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Organizational Behavior class-custom essay

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Read the following case study and answer the questions that follow. Use MLA style and a minimum of 3 full pages and a maximum of 4 full pages, not including title and reference page. Reference your textbook and at least one additional scholarly source to demonstrate critical thinking. This assignment relates to material in Chapter 10.

Groupon Case Study: Decisions! Decisions! Decisions!

Groupon, an Internet coupon company, was founded in Chicago in November 2008 by Andrew Mason, a young entrepreneur who was working with $1 million in seed money provided by Internet entrepreneur Eric Lefkovsky, who was Masons former boss. Groupons business innovation is merging collective buying with coupons?hence the companys name: group plus coupon. According to Mason, the strategic goal of Groupon is to fundamentally change the way that people buy from local businesses in the same way that e-commerce has changed the way that people buy products. How does Groupon benefit from changing the way people buy from local merchants? The answer: Groupon collects half of actual sales, not just profits, in exchange for the introduction to a new customer.

The Groupon business model is based on [c]onsumers sign[ing] up to receive offers from local firms by e-mail each day, ranging from restaurant meals to pole-dancing lessons, at discounts of up to 90%. But Groupon made virtual coupon-clipping exciting by, first, having offers expire after just a few hours and, second, cancelling them if they do not attract a minimum number of buyers (the group in Groupon). A certain number of people need to buy into any given deal before it kicks in, or tips in Groupon parlance. Once the deal tips?for example, 200 people have purchased a $40 coupon for an $80 massage?the merchant and Groupon split the revenue roughly 50/50, and a group of customers has an unbeatable bargain. Given that a minimum number of people need to buy into a coupon deal before it tips, buyers eagerly spread information among family and friends, which in turn increases the number of buyers. This effect is like a snowball rolling rapidly down a steep hill?and it can benefit both Groupon and the merchants, at least in the short-term.

Since its inception in November 2008, Groupon has grown like wildfire. Just two years later Groupon was operating in 150 markets in the United States and 100 markets in Europe, with approximately 35 million registered users. Then by early June 2011 Groupon reported having 83 million subscribers in 43 countries, including an entry to China in March 2011.

Groupon securely dominates the online coupon market in Chicago, New York and San Francisco, where its offers are unique and lure consumers into new neighborhoods and experiences, [t]hats less true in second- and third-tier cities where Groupon relies on merchants to come to it. Although Groupon is the dominant player in online coupons, its brand only takes it as far as it offers the best deals from the most sought-after local retailers, restaurants and services?the kind of businesses that used to reside in the Yellow Pages and $10 coupon books.

A major challenge for Groupon in pursuit of its strategic goal is to retain the merchants beyond the first coupon deal with them. Early reports indicated that as many as one-half of small businesses did not continue to participate in Groupon deals, and that the majority of those ceased to participate because the first deal was unprofitable. In attempting to counter this merchant drop-off effect, Groupon hired a customer relationship management agency to track merchant satisfaction; Groupon says early surveys have shown 95% of businesses say they want to work with the company again.

Groupons success has attracted much attention among the Internet business community. Indeed, in late 2010 Google made a $6 billion buyout offer to Groupon?a sum that was nearly twice as much as Google had previously offered for any acquisition. Mason, however, rejected the buyout offer?a decision that one observer characterized as frustrating, maddening and inexplicable to most people. Impressed by Groupons meteoric rise, venture capitalists say that Googles interest in acquiring Groupon is easily explained and understood. Given the potential for future profitable growth, $6 billion may be just fraction of its ultimate value in the market. Who wouldnt want to own a money machine like Groupon?

Then in early June 2011, Groupon filed paperwork with the United States Securities and Exchange Commission (SEC) for an Initial Public Offering (IPO) of stock, with the objective of raising $750 million. Speculation in the days following the IPO filing indicated that the amount of money Groupon could raise might be significantly more than $750 million. Indeed, one observer suggested that Groupon may leapfrog Google Inc. as the biggest U.S. Internet-related initial public offering ever. Another reporter said, Groupon has every incentive to IPO fast, to cash in while its expansion is in overdrive. But investors should take their time assessing whether the companys explosive growth really will translate to surging profits. Additionally, The Economist points out that Groupons position is not as unassailable as it appears from its rapid growth and huge market share?more than 60% in America . To ward off competition Groupon will be forced to lower the share of revenue it keeps from its deals. Moreover, an increasingly large chunk of Groupons revenue goes to cover marketing costs associated with acquiring new subscribers.

Steve Rosenbush, writing in the Institutional Investor, asserts that Groupon is still in the early stages of its growth and has yet to tap the entire U.S. market, let alone the international market. However, analysts disagree about the future of the online coupon market, with some believing it has monopoly potential and others believing that there will be multiple players with multiple product variations. Evidence is mounting that the latter view may be more on target. Groupon may become strangled by its own success and exponential growth rate. As indicated by its founder and CEO, Andrew Mason, Groupons inability to handle the businesses banging on its door has led to the proliferation of clones. Mason estimates that there are some 500 clones; many have ripped off Groupon down to the companys bright green signature color and website layout. But only Living Social, which just received a $175 million investment from Amazon, has emerged as a genuine competitor. Groupon still maintains about 80% market share. Losing to a competitor, perhaps one that doesnt exist yet, is one way the company could fall. In a March 2011 statement, Mason opined, by this time next year, we will either be on our way to becoming one of the great technology brands or a cool idea by people who were out-executed and out-innovated by others.

With this mixed evidence, are Groupons business prospects rosy or dismal?

Assignment Questions

1. What are the key decisions that Andrew Mason has made during Groupons brief history? How have these decisions influenced Groupons evolution as an Internet-based business?
2. How would you describe the decisions identified in your response to question 1 in terms of programmed and nonprogrammed decision making?
3. How would you describe these decisions in terms of the rational, bounded rationality, and garbage can models of decision making?
4. How, if at all, has creativity and intuition played a role in the decisions to found and rapidly expand Groupon?
5. Suppose that you think the market for group-based online coupons has great potential, and that you desire to enter the competitive fray. What factors would you consider in making a decision on whether or not to become a Groupon competitor?


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