Good Merchandising will cost you 400% on Cargurus

[Harry Kasparian]

Some backstory:

We’re an extremly large pre-owned franchise wanting to break ground in the U.S. More precisely, Florida, Miami. (Yeah, we kind of DID chose one of the more aggressive markets of the nation to test the waters) We’re however quite proud of what we were able to achieve over the last 3-4 years; now opening a third store in the state, U.S has been quite good to us.

Running a velocity model in such an aggressive market obviously means slim margins and efficient cost structure. A vdp factory is what we aim to be, hence why a tremendous amount of work goes into merchandising and pricing these vehicles.

Now we all know Cargurus has been a ruthless competitor of Autotraders (some might even assume they surpass autotrader in overall traffic). Considering our business model, they were a perfect fit, a match made in heaven…. well up until yesterday. I get a call from Cargurus and surprise surprise, we have price hike on our hands. A price hike of 4X… Now heres where it gets REALLY interesting. The price hike is due to an increase of traffic of their platforms (I’ll swallow that one) and according to their pricing algorithm, our vehicles have been OVER PERFORMING in their respective radius. Yes, due to our vehicles generating a higher volume of vdp’s/leads, they have the courage and audacity to justify the price hike.

Have any of you Cargurus customers experienced anything similar? Im baffled on how running a velocity model, focused on merchandising, is COSTING me. And here i thought the only cost involving this model was a sacrifice of margin…

 

[Chris Leslie]

They tried using those same lines on me..

 

[Steve Stauning]

Interesting approach. If your store is generating a lot of action on CarGurus, it's important to know that the leads your priced-right vehicles are generating, also generate a prospect base for CarGurus to promote your competition. (Strange thing to do to a paying customer, if you ask me).

We wrote about it earlier this year after mystery shopping a client via CarGurus. Here is your prospect's experience when they submit an inquiry to you via CarGurus:

WHAT WE LEARNED BY SHOPPING CARGURUS
Right from the first email, it became clear to my dealer-client that CarGurus’ overriding goal was to generate more leads, not necessarily help their paying dealers to sell more cars.

THE 1ST CARGURUS EMAIL
Besides a prominent blue button encouraging the consumer to view “Similar Cars” (which takes you to a search results page showing vehicles at competing dealerships), the very first email from CarGurus also encourages the customer to sell their car online by writing “Get more by selling it yourself — it’s free on CarGurus.”

Gosh, if only dealers wanted trade vehicles…

THE DAY 6 CARGURUS EMAIL
On the sixth day of the mystery shop, CarGurus no longer requires your prospect to actually click to see competitors’ offering; they include them in the actual body of the email. While I’m sure this drives additional leads for other CarGurus’ dealers, my dealer-client had no idea this direct marketing to his prospect was happening behind his back.

THE CARGURUS DEALER SURVEY EMAIL
Although this was a 7-Day Shop, my dealer-client wanted to see every email from CarGurus to the prospect, so we also evaluated their Day 8 Survey Email. On the surface, a survey email seems innocuous enough and it will certainly drive consumers back into CarGurus.com; but for many dealers, asking someone who didn’t buy from them to review them online is dangerous.

Think about it: consumer submits a lead on a vehicle they love through a third party. They learn from the dealer that their dream vehicle was just sold, but that the dealer has a very similar unit for sale. Immediately, they assume the dealer is participating in some old-school bait-and-switch tactics; so they move on.

A week later the third party asks this consumer to review the dealer. Will their review be positive or negative?

If you’re closing 10% of your CarGurus leads, this means 9X more non-buyers will be asked to survey you versus those who bought. How would your dealership appear to prospects if your online reviews were 9:1 non-buyers?

(Here's a link to the original post: http://askthemanager.com/2016/05/wh...ry-shopping-kbb-cargurus-and-your-dealership/)

 

[Racer X]

^^Interesting info Steve. They tried a massive increase on us and we cancelled. Didn't feel the increase attempt represented a partnership and leads were not great.

 

[mikesayre]

Well at least we're not alone!

Sadly this feels like the way other 3rd party sites have went in the past, massive price hikes for nothing other than to see how much they can get.

I guess this big price hike is across the US & Canada? Love to know if anyone is going to pay up?

It just wasn't worth the increase for us.

 

[Harry Kasparian]

I'm a strong believer that there is enough room for both dealer websites and listing website to coincide and coexist in our marketplace. A healthy balance of spend towards driving users directly to your brand and giving the ability to users to find your brand through third parties. But with such customer support, and client care, just reinforces the position (of just about anyone) to grow the business WITHOUT the help of listing websites.

 

[craigh]

Haven't seen this in Canada yet.
Last I heard they're still trying to get market share up here and it's been a really uphill battle against the Canadian version of AutoTrader and Kijiji (eBay Motors/classifieds concept). They push their free package really hard in Canada because they need more inventory.

 

[Rick Buffkin]

@Harry Kasparian, If a vendor did that to me... that would fly all over me brother!!! Maybe you should counter their proposal with a 1/4 of what your currently paying now and send it with a 30 day notice of cancellation if they don't accept your offer! Ok... maybe thats a little aggressive. Maybe! But, at the end of the day, they need your business more than you need them. At the end of the day, if they have the nerve to hit you with a crazy proposal like that, then obviously they're willing to let you walk away!

The question you need to ask yourself is, Do you really want to do business and have a partnership with a vendor that is willing to treat you this way??? That would be the main question I would be asking myself.

 

[Steve Stauning]

"The worst time to take advantage of someone is when you can."

Perhaps CarGurus feels that those who are having success on their platform are ripe for taking advantage of... because they feel they can get away with it. Seems like a vendor that has no interest in being a dealer's partner.

 

[Jeff Kershner]

We typically perform quite well with CarGurus. Hoping to increase our performance even more with their new test drive offer (no purchase necessary) a request I was pushing for a few months now.

No price increase here... just yet. I guess I shouldn't be mentioning that. Come next week, Langley could be hiding out in my showroom waiting to pounce on me.

But seriously - a dealers stellar merchandising and professionalism is what makes a listing site like CarGurus so appealing to consumers. You're being penalized for doing a great job and helping their website outperform the competition, they get a monthly chunk of your ad budget. In return, you get some opportunities each month.

My dealer does quite well with the opportunities but some obnoxious price increase could quickly change that landscape.