Chapter 19 Case StudyGroupon vs.

LivingSocial: Coupon Wars

TRUE/FALSE
1. Only Amazon profitedas it does in its standard credit card transactionsfrom the gift card.
ANS: F
Amazon had invested $175 million in LivingSocial before the gift card deal. So the purchase, in part,
of the gift card, was bought with its own cash and its benefit, too, was very likely publicity.
PTS: 1
OBJ: 19-1
KEY: CB&E Model Pricing

TOP: AACSB Reflective Thinking

MSC: BLOOMS Level I Knowledge

2. Using Groupon coupons is first and foremost to generate a sale, any sale.
ANS: T
PTS: 1
KEY: CB&E Model Pricing

OBJ: 19-2
TOP: AACSB Reflective Thinking
MSC: BLOOMS Level I Knowledge

3. LivingSocial sold Amazon gift cards at a loss. Therefore, they are not a good or service on the basis of
cost.
ANS: T
PTS: 1
KEY: CB&E Model Pricing

OBJ: 19-3
TOP: AACSB Reflective Thinking
MSC: BLOOMS Level I Knowledge

4. Selling $20 gift cards for $10 is, essentially, a variation of a loss-leader promotion.
ANS: T
PTS: 1
KEY: CB&E Model Pricing

OBJ: 19-6
TOP: AACSB Reflective Thinking
MSC: BLOOMS Level I Knowledge

MULTIPLE CHOICE
1. What kind of pricing objective did LivingSocial have in selling something worth $20 for $10?
a. maximum profit
b. a satisfactory profit
c. a targeted return on investment
d. market share
e. promotional pricing
ANS: D
It is not unusual for a company to post a lost in order to achieve market share that pays for the
investment of the immediate loss sometime in the future.
PTS: 1
OBJ: 19-2
KEY: CB&E Model Pricing

TOP: AACSB Reflective Thinking

MSC: BLOOMS Level II Comprehension

2. Lets say that Amazon ultimately made a profit--not from the sale of the $20 cardsbut from sales of
books, CDs, and the like that cost well over $20 a unit. What kind of elasticity would that
demonstrate?
a. inelastic demand
b. unitary demand
c. inelastic demand
d. elastic demand

e. none of the above

ANS: B
Unitary elasticity means that an increase in sales offsets a decrease in prices.
PTS: 1
OBJ: 19-3
KEY: CB&E Model Pricing

TOP: AACSB Reflective Thinking

MSC: BLOOMS Level II Comprehension

3. As it is suggested in the case study, Amazon, a direct investor in in LivingSocial, may have helped the
company. How could Amazon have made money if it sold the discount cards at well below face value?
a. commissions from LivingSocial
b. ROI
c. with marginal revenue
d. markup pricing
e. It cant. Selling discount cards below face value is counterfeiting.
ANS: D
Although markup is normally thought of as based on cost or selling price, it also factors the cost of
advertisements and promotions, that is, what it costs Amazon to sell product.
PTS: 1
OBJ: 19-5
KEY: CB&E Model Pricing

TOP: AACSB Reflective Thinking

MSC: BLOOMS Level II Comprehension

4. The marketing event that took place between LivingSocial and Groupon is all of the following except
__________.
a. taking market share from the other
b. competition
c. a price war
d. a promotional strategy
e. preservation of market share
ANS: C
Neither engaged in an actual price war, but rather a discount aimed at consumers who wanted clothes
and consumers who wanted books, CDs, and like merchandise.
PTS: 1
OBJ: 19-6
KEY: CB&E Model Pricing

TOP: AACSB Reflective Thinking

MSC: BLOOMS Level II Comprehension

5. What is meant by the colorful term land grabbing when Groupon and its competitors offer attractive
deals and promotions?
a. increase sales and revenue
b. grow their memberships
c. buying in bulk gift cards and retail coupons
d. steal shoppers from each other
e. get better deals from retailers to offer shoppers
ANS: B
e
Companies such as Groupon and LivingSocial are in a land grabbing stagethe more members
they sign up, the better deals they bring in.
PTS: 1
OBJ: 19-6
KEY: CB&E Model Pricing

TOP: AACSB Reflective Thinking

MSC: BLOOMS Level II Comprehension

6. Market saturation in the online deal industry would certainly affect the prices of goods and services.
This is because it would __________.
a. end prestige pricing
b. create real coupon wars
c. lower every barrier for retail outlets to participate
d. intensify competition between its subscribers
e. bring about the sacrifice effect of price
ANS: D
With more platforms offering more deals to shoppers, diners, and the like, subscriber businesses to
these online deal services would have to compete more robustly and would be encouraged to do so by
Groupon, LivingSocial, and the like as they compete against each other.
PTS: 1
OBJ: 19-6
KEY: CB&E Model Pricing

TOP: AACSB Reflective Thinking

MSC: BLOOMS Level II Comprehension