Friday, February 11, 2011

Groupon won't work for the small dealer

Groupon is touted by many as a win-win situation for both merchants and consumers.

The Question of the day was - Do you think we should use Groupon to improve sales at our store and scooter website?

I strongly believe the answer is no.

I think for service sectors and maybe even the occasional oil change it works.
For 99% of small scooter dealers or motorcycle shops it will be a death sentence and can backfire on you. If I was going to do a Tattoo removal it would totally make sense. For example recently ran a Groupon ad and it was a huge success for them. They built brand awareness, people used the coupons, and most clients purchased more services. They are the best known removal service in California. However, for a motorcycle store I put this right down at the level of the Chinese discounters who tarnish and destroy this industry because the majority of what we sell is not a service. Using Groupon for a scooter or motorcycle store can push margins down to the point where you cannot make a profit.

The value in a social coupon is foot traffic or people visiting your site. For a new coffee shop it's great, but for a shop selling motorcycles you can't give all your profits away on new bikes or accessories. I'm not a retailer, but the internet is gradually eroding all customer loyalty as consumers search for the next deal. This type of mentality is already prevalent in the Powersports Industry at all levels. Yes, I am being critical of both the store and the consumer but let's face it people will go where they get the best price, not the company that treats them better. Store owners will overlook if the distributor sells consumer direct, and consumers will overlook if its a store they don't care for all for the best possible deal. To save a few dollars they will buy from the Devil.

If WPS has a tire for $20 this week and Parts Unlimited sells it for $25 most dealers will go to WPS this week despite the fact they might miss getting points from PU for their end of the year bonus. The same applies with consumers, but with Groupon the value to consumers is bigger than the value to the small business. The House always wins, but the shop might not further eroding any loyalty and in the case of a motorcycle shop its my opinion they can't afford it. Groupon will make money up front, but the bike shop will loose it long term.

Groupon takes half of the total coupon sales. So while customers may be getting a great deal at 50 percent off scooter tires, merchants are actually losing 75 percent of what they’d normally make on the sale. If you have a new scooter store in town this might work, but doing it long term could run you into the ground. It's not for everyone. Now if you have a new scooter rental program then yes, the coupon might be a great way to let people know you have a service, but for actual goods you could end up loosing money.

Running a promotional campaign with 50 to 75% cost can be easily absorbed by larger stores such as Dennis Kirk, but for small local merchants the cost can break the piggy bank. Consumers win by getting some really great deals on services and merchandise and businesses win because they increase traffic for their stores. It should be the perfect formula for success, but in reality the Groupon model has been less than kind to many merchants and in my opinion will not work for 9 out of 10 dealers. Simply put our volume and foot traffic is too small.

Then again if you have a coffee shop inside your motorcycle dealership or other services like bicycles you could benefit from groupon, but offering helmets, jackets, gloves or any material thing half off will kill the business altogether.

I feel that this discount mentality in consumers is prevalent in our industry as well. Stores tend to buy from every new Chinese importer offering the cheapest scooter that comes out. This a disease that is spreading to the Powersports Industry in general top down and bottom up. Everday it infects more companies. To the point where well known exhaust brands now make $150k to $300k on Ebay deals bypassing dealers and distributors. California scooter companies despite the new EPA crackdown continue to post new scooters for $799 on Ebay.

So if everyone discounts and OEMs sell directly it affects the dealers, distributors, and any growth in our business by attacking the direct client. If anyone has noticed there has been a huge swapping of major distributors like WPS / PU the last few years by exhaust brands, now most brands are going consumer direct. What's worse they don't care who they sell to. Distributors are dropshipping for "Stores" based out of basements for people who can't stock and don't have a showroom who then offer discounts off regular dealer price. So what hope, what incentive is there for the small shop owner?

This disease that Pro-summers and the industry has allowed will lead to the death of small businesses everywhere. As long as every scooter shop owner continues to buy from distributors that stab you in the back and sell direct you are putting a knife into a legitimate small business. What happens when the distributor sells using Groupon and the end user can buy an exhaust at below dealer cost? What happens when more buzz is needed and EBAY for old merchandise isn't sufficient? What happens when the consumer only buys online for the merchant with the Groupon coupon? It just seems to me we are headed to a future where there are no margins.

As long as they sell to people that don't have stores it will lead to a further decline of the industry. If the next step is distributors like exhaust makers and major online retailers using Groupon then the profits are gone. You won't read this in the trades and they won't call it like it is because of fear of the few remaining advertisers. It just seems that we are headed in this new Groupon direction.

Maybe I'm wrong. Maybe next week every distributor in the powersports industry will be using Groupon, Powersports Network might add it as a feature I don't know. I just know its a mistake for a new store and for stores with thin margins. My advice avoid it, focus on your website for now.

Now if the would stop running those awful ads where they make fun of Tibet I would be happy.

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