Groupon Works For Cupcakes, Not Cadillacs: Why It Failed

July 20, 2011

Last week, we told you about LaFontaine Buick GMC Cadillac's experiment with Groupon. It was the first time that the popular online coupon service had been used to sell new cars, and folks throughout the auto industry held their collective breath, wondering if it would work.

If you were one of those people, you can exhale. The offer tanked.

In all, only four customers expressed interest in the Groupon deal, which offered shoppers the chance to purchase a $500 coupon toward the purchase of a new Cadillac for just $199. (That's $300 in savings, for those keeping score at home.) Unfortunately, LaFontaine required a minimum of ten Groupon purchases before the deal "made", meaning that those four bargain-hunters were out of luck.

So, why did it fail? How could a service that drives throngs of shoppers to bakeries, restaurants, spas, and pet stores fail to generate interest from car buyers? Who doesn't want to save $300?

1. Groupon isn't a great match for cars. Groupon, Living Social, and other online coupon services typically offer special, one-day deals from local retailers. Subscribers awake to emails offering two-for-one cupcakes and think, "Oh, great, I could use a cupcake today." Car customers aren't usually that spontaneous: they spend time researching and test-driving to find the ride that's right for them. They aren't likely to be swayed by coupons, especially when...

2. The savings in this case weren't significant. Sure, everyone likes a deal, but is $300 enough to lure a shopper into a $40,000 vehicle when she was planning on something closer to $25,000? Based on the response to LaFontaine's offer, we're guessing the answer is "no". Late last year, Gilt showed us how internet discount deals really work by ripping $10,000 off the price of a $16,000 2011 Volkswagen Jetta. Sales times were measured in milliseconds.

3. Groupon may not be a great match for Cadillac's target demographic. GM has worked hard to change Cadillac's image and bring down the average age of Cadillac shoppers. But even though older Americans remain one of the fastest-growing cohorts on the internet, relying on a web-based coupon service -- even one as popular as Groupon -- might've been a misfire.

We'd be interested to see this experiment repeated with a brand like Scion, Smart, MINI, or Chevy  -- one offering cheaper rides targeted at younger consumers. Hopefully, one or two automakers will indulge us soon.


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