Groupon aims higher with car deal

The daily deals site tries to expand into bigger-ticket items as it heads to a public offering.

By Kim Peterson Jul 13, 2011 4:00PM
One of the biggest criticisms of Groupon's business model is that it's too easily copied by competitors. And as the company heads to an IPO, it needs to prove those critics wrong.

And so Groupon is taking its business to the next level with bigger-ticket items. This week, it offered its first coupon deal for a car: Pay $199 and get $500 off of a vehicle at a Detroit dealership.

Quite a leap for a company more comfortable with $20 off a $40 Mexican food dinner. Groupon has also recently offered a $500 discount for real-estate closing costs, Reuters reports. And a partnership with Expedia (EXPE) is touting a $1,000 voucher for a Tahiti vacation.

There are some benefits for Groupon in these bigger deals, starting with more revenue. Groupon normally takes half of the revenue from its deals, Reuters reports. So in selling one Detroit car deal, it brings in the revenue it normally gets from 10 Mexican dinners.

But those big-ticket deals bring an all new round of headaches for Groupon and its customers. It's very easy to see the discount you get from a dinner or manicure. The prices are posted and set.

But when you get into the squishy realm of car price negotiating, it's easy for the dealer to find some way to make up for that discount, one Harvard Business professor told Reuters. This is one of those situations where the buyer would have to negotiate everything first and then surprise the dealership with the Groupon deal at the end.

At any rate, the new deals show Groupon is maturing and expanding. That will help as the company heads for an IPO that could value it as high as $20 billion. The company is bringing in hundreds of millions of dollars a quarter, but it's spending even more to grow and isn't making a profit.

Check out the following video for some criticisms of the Groupon business model. Post continues after video:
"Groupon started with local businesses and went to spas and hotels and thought the next step would be to go to a car dealership," the company told NBC.

Groupon is trying to scale up at breakneck speed as well-funded competitors jump into the business. Amazon (AMZN) has launched its AmazonLocal deals site, Google (GOOG) is also in the mix and private companies like LivingSocial are well underway.
13Comments
Jul 13, 2011 6:07PM
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So you're blaming Groupon for the fact that you went out of business?!  Unbelievable.  Excuse me, but did anyone hold a gun to your head & force you to offer a Groupon?   I think not.  Did you not do your research before offering your deal?  Did you contact other companies that had offered Groupons & asked them what their experienes were?  Did you actually read your contract with Groupon for the terms?  Perhaps your lack of personal responsibility (like blaming others for your business problems) is what caused you to close?  Or could it be the really lousy economy in which companies that have been in business for a hundred years are closing?  But of course not, it's  so much easier to blame others. 
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I agree, nobody puts a gun to anybody's head to participate in Group On "deals".  If the guy below prostituted himself to Group On without knowing his costs, he is the only one to blame.  At the end of the day, he was an exhausted fool that gave away his services and wrecked his own business.
Jul 13, 2011 9:48PM
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Groupon is a joke!  They take half of what your offering so you end up with 25% of what you would normally charge for your product or service.  It may get customers in your door temporarly, but they're not coming back.....unless they have another groupon that is.  Anyone who buys their stock when they go public is a fool!!!  Groupon has "jumped the shark."
Jul 13, 2011 8:54PM
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Some Groupons are just ridiculous. IE. $199 for a $500 car coupon? Give me a break. I really love the $79 for $1000 Teeth Whitening,. HAHAHAHA.  However, there are some good ones too.  We recently got some $20 certs to Old Navy for $10, or local restaurants that we go to already, some certs for things for gifts, etc.  People just have to be smart about their money, and their businesses.
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If you really think Groupon is a joke, then I'd say you don't understand customer acquisition or retention. Whether you pay for a billboard to draw in clients, send postcards or offer a Groupon deal - you're still paying something to acquire new clients. If you understand your business and thus the lifetime value of a customer - then you understand how much you can afford to spend to acquire a customer.

If you think the Groupon deal is supposed to make them customers for life, then you also don't understand customer retention. Groupon is a tool to get customers in the door - just like a billboard and a postcard campaign. After that - it's up to you to get them to come back. If you don't have a method to get their e-mail address so you can notify them of specials, deals and just plain great news - then you'll likely lose with Groupon.  If you do understand that, you could do a Groupon every week and make millions.

Jul 13, 2011 8:43PM
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They can't be serious!

 

Pay a company $200 dollars to get a $500 dollar coupon - as incentive to purchase?

 

Uhm, jack the price by $750 dollars, kick off $250.00 - to offset that initial $500 dollar coupon? Seriously?

 

Guess dropping prices a few hundred dollars from the start is completely out-of-the-quesiton.

 

FALL FOR IT dumb consumers - FALL FOR IT, every time. DER!

Jul 13, 2011 7:42PM
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So Groupon is going for the 'Bigger Deals', eh? Has anyone read the Privacy Acts that are attached to most everything ...? Has anyone read or heard about Groupon being caught SELLING people's personal information, which is direct conflict with the PA's of places like MyPoints and Many others? I think I know what they mean by the "Bigger Deal" ... MORE income not only from the bigger ticket items, but also the increased database of personal data they will accumulate!  *Be Careful !!*  EVERYONE is looking for a better deal ... a way to save some money in these tough times ... but it's 'groups' like Groupon that will steal even more, and we will have even Less !!!
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A smart business, one that is not willing to pull their pants down for their product or service, will NEVER use such a discounting and discrediting approach to their business. What high priced hooker (or their pimp) whose target market is politicians, would ever agree to splitting the revenue? You discount yourself - you devalue yourself. If you are a toothless hooker...well, get on Groupon so you can get a toothless client who will probably bludgen you to death at the end of the ordeal. Groupon customers are scurges to reputable business', especially service based business'.
Jul 13, 2011 8:24PM
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The businessman isn't saying that affiliating with Groupon forced him to close his doors you imbeciles, he's saying that the ENVIRONMENT of heavy couponing and expecting a large amount of service for a small amount of money as a driving factor is. Lame excuse but maybe it is a factor hurting small businesses.
Jul 14, 2011 2:41AM
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As a car dealer, I'd take that deal all day long!

You don't need Groupon to get a better deal than that, just by going to your dealer!

Jul 13, 2011 6:47PM
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groupon are not worth paying for Entertainment book is less expensive. they don't get my money
Jul 14, 2011 1:01AM
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So HAS anyone read about GroupOn  selling personal information? I haven't-but may have missed it.
Jul 13, 2011 5:49PM
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Groupon is a horrible company. It kills small businesses, especially those in the service industry- like mine. Couponing has gone overboard. It is putting more of a strain on the economy- Because of Groupon, etc., small business have to put out tons of product for a fraction of the cost, and are not getting compensated near enough from Groupon themselves. Groupon drove a ton of business in my door, I was busy to the point of exhaustion, and when the coupon was done, I still couldn't meet my overhead, the customers flocked to the next coupon deal, and left me wondering if it was me somehow. I even lost my regular customers because they were going where the deal was. It devalued my experience, it devalued my education, and it creates consumer bullies. Despite the high quality service I provided for them, Groupon ruled, and left me having to close my doors.
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