The daily deal market led by Groupon and LivingSocial has undeniably gotten popular over the past few years. Some 23 million consumers bought daily deal vouchers last year, and hundreds of startups have tried to get a piece of the abundance of flash deal money trading hands. But is this a business model that’ll work in the long run?
A whopping one-third of daily deal sites disappeared in recent months, while the players that remain seem eager to attempt almost anything to keep customers interested by expanding into everything from groceries to college tuition to wedding packages. What are they going to try next?
At least two major daily deal sites announced this week that they are giving loyalty/reward programs a shot. These programs have worked well for all sorts of other businesses—airlines, supermarkets, drugstores, coffee shop chains, etc.—so why not daily deal specialists?
(MORE: How Daily Deals Are Losing Their Allure for Businesses and Consumers Alike)
Groupon, by far the largest daily deal site out there, which reported a loss of more than $100 million this past summer, announced its rewards program on Wednesday. The point of the program is to address the concerns of the many merchants that have soured on daily deal promotions, largely because of the “one-hit wonder” factor: Most customers attracted by daily deals show up only to take advantage of the discount, and are never seen or heard from again. To improve the chances of consumers arriving with daily deal vouchers turning into loyal customers, Groupon is testing out a rewards system in which shoppers who spend more or return more than once get increasingly better discounts from the retailer. As the AP explains:
If Groupon’s new program works like the company envisions, consumers who spend enough money to qualify for the reward would receive an 80 percent discount instead of the 50 percent markdown frequently given on its daily deals. For example, someone who spent $100 with a hair stylist might only need to spend another $20 to get the next $100 in service.
Another daily deal site, BuyWithMe, meanwhile, launched a program called MerchantConnect, which helps stores roll out and track “loyalty enhancing promotions,” in the lingo of the business. The program, available now in a few big cities and rolling out nationally soon, uses “card-linked tracking technology,” in which businesses get specific data based on how and when a credit card is swiped as part of a BuyWithMe deal. What this means to the retailer is that it can quickly see and analyze “customer acquisition and retention including total new customers acquired through a deal, repeat visits by a customer, the time between visits, the average customers spend, the most popular day of the week to redeem a voucher,” and more, according to BuyWithMe.
While much of this card-linked technology seems creepy, it also allows for deals in which promotions deliver cash back right to the customer’s credit card. That, if nothing else, is likely to enhance customer loyalty.
(MORE: How the Coupon Lost Its Dorky, Penny-Pinching Stigma)
And what could be next for daily deals? The answer could be another product that’s been used successfully by retailers, manufacturers, and other businesses: the branded credit card. A recent survey conducted by Lightspeed Research (hat tip: Bundle.com) noted that 27% of LivingSocial customers and 34% of Groupon shoppers would be interested in a credit card branded with their favorite daily deal vendor.
These daily deal customers just so happen to also be the kinds of consumers that card issuers are eager to attract: They tend to have higher credit scores and make three times as many credit card purchases as the average person, and about half of them have household incomes over $75,000.
Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.