Is Groupon a Deal at $5?

Few firms illustrate the highs and lows of internet businesses better than Groupon, the daily deals website founded in the US in 2008. Its novel business model caught on quickly and its sales rose sharply. Leading internet companies such as Yahoo and Google liked what they saw and came with sacksful of money, reputedly offering $3billion and $5.3billion respectively to buy the firm. Groupon rejected the suitors and this looked like a wise decision, when just one year later in 2011, it had a very successful initial public offering of 35million shares at $20 each valuing the firm at $13billion. Such was investor enthusiasm, that the stock jumped 50 per cent on the opening day (November 4, 2011) to reach $29.52. These highs have not been seen since. Disappointing results has seen the share price slide consistentlyand it was trading at around $5 before last week's slump that saw CEO, Andrew Mason finally relieved of his duties. So is Groupon today’s daily deal?

To answer this question, it is important to look at what it actually does. Its name translates as ‘group coupon’ and it works as follows. Let’s say an affiliate such as a restaurant, that normally sells a lunch at €12 offers it for €6 on a given day to Groupon members. The offer only goes live if a sufficient number of customers sign up so members are incentivised to tell their friends about the deal through social media if they want to avail of it themselves. If a set number does not sign up, the deal lapses. For the merchant, this guarantees a high level of demand for the offer which may also bring in new customers that haven’t visited before. Incremental revenue on the offer is split 50:50 between the merchant and Groupon, so unlike many other internet businesses, the latter has an income stream from the off.

So far so good and it was. By the end of 2010, Groupon had over 51million registered users in 565 cities worldwide and it was generating revenues of over $760m on the back of all of the daily deal emails that it was sending to subscribers. But there are two key problems with this model. First daily deals are local so you need a team of salespeople in every city that you operate in who will go out, spread the word and source deals. As marketing costs go, this is expensive – hence the firm’s controversial efforts to exclude marketing costs from its sales figures. The revenues may rise, but the profits don’t and Groupon made a net loss of over $80m in 2012 despite earnings exceeding $2billion. Members of its team of over 5,000 salespeople, seen by some as its key competitive advantage have been jumping ship in droves.

More crucially though, Groupon has no defensible value proposition. To replicate its business model is relatively simple and other large internet companies like Amazon, eBay and Facebook have been quick to move in. In addition, the countless local imitators popping up in towns and cities all over the world may even have some advantages over Groupon in that they have the connections and local knowledge to generate interesting deals for their members. So take your $5 and spend it on the daily deal of your choice rather than on Groupon stock!

Saab's Demise Almost Complete!

Some major Scandinavian companies like Nokia have been grabbing the headlines for all the wrong reasons lately, but one other Nordic competitor has been quietly slipping away into oblivion. Saab is quickly becoming a case study in everything that can go right and also can go wrong with strategy and marketing. Unrivalled success and prestige, followed by a series of bad decisions that have bankrupted the company. What went wrong and could it have been avoided?

The early days of this company are the good part of the story. Saab was formed after the Second World War out of an aerospace and defence company and produced its first car in 1949. It reached the pinnacle of its success in the late 1970s with the launch of the Saab 900 which went onto be its best-selling model with almost one million units produced. The appeal of Saab can be attributed to the performance of the car as well as to its distinctive design and specifications. In terms of features, Saab cars were unlike any other and it became a brand that consumers aspired to owning.

However, it was not just consumers that coveted the brand but also some other large corporations liked what they saw as well. When General Motors was looking to expand into the premium end of the market in Europe, they took a 50 percent stake in Saab in 1989 and completed full ownership in 2000. But their strategic management of the brand ultimately proved to be disastrous. In a bid to reduce costs, GM imposed design changes and began manufacturing models on shared platforms with other brands. The Saab 9-3 was built on the same basic structure as the Opel Vectra while the sporty 9-2x was so close to the Subaru that it became known as a Saabaru. While these and other decisions may have made sense financially, they certainly didn’t commercially. Saab lost its distinctiveness, its reputation for quality and its appeal. Customers voted with their feet and by the time GM put the company up for sale in 2010, its sales levels had collapsed to just 31,000 units.

Dutch niche car maker Spyker bought Saab in 2010 but failed in its efforts to rescue the brand which slid into bankruptcy in late 2011. Its major assets are now held by a Japanese-Chinese consortium, NEVS, that plans to being producing electric cars by 2014. A couple of smouldering embers in the ashes are worth noting. First there is an estimated 300,000 diehard Saab owners around the world – a customer base that has effectively been ignored for two decades. Second, Saab AB is holding onto the original and distinctive ‘gripen’ logo. Its associations are probably the only unique asset that has been left. And the moral of the story? A strategy that ignores the customer is going nowhere as fast as a turbo engine can go from nought to sixty!