Dealers Put Groupon to the Test in Fixed Operations

Dealers are always looking for new ways to market their dealerships and drive new customers through the doors. One of the latest promotional methods catching on with dealers over the last year is Groupon.

For those who haven’t heard of Groupon, it’s a deal-of-the-day website that features deeply discounted deals from local businesses in a number of cities and metropolitan areas all over the world. Subscribers to the site receive daily e-mails with the featured deal for their city. A minimum number of Groupons must be purchased in order for the deal to be “on.” If that threshold, which is determined by Groupon and known as the “tipping point,” is not met, no one gets the deal and anyone who tried to purchase the deal is not charged.

"[The service manager] thought it was the greatest thing since sliced bread to get close to 100 new customers ... into our service department." - Chris Brown, Dealer Principal   Subaru of Puyallup

There is no up-front cost for a business to run a deal through Groupon. The business only owes Groupon if the deal is successful, in which case the site keeps a percentage of the money from every deal sold. This amount can vary, but is often around half of the selling price.

Compared to many forms of advertising and marketing, Groupon seems very low-risk. A dealer can spend tens of thousands of dollars on television or radio spots that may or may not be seen or heard by a large number of people, and even then, there’s no guarantee that a certain percentage of those who receive the message will decide to act upon it and visit the dealership. With Groupon, the dealer only pays for customers who actually purchased the deal, making it extremely easy to track cost and return on investment.

However, the trick is being selected by Groupon to be featured. Variety is the name of the game, and the site won’t flood its subscribers with too many of any particular kind of deal, such as automotive service. Additionally, Groupon checks out the reputation of any business that wants to be featured and often provides links to that business’ reviews for its subscribers, so if a dealer has too many negative reviews floating around cyberspace, it could hurt their chances of being selected. Once a business is selected, Groupon determines when the deal will be featured according to the mix of deals they have in the pipeline; a business could be selected to run a deal but still have to wait a couple of months before being featured.

“Groupon and similar digital daily-deal subscriptions are becoming increasingly popular, especially for the food and entertainment industries,” said Whitney Medved, social media and networking director for MedVed Autoplex, a franchise dealership with stores in Wheat Ridge and Castle Rock, Colo., which recently ran its first deal with Groupon. “We wanted to see if dealership service [departments] could also get in on this new craze, and a radically discounted oil change seemed like the most appealing and universal auto need.”

That deal, an oil and filter change for $14 valued at $40, ran November 2010. In total, 521 were purchased, and as of mid-January 2011, 144 had been redeemed. Of those customers who have redeemed their Groupons so far, Medved estimated that roughly half were new customers. She said that while many of the Groupon customers so far have simply redeemed their Groupons without making any additional purchases, some of them – a mix of both new and existing customers – have purchased additional services and/or parts.

"Over 95 percent were people that were not in our database and had not been in the store, at least in the last five years. ... Four dollars to get a new customer in the store was the best deal I've ever had." - Bill Pratt, Owner/President   Southeast Automotive

Under their current contract with Groupon, Medved said they are not allowed to run another deal of equal or greater value pertaining to oil changes for one full year. However, Medved said even if they were permitted to do so, “We want to step back and give the deal time to work so we can measure its effectiveness and ROI.” She said the people at Groupon told them to expect a bell-like curve on traffic flow from the deal: a high volume of customers would redeem their coupons immediately and traffic would slow for awhile, to then be followed by another, possibly larger, rush just before the deal expires.

Medved said the promotion has given them good exposure, even to people who may have only seen the deals but did not purchase. She reported a number of incoming calls on the day the store’s deal ran from people who mentioned having seen the offer. “Since businesses have to approach and be approved by Groupon, being featured portrays the business as in-the-know and legitimate,” she explained. “Groupon allowed us to get in front of a whole new market without seeming invasive.”

She said the overall experience of working with Groupon was not difficult. “We expressed our interest in working with them, filled out a form outlining the terms of our proposed deal, and waited while they did a little research on us, our market and decided if we would be a good fit,” she explained. “Once we were approved, we signed the contract and were put into the pipeline where we waited for about two months until our deal ran. The scheduling takes a while, but better to delay a little than come on the back end of someone else’s discount oil change which everyone interested already bought.”

She believed Groupon would prove more successful for a dealer in or near a metropolitan area than for one in a rural area. She also stated that it’s up to the dealer to make the most of the traffic generated by such a promotion. “When customers come to your facility you get one shot at being the friendliest, most professional [and] most thorough.” She added that Groupon “isn’t the magic bullet.” It’s “just one more potential tool for businesses.”

Bill Pratt, owner and president of Southeast Automotive in Nashville, Tenn., ran his dealership’s first Groupon campaign in September of 2010 and was very pleased with the results. The deal was $19 for a lube, oil, filter, 27-point safety inspection and topping off all fluids, valued at $69; 680 deals were sold. After about four months, he estimated 400 had been redeemed.

“Our records show that approximately 10 percent of [customers] purchased additional services at the time of the oil change,” Pratt reported. “Over 95 percent were people that were not in our database and had not been in the store, at least in the last five years.” Although it’s hard to tell yet whether these new customers will turn into long-term, repeat customers, the early numbers are promising. He said, “We have had over 30 of them return for more extensive service work that was recommended at the time of the oil change. The ticket average on those customers has been over $600 per RO.”

"I believe just about any dealer could benefit from using Groupon. It is a really quick and inexpensive way to get new customers in the door and gives you an opportunity to make them customers for life, especially for drawing customers that are driving competitive makes of vehicles." - Brent Omer, Service Manager  Audubon Chrysler Center

As far as cost, Pratt said Groupon retained $9 of the $19 purchase price of each deal, and his cost for the service was about $14, meaning each deal cost him about $4. The dealership, which lost its Chrysler franchise and is now an independent retail lot and NAPA Auto Service Center, was able to partner with NAPA for this deal to get a reduced cost on oil filters and was also able to get a discount from the store’s bulk oil provider, a couple of factors that helped reduce his costs. “Four dollars to get a new customer in the store was the best deal I’ve ever had,” he declared.

Compared to other methods of promoting the service department, the Groupon promotion provided a much better return. “Most service promotions have been aimed at our own customers or at Chrysler/Jeep/Dodge owners in the area … and normally had a pretty dismal return on investment,” he stated. “The same program we used for Groupon was used in print and direct mail with a return rate on direct mail of less than five percent.” Pratt said working with Groupon was extremely easy, and he now has an exclusive deal with the site to run several more deals in 2011, including another lube/oil/filter deal and a deal for an air conditioning and charging system check.

Pratt believed a dealer would need to be in a market of at least 100,000 to make a deal work, and he believed this kind of promotion might work better from an independent dealership like his than for a franchise dealership. “For some reason, customers brought in their Hondas, BMWs, Toyotas, Fords and Chevys that would have never come here when we were a franchised Chrysler/Jeep/Dodge dealer,” he said.

Brent Omer, service manager at Audubon Chrysler Center in Henderson, Ky., said the dealership ran a promotion through Groupon on December 23, 2010. The promotion – $30 for two oil changes and 35-point vehicle inspections plus one tire rotation, valued at $89 – resulted in 64 deals being purchased. In less than three weeks, 18 were redeemed. The 18 customers who have thus far redeemed their Groupons have generated an additional $799 in income.

“I really liked this promotion compared to some of our traditional methods, as it garnered an almost-immediate response,” he stated, adding that the experience prompted him to consider doing more e-mail marketing on his own to some of the dealership’s existing customers. He also expressed interest in running another deal through Groupon if the opportunity arose. “Groupon was really easy to work with. The sales rep and myself put together the deal specifics in about 30 minutes one afternoon, and Groupon did all the rest.”

Omer believed this type of promotion could be useful for a franchise dealership that wishes to draw in service customers who drive other makes of vehicles and might not usually consider getting service at a competing franchise’s dealership. “So far, most of the customers appear to be new, at about 66 percent. We are a Chrysler, Dodge, Jeep dealer. Several of the people who have come in have had other brands of vehicles,” he stated.

“I believe just about any dealer could benefit from using Groupon. It is a really quick and inexpensive way to get new customers in the door and give you an opportunity to make them customers for life, especially for drawing customers that are driving competitive makes of vehicles,” Omer said. “A lot of people don’t really think of a dealership as being a cheap place to get maintenance done … This gets people to take a look at your business and give you the opportunity to show them what you can do for them.”

Chris Brown, dealer principal of Subaru of Puyallup in Puyallup, Wash., tried Groupon in April of 2010. The deal – a full car detail for $75 – was purchased by 99 people, most of which redeemed it. Brown said at least 90 percent were new customers, and in an effort to try and turn them into repeat customers, the service department also performed inspections on the vehicles and made recommendations for additional service or maintenance work. He estimated somewhere between 20 and 25 of those customers returned.

"We found that it was mostly bargain shoppers and non-Ford vehicles ... It didn't work for us as we thought it might ... but it was worth a shot." - Rich Poe, General Manager   Rob Sight Ford-Lincoln

According to Brown, the success of a Groupon campaign depends on the dealership employees and their commitment to making the promotion a success. He said his service manager “thought it was the greatest thing since sliced bread to get close to 100 new customers … into our service department,” he recalled. He plans to run another Groupon promotion, but first wants to devise a fresh strategy with the service manager to cultivate relationships with the next batch of Groupon buyers and convert them into repeat customers.

Rich Poe, general manager of Rob Sight Ford-Lincoln in Kansas City, Mo., said he didn’t get the results he had hoped for from his dealership’s experience with Groupon. “We found that it was mostly bargain shoppers and non-Ford vehicles. They came in, got their service, left, and we never saw them again. Although we followed [up with] the people in order to try to get them back for future service, thus far we have had very little success,” he stated.

The deal he ran in February 2010 was $20 for a brake inspection, tire rotation, charge system test, multipoint inspection and car wash (a $60 value). The result was 38 purchased and 34 redeemed. Although all the customers who came in as a result of the Groupon promotion were new customers, Poe said they were “mostly bargain hunters and were resistant to any type of upsell. We sold one brake job but past that, nothing else of any substance.”

He noted the cost was “minimal” and that Groupon was easy to work with, and while he doesn’t anticipate running another promotion through Groupon, he does not regret the venture. “It didn’t work for us as we thought it might … but it was worth a shot.”

Dealers looking to try out this form of promotion should note that Groupon is not the only player in the game. Sites like LivingSocial and Seize the Deal offer similar opportunities for promoting businesses, and Google is reportedly preparing to launch its own Groupon competitor, Google Offers. Brown of Subaru of Puyallup pointed out that for “18- to 25-year-olds, [the Internet] is how they want to do business … They’re more apt to see you [and] start a relationship with you based on something they’ve learned through the Internet versus a $9.95 oil change [advertised] in the local newspaper.”

Vol. 8, Issue 3