Groupon targets bigger items with car offer

Groupon offered its first car coupon on Tuesday, a sign the largest online daily deal company is expanding into bigger-ticket items.

Groupon offered a $199 deal good for $500 off the purchase or lease of a new or pre-owned vehicle at LaFontaine Auto dealership in Detroit.

The offer, which runs until Wednesday, got off to a slow start with no vouchers bought by Tuesday afternoon, according to Bob Milner, general sales manager at LaFontaine Auto.

“I was skeptical that a big ticket item would work in that format, but they convinced me to try it,” Milner told Reuters.

Milner said the arrangement would cost the dealership $400 per customer, which is about what car dealers spend on advertising for each car they sell.

“I didn’t see any downside for my business,” he added. “If I can get people in the showroom buying cars this way that’s great.”

Groupon, with more than 80-million members, usually offers discounts on smaller items, such as restaurants and spa visits. The company typically takes 50% of revenue generated by deals. Branching out into bigger purchases means that 50% cut will be bigger in dollar terms.

“The prospect of opening up markets like new cars and leases is attractive,” said Ben Edelman, an associate professor at Harvard Business School who has been critical of Groupon. “To the extent they can still take 50% revenue share that’s more money.”

‘Poor negotiating’
Groupon has done some other big-ticket deals recently, such as $500 off closing costs for real estate purchases, Edelman noted.

The car offering may be more problematic, he added.

“This voucher is for a very small portion of the cost of a car or lease, so it’s basically an agreement to buy or lease a car from LaFontaine,” Edelman said. “That’s poor negotiating because the dealer could take advantage of that by offering the same car for more money.”

In many Groupon offers, like restaurants and spas, prices are posted already, so customers know what they are getting, Edelman noted. In the case of the car voucher, it may not be clear what the discount will be applied to, he explained.

“They need to fix that before this part of the model can take off,” Edelman said.

The LaFontaine Auto offer launched early on Tuesday, but Groupon’s servers were down when Milner came to work this morning, he said.

The sales manager also explained that some customers seem reluctant to spend almost $200 upfront without coming into the dealership and “touching the cars”.

Addressing Edelman’s concern, Milner said he encourages customers to pick a car and negotiate the final price before revealing their coupon.

“This way customers will know they are getting true value off,” he added.

Groupon filed to sell shares to the public last month, saying it hoped to raise at least $750-million.

The company has been called into question by critics who say its business — essentially a coupon service — can be easily replicated both by start-ups and existing Web powerhouses. Google Inc has already begun such a service and Amazon.com Inc started a similar effort called AmazonLocal this month. – Reuters

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