Should car retailers consider promoting their products through Groupon ?

Groupon is a wildly successful marketing tool. The most successful Groupon promotion ever was a voucher offering “$25 for $50 worth of shoes, apparel, and more at Nordstrom Rack”.  Research conducted by data scientist Paul Butler showed that roughly 623,000 people purchased the coupon, generating a total of $15.6 million.

What could this tool bring to European automotive retailers? .  After dealer Nefkens Peugeot did it in April, we saw a second dealership taking a gamble and offer cars through Groupon. This week it was Toyota-dealer Oudshoorn who offered the brand new Yaris in a private lease.

Before going into deals above let’s take a closer look the Groupon phenomenon. A Groupon is often referred to as group-discount coupon. However, it is more similar to a pre-paid discount card. The basic formula is that the retailer gives a 50% discount on the product he wishes to sell. The remaining revenue is equally shared between the retailer and Groupon. To promote such spectacular offers, Groupon sends out emails to a regional or lifestyle segmented list of addresses. The recipients receive a daily mail with multiple offers.

Recently I had the opportunity to listen to Groupon’s VP consumer insights Eric Rasmussen. He stated that the participants in a Groupon typically fall into 3 categories: 1/3 is a customer who would have bought the product anyway. So also without the discount. Another 1/3 is a completely new customer, which is a great achievement if you compare it to any other promotional tools available. 1/3 is customers who were lapsed customers and had not done business with the webshop or retailer for more than a year. He further showed what the Groupon tool does. It opens up peoples wallets for an impulse purchase that they would not do otherwise. But then after a small dip in sales, the general sales for a retailer are on a higher level than before the promotion. So the overall pay-off seems positive. This might work excellent for retailers with many products on stock or who have many repeat buys. But what if you are a regional car dealer, should you participate in a Groupon deal with the standard formula?

Example: you have 100 small A-segment cars on stock, such as the Peugeot 107 or VW UP. These cars qualify for no CO2 tax penalty in the Netherlands and are just taxed with 19% VAT. It is assumed that the dealer has a 15% margin on this car. The calculation below shows the difference between the profit under normal conditions and when in promotion with Groupon.

Under normal circumstances the dealer has €1261 margin per car. In the Groupon promotion situation the loss is € 5118. If the number of cars which apply for the Groupon deal is limited to a hundred. You could have spent 100 x  ( € 1261 + € 5118) = € 637.000 on promotion and discount to come up with the same loss as with the Groupon deal. No matter what publicity Groupon can generate and no matter how many lapsed customers it brings in, such an investment is not justified. Such a dealer would not stay in business. For your comparison:  € 637.000 is an excellent budget for a small national campaign instead of regional in this country.

According to Eric Rasmussen, Groupon should not be judged as a discount coupon but as an advertising model which not only creates free advertising and word of mouth for your business, but also does that with no upfront costs and you just pay for performance.

So what did the Dutch Nefkens dealership offer when it sold 89 Peugeot 107 through Groupon? Did they make such a big loss? They offered a private lease for 36 months, including insurance and maintenance for € 199 a month. On the website there is an exact calculation of what a Peugeot 107 the consumer costs. In this calculation it is € 227 (including gas, but excluding maintenance) For the purpose here I will not show you the calculation without gas and including maintenance. One thing is sure: there is definitely not 50% discount in the tariff offered by Nefkens. This 50% discount is said to be the core of the Groupon promotion. Groupon Netherlands seems to love to have a car on its promotional mails, because it steps away from its core policy of demanding 50% discount on a promotion. They accept deals where there seems to be hardly any discount,  because € 199 for a Peugeot is a fair but definitely not a sensational offer.

Verdict: As long as Groupon Netherlands accepts deals by car retailers with such a limited promotional discount it is certainly worth the try when you are a regional dealer. And if you can get some extra discount from the importer or factory in return for some extra volume, it might even be a profitable deal. As long as it lasts.

On a national or on European level car brands obviously should rather invest in building their own mailing lists and target prospects directly.


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