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Groupon tries to solve its biggest problem with loyalty rewards

grouponSay what you will about Groupon, but it’s managed to stay on top of the daily deals game despite the mass amount of bad press concerning its bumpy IPO process. The coupon curator market might be oversaturated, but the veteran service has remained the top stop among its various competitors since day one.

And now it’s branching into loyalty rewards, stepping into territory previously held by rivals that differentiated themselves by being based on this service. The likes of Foursquare and Gowalla were the original purveyors of rewarding consumers for their local tastes, and when they caught whiff of the massive industry shift Groupon was creating, neither hesitated to jump on that train and take part in daily deals.

Now Groupon’s returning the favor by incorporating a rewards-for-returning program into its service. “Consumers can earn rewards at participating merchants simply by paying with the credit or debit card hey have on file at Groupon.com. After spending an amount set by the merchant, the consumer unlocks the ability to purchase a special Groupon for that business,” reads a blog post explaining the new feature. The idea is likely attractive to vendors who are already using Groupon—why bother with accounts at various local commerce application sites when you combine your needs in one?

This will also give Groupon the ability to see how its customers are spending money with its merchant clients. At the moment, the site can see how many deals it sells but doesn’t have a conclusive way to tell vendors much about customer retention (a gripe many businesses that have used Groupon have had). Getting consumers to stick hasn’t been Groupon’s strongest characteristic. In fact, it’s its greatest weakest.

Still, the most popular daily deals aggregator on the market is now offering a rewards program. What could go wrong? LocalBonus founder Derek Webster explains that one core problem Groupon isn’t addressing: They might be able to show their merchants how many customers are coming back, but those merchants may not be happy with the numbers. “The increased transparency is a step in the right direction, but merchants will be disappointed by what they find,” he says.

“It remains to be seen whether these ‘unlocked deals’ will be as valuable as promised, but many of the same issues remain—i.e. the customer has to pre-pay for this new second deal. And, even though the consumer pays for the deal, Groupon pockets this amount. So, consumers pay for their ‘reward’ and the merchant ends up having to give the free product away.”

Webster says a model like LocalBonus’ is a better option for consumers and merchants alike. Forgoing the traditional daily deals route, LocalBonus instead rewards you for shopping at the local businesses you do anyway. Users enter their credit card (or cards) and are rewarded for shopping at merchants that are signed up to LocalBonus. You can use these points at any participating vendor.

It’s certainly a new spin on what’s becoming an uncreative industry—and yes, we know, it’s still in its infancy. Already the copycats are too many to count and consumers are becoming somewhat skeptical. But if something innovative and more effective is able to come out of the wood work, we’re sure buyers would take notice.