cost  effective  ways  of  advertising.  Radio,  newspapers,  and  online  advertising   all  require  upfront  payment  (whether  they  work  or  not).  By  contrast,  local  companies  pay  Groupon  only  after  the   daily  deal  attracts  enough  customers  to  be  successful.  Another  problem  with  traditional  ads  is  that  they  are   broadcast  to  a  wide  group  of  people,  many  of  whom  have  little  interest  in  what’s  being  advertised.  The  viral  nature   of  Groupon’s  coupons,  however,  along  with  tailoring  deals  based  on  subscribers’  ages,  interests,  and  discretionary   dollars,  lets  companies  target  Groupon’s  daily  deals  to  customers  who  are  more  likely  to  buy.  Groupon’s  CEO,   Andrew  Mason,  said,  “We  think  the  Internet  has  the  potential  to  change  the  way  people  discover  and  buy  from   local  businesses.     Because  there  are  few  barriers  to  entry  and  the  basic  web  platform  is  easy  to  copy,  Groupon’s  record  growth  and   80  percent  U.S.  market  share  has  attracted  start-­‐up  competitors  like  Living  Social,  Tippr,  Bloomspot,  Scoutmob,  

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and  BuyWithMe,  along  with  offerings  from  Google,  Facebook,  and  Walmart.  Globally,  Groupon’s  business  has  been   copied  in  50  countries.  China  alone  has  1,000  Groupon-­‐type  businesses,  including  one  that  has  copied  Groupon’s   website  down  to  the  www.groupon.cn  URL.  Likewise,  Taobao,  which  is  part  of  Alibaba  Group  Holdings,  one  of   China’s  largest  Internet  companies,  has  a  group  buying  service  call  “Ju  Hua  Suan,”  which  translates  to  “Group   Bargain.”     So  although  Groupon  has  grown  to  $1  billion  in  sales  faster  than  any  other  company,  competitors  threaten  to  take   much  of  that  business,  especially  in  international  markets,  which  Groupon  is  just  starting  to  enter.  As  Groupon   goes  global,  should  it  adapt  its  business  to  different  cultures?  For  example,  it  relies  on  a  large  Chicago-­‐based  sales   force  to  build  and  retain  business  with  merchants,  and  70  comedy  writers  to  write  ad  copy.  Similarly,  who  should   make  key  decisions—managers  at  headquarters  or  managers  in  each  country?  In  short,  should  Groupon  run  its   business  the  same  way  all  around  the  world?  How  should  Groupon  expand  internationally?  Should  it  license  its   web  services  to  businesses  in  each  area,  form  a  strategic  alliance  with  key  foreign  business  partners  (it  rejected   Google’s  $6  billion  offer  in  the  United  States),  or  should  it  completely  own  and  control  each  Groupon  business   throughout  the  world?  Finally,  deciding  where  to  go  global  is  always  important,  but  with  so  many  foreign  markets   already  heavy  with  competitors,  the  question  for  Groupon  isn’t  where  to  expand,  but  how  to  expand  successfully   in  so  many  different  places  at  the  same  time.       Sources:     L.  Chao,  “Taobao  to  Launch  Local  Deals  on  Group-­‐Buying  Website,”  Wall  Street  Journal,  23  February  2011,   http://online.wsj.com/article/SB10001424052748703775704576161340839989996.html  [accessed  15  May  2011];   B.  Stone  &  D.  MacMillan,  “Groupon's  $6  Billion  Snub,”  Bloomberg  Businessweek,  13  December  2010,  6-­‐7;  B.  Stone   &  D.  MacMillan,  “Are  Four  Words  Worth  $25  Billion?”  Bloomberg  Businessweek,  21  March  2011,  70-­‐75.