Study Questions Use the spreadsheet Chapter16-Groupon for any supporting analysi
ID: 349754 • Letter: S
Question
Study Questions
Use the spreadsheet Chapter16-Groupon for any supporting
analysis.
1. Assume a variable cost of $10 per table and an average
spending of $60 per table. With the daily deal ($60 for
$30 coupon), Groupon provides Mr. Chang with a revenue
of $15 per table. The analysis provided in the New York
Times blog indicates that Mr. Chang makes money ($5 per
table) through the daily deal (rather than incurring adver-
tising expense). Do you think the analysis has included all
aspects that need to be considered? Should Mr. Chang go
ahead with the daily deal given that he can advertise while
making a little bit of money per coupon?
2. With Savored, Mr. Chang can limit the number of tables he
allows for the discount price. Assuming he makes the same
revenue with Savored per discounted table as the daily deal
($15), do you think the ability to limit the number of tables
at discount has any advantages? Would you prefer to use
Savored or the daily deal?
3. Would you prefer to use Savored or the daily deal? W
Explanation / Answer
Let’s revisit the scenario. We have not considered fixed cost at any point. However, the operating cost is $10 per table and earns a revenue of $60. This means (without the coupon) the regular operating profit is $50 while the revenue is $60.
With daily deal, the price is slashed to $30. This makes the revenue $30 and operating cost of $10 provides a profit of $20. The analysis says that Groupon provides a revenue of $15. This means Groupon must be taking a commission of $15. This means Mr. Chang ends up making a profit of only $5 per table.
The analysis has only considered the operational profit and variable costs. However, the cost of fixed assets and overheads has not been catered for. Including the fixed costs the net income per table will likely drop further from $5.
Mr. Chang should go ahead with the daily deal only if the volume of customers sent by Groupon is way more than the customers he can acquire himself. We can see here that the daily deal gives an operating profit of $5 while conventional customers provide an operating profit of $50. This means unless Groupon’s daily deal increase the restaurant footfall by 10X, it is not a good idea.
There are a few advantages with limited discount. It creates increased demand among the consumers. By restricting the supply (number of discounts) the demand can be made more coveted. This kind of control may result in selling the limited daily deals quicker.
The choice to use Savored daily deals again depends on the impact caused. For example, if Mr. Chang’s restaurant is quite busy by nature, then Savored’s daily deals is a good idea. This way he can attract a few new customers regularly through discounts while the loyal customers visit the restaurant anyway. However, if the restaurant is not very busy then I would not prefer to use the limited daily deals.