Wednesday, May 18, 2011

Groupon is bad for the Scooter and Powersports Industry - Period

As if dealers didn't have to contend with Ebay, online competition from distributors selling consumer direct, plus people who work out of their garage at home we have to worry now about Groupon. I know most dealers are finally busy this summer so they don't have time to complain, call the distributor or do anything about it, in many cases like a good prisoner they just shut their mouths and take it from their distributor. They never publicly complain because they get nothing from it to protest a distributor that is doing them wrong. I say we have to put an end to this trend before it takes over as a trend. Once you start discounting all the brands follow.

This discounting method could become horrible trend for the scooter industry. Our margins are already razor thin so this will only lead to more heavy discounting. I know to investors looking to dump product that probably cost them thousands in buybacks, lawsuits, and have been in storage for a year or two might sound highly attractive but this is the type of idea someone not from the scooter industry comes up with.

"Hey, let's sell them on Ebay or let's sell direct from a corporate store," when they realize they can't do this for legal reasons and without upsetting the dealer base the next bright idea is "let's offer a great deal with a coupon and they have to buy at the dealership." It won't work.

Now this would work and be an excellent idea, except that Groupon is making $300 to $400 on every scooter without doing anything. It dilutes the future power of the dealer, and creates a downward spiral for dealers to provide heavy discounts. It means a dealer has to wait to get paid by Groupon ( they might get scammed or not get paid on time plus they end up giving up a sale. ) The scooter rider is different you are not necessarily going to get someone who wasn't going to buy a scooter anyways, 9 out of 10 people who buy a scooter wanted a scooter. This isn't a cheeseburger where they want to try something new, this is a life changing decision or a toy. For the toy buyer you might get one or two, but for the guy riding it everyday do you really want someone expecting $5,000 worth of services for something the dealership only made $300 on?

To attract a new rider, you will have to use Groupon coupons to keep them and this strategy kills any real long-term value for the business and eventually the customer as well. This is basically the same strategy of the Chinese importers have used for years. Let's sell at cost to build a brand. It doesn't work for the brand and it doesn't work for the dealer.

Chinese Dropshippers have sold consumer direct for years. This is a low end way to steal clients. I know parts distributors that work by selling batteries and tires at cost. They sell retail, wholesale, to everyone but in terms of growth the company never makes a profit and has no brand name dealerships. The reason being is that client base isn't a loyal client base. The Typical successful scooter dealer wants a "loyal" client base. People who come into the shop every month to buy oil, belts, accessories. Do you build up that loyalty by deep discounting online? No, you will never be able to build that by selling a cost or below your regular margins.

It's just a further symptom of an industry already saturated with deep Chinese discounts. What we need is detox.

We don't need more Groupon discounts to kill the little margins the dealers have.

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