Fred Schwarz
Mike Cwalinski
Phil McDonnell
EIS Mini Project – October 10, 2011
Section 1: A brief description of the value vision that underlies the initiative.
In the fall of 2010, the authors of this paper formed a Tuck First Year Project
team to explore the idea of creating a secondary market in the daily deal space. Since
that time, the project has morphed from academic to reality. The business,
CoupFlip.com has secured an angel investment on a significant valuation and plans to
launch in Boston this fall. However, the youth and dynamic nature of its ecosystem
presents opportunities and threats that we consider daily. There is little doubt that
understanding and evaluating the future of this ecosystem will be central to CoupFlip’s
success or failure.
Daily deals, often referred to by the name of the company who created them,
Groupon, is a multibillion dollar industry experiencing triple digit growth. Daily deals are
traditionally emailed to an email list, the members of which are given just a few hours to
decide whether to purchase a discounted coupon to a local business in their city. Local
businesses sign up for the service in hopes of attracting a section of the 50 million
people who are signed up for daily deal services. Originally, daily deal originators used
a “tipping point” that ensured businesses would be guaranteed a certain level of volume
for a certain level of discount. However, originators like Groupon have shifted their
value proposition from having the merchants make money on their original deal to
encouraging merchants to look at daily deals, and their associated costs, as an
alternative form of marketing.
The value proposition for buyers is obvious, deep discounts conveniently
delivered to their inbox every day. Daily deals are also a helpful way to explore new
local businesses in a member’s home city. One drawback of this business model from
the consumer’s perspective is that the flash sale nature of the business creates impulse
buying which leads to buyer’s remorse and 30% of Groupons go unused (See Exhibit
1). This creates over $2 billion is wasted value for consumers.
Exhibit 1 - CoupFlip Addressable Market
CoupFlip seeks to unlock this wasted value, providing a way to liquidate these
assets for sellers who no longer want them or simply prefer cash. In addition to
providing sellers a forum to sell their Groupon, CoupFlip will take an inventory position,
providing instant sale to the seller. Other secondary market sites have made limited
traction with the consignment model. A consignment model forces sellers to list their
coupons and wait for bids that may never come. CoupFlip will use its capital to instantly
buy the daily deal. Beyond the value “instant sale” provides to the seller, we believe this
approach also creates value for the end buyer. Secondary markets are a classic
“chicken before the egg” problem. It is difficult to bring in buyers without an interesting
level of inventory. Offering sellers instant sale will accelerate the level of inventory we
have and make our offering far more attractive to the end buyer.
In addition, buyers will be able to use CoupFlip’s mobile application to buy daily
deals. This value proposition goes beyond just convenience but allows for a distribution
channel that can offer a buyer a wide selection of coupons without the pressure of a
flash sale from any location. Groupon and its peers only provide one deal a day.
CoupFlip will allow the buyer the ability to shop through the deals from the last several
months. In addition, CoupFlip will allow its users the ability to receive alerts when they
are geographically near a local business that CoupFlip has in its inventory. Imagine
sitting at a dinner when you get a buzz on your phone offering you 50% off the meal you
already intended on buying.
CoupFlip’s value proposition is clear for both buyers and sellers but it
undoubtedly plays in a complex ecosystem that could make or break its success.
Section 2: Ecosystem Map and Analysis
Exhibit 2 describes the “Daily Deal” ecosystem that CoupFlip is attempting to
innovate. The four major players in the system are deal originators (like Groupon or
Living Social), the merchants who the originators work with to create the deals, the
customers who purchase the deals and the secondary markets where the deals can be
sold or purchased by customers.
Exhibit 2 - Daily Deal Ecosystem

Deal Originators – The largest originators like Groupon are the most powerful
actors in the “Daily Deal” ecosystem. They have a large sales force that
identifies and works with merchants to create the daily deals. They have built a
large email list of potential customers and sell the deals directly to them. Finally,
down the line they could use the secondary markets as a liquidation channel for
unsold deals as CoupFlip is currently attempting to orchestrate.

Merchants – The merchants interact directly with the originators to set the terms
of a deal and then also interact with “Daily Deal” consumers when they attempt to
redeem their voucher.

Customers – Consumers purchase vouchers from originators and then either
redeem the vouchers at the merchant or sell them on a secondary market.
Consumers can also purchase vouchers directly from secondary markets.

Secondary Markets – The newest entrant to this ecosystem, these markets
currently only interact with the sellers but as the next section will discuss, there is
potential for additional interaction with other players in the future.
Section 3: An assessment of the strategy deployed to align the actors
CoupFlip’s strategy hinges on obtaining buy-in from the strategically important
actors in the innovation chain. The most important actors are consumers, merchants,
originators, and competitors. In our analysis we have found that consumers and
originators are the most critical actors. However, the merchants also exert pressure on
the originators so they are indirectly relevant as well. In the following several
paragraphs we will analyze CoupFlip’s strategy from the perspective of each of these
key actors and discuss potential strategic options.
Consumers are thrilled with CoupFlip. Consumers value the liquidity that this
new marketplace provides for their group buying vouchers. This liquidity encourages
consumers to buy more of these coupons and mentally mitigates some of the buyer’s
remorse downsides to these impulse purchases. Some consumers will value the justin-time sourcing of coupons from the marketplace. They won’t be able to count on a
particular deal being available when they want it, but they will be able to find some deals
in their area. For the segment of deal enthusiasts, it is likely that they include the
question of whether or not CoupFlip has a deal available when deciding on a restaurant
for dinner.
CoupFlip’s strongest supporter is the consumer and they should try to capitalize
on that fact as they move forward. Consumer desire plays a strong role in the
development of state laws, such as the potential for group vouchers to be classified as
gift cards by the state attorney generals. If that were to happen it would greatly benefit
CoupFlip as deals would no longer expire as quickly. In order to drive consumer
adoption CoupFlip should concentrate on reducing the barriers to transference and the
barriers to redemption, such as through an iPhone app.
Merchants are another important group to consider. Merchants generally do not
like that more coupons will get used. This means increasing their need to service the
vouchers without adding additional revenue from the deals. However, merchants with
low variable and high fixed costs, such as ski resorts, may feel differently. These
merchants actually do want more people to use their vouchers as they make money on
these customers, even with the discount.
One strategy that may appease merchants is to give the merchants some sort of
user data. We believe educated merchants would value knowing more information
about the consumers buying these coupons. For instance, CoupFlip could potentially
create a very low price business of selling aggregate anonymous user conversion and
retention data based on the CoupFlip mobile phone location records. This would make
CoupFlip indispensable to the merchants and potentially mitigate any ill will from the
lower breakage rates.
Originators are the other key member of the innovation chain. Groupon holds
roughly 50% of the US market and LivingSocial holds 25% so between the two they
have a very strong control over the supply of the original vouchers and the terms around
them. One fear is that originators might change the terms or use draconian measures
to restrict transfers of their vouchers. From the originator’s perspective they have to
balance the interests of consumers, merchants, and their own dynamics. They
appreciate that the presence of a secondary market creates liquidity, but likely fear that
the merchants may protest the reduction of unused vouchers as those are vouchers that
the merchants now need to fulfill with no additional revenue.
The best strategic move with the originators is to partner with them and provide
them the ability to make more money. For instance, CoupFlip is currently pursuing a
contractual arrangement to sell the returned inventory from Groupon and LivingSocial.
Groupon disclosed in their S-1 filing that they receive 2% of their total revenue back in
returns, which this year will amount to $100M in lost revenue. Unlike traditional
retailers, Groupon and others do not currently have a secondary channel to push out
returned inventory. CoupFlip will become that channel and be directly driving economic
success for Groupon. This will make it very difficult for LivingSocial or Groupon to
rationalize any move that would undermine CoupFlip in the market.
We recommend that Coupflip continue to vigorously pursue partnerships with the
coupon originators that add value to the originators. It would be beneficial to take a deal
that is net neutral to CoupFlip, but net positive to Groupon/Livingsocial just to get them
aligned with making CoupFlip successful. We believe this is likely the best tool to avoid
potentially negative strategic moves by the other players. Additionally, it may reward
CoupFlip to launch sooner than later and try to build traction so that LivingSocial and
Groupon will feel that CoupFlip can support the type of volume partnership that would
make a material difference to the large originators.