Why is Groupon failing?

Is the Groupon Business Model Failing? Why is Groupon failing?
  1. Low barrier to entry

    Because the business model of Groupon can easily be replicated. Many competitors started replicating what the company was doing even on a small scale, and this led to more costs as the company tried to aggressively acquire more customers.

  2. Low customer loyality

    The business model of Groupon doesn’t help it build customer loyalty. A customer looking for a deal can hardly be loyal to one place if another one offered a similar or better deal.

  3. Low profit margins

    Because the revenue from daily deals remained flat for years, Groupon launched a new service where it sells goods such as the iPhone for a discount. While the new service was successful it had a low profit margin (20%), compared to the 88% the deals business brought.

  4. Stock price falling since the IPO

    One of the reasons many people believe that Groupon is failing is that its stock price has been going down since the IPO. The problems with the business model in addition to the low return on investment are among the reasons responsible for the fall of the share price. (See How to identify a stock market bottom?)

  5. People don’t come back for the business

    As a business owner realizes that the customers who bought his products through Groupon never come back again,because they were just looking for a deal, he decides not to continue with Groupon. Because many businesses do that, Groupon has to aggressively keep signing in new businesses.

  6. Paying too much for customers

    Groupon pays a lot of money to acquire customers, but as many of those customers never make repeat purchases the company found itself facing very high expenses.

  7. Harsh rules for businesses

    Businesses who sign up with Groupon have to agree on very harsh rules such as selling their products for half the price. Many businesses found it hard to sustain the relationship with Groupon based on those terms.

  8. High expectations set

    Very high expectations were set for Groupon by both investors and the media. The high expectations led to very high valuations during the IPO and as a result the company failed to meet such expectations.

  9. Focused on short term growth

    The company focused on aggressive short term growth while ignoring the fact that costs will rise on the longer term and that it’s not acquiring enough repeat customers.

  10. No significant competitive advantage

    Even though Groupon grew very big it didn’t have any significant competitive advantage to help it defend itself against people who attempted to copy the business model. (See How to Choose a Business Partner?)

  11. High costs compared to profits

    Some people have doubts that the daily deals business model can ever be a success. Those people cite the high costs of that business model compared to the profits made.

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