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Can Groupon succeed with a $30-per-year, VIP subscription model?

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Distributed to a select group of Groupon users earlier today, the coupon company is rolling out trials of Groupon VIP. Prized at a cost of $29.99 per year, the new subscription service allows users to access upcoming deals before a regular user, purchase previously sold-out and closed deals as well as trade in unused, expired deals for a currency called Groupon Bucks. With this account credit, users will be able to apply Groupon Bucks to upcoming deals. Assuming unused deals trade in for the same value as the Groupon Bucks awarded for referring new members to the service, users will be able to gain full dollar value of their expired deal back. 

groupon-vip-offerWritten inside the offer letter sent out to users, Groupon CEO Andrew Mason states “I’m excited about our newest innovation — we’re calling it Groupon VIP. We got here by asking customers, ‘If you could wave a magic wand over Groupon, what would you change?’ Three ideas came up again and again, so we built the VIP program around them.”

In regards to the initial group that’s testing out the service, these users have a three-month trail period to test out the service. After those three months, users can pay the $29.99 fee for the next year of service or decide to cancel completely. Groupon officials haven’t clarified if users currently holding an expired, unused deal will be eligible to trade in their old Groupon for Groupon Bucks. Hypothetically, a Groupon user that has a significant amount of expired deals over the past year could obtain a large amount of Groupon Bucks by simply paying the yearly fee. 

city-pocketsWith approximately 20 percent of Groupons going unused each year, plenty of third-party, Groupon-reselling sites like CoupRecoup, DealsGoRound and CityPockets have popped up to help people unload Groupons that are going to expire. It’s very possible that Groupon’s revenue is impacted by this unauthorized reseller market and is looking for a way to keep users on the site. As mentioned in a New York Times article last year, a Groupon spokesperson indicated that the company “did not condone the use of aftermarket sites.” One of the Groupon reselling sites called Lifesta recently announced that they are shutting their doors since they were unable to “sustain the business any longer.”

Since Groupon management reported a net loss of more than 40 million dollars over the fourth quarter of 2011, the company is likely desperate to boost revenue over the next year. During October 2011, Groupon launched an invitation-only program called Groupon Reserve that targets affluent Groupon users with deals at high-end merchants such as fashion boutiques and expensive restaurants. For instance, the first deal in late October offered users in the New York City area a $70 three-course tasting menu for two at New York’s Bice Ristorante. By limiting the deals to a specific subset of users, Groupon is attempting to build a word-of-mouth campaign in regards to these higher end deals. 

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Prior to the launch of Groupon Reserve, the company launched Groupon Rewards. The program offers customers the ability to track the amount of money that they are spending at a particular merchant enrolled in the program. Once the customer reaches a certain monetary threshold, they are awarded with the ability to purchase an exclusive Groupon for that business. Groupon Rewards is slowly launching in cities around the United States and users can sign up at Groupon to get a notification once it reaches their city. Customers don’t have to use any Groupon issued card to build up rewards; they only need to use the credit cards currently registered to their account at Groupon.