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Are Daily Deals Upping the Ante?

Daily deal juggernauts Groupon and LivingSocial have received some harsh criticism in the past year from angry business owners who have had nearly fatal experiences running daily deals, as well as from critics who feel the services do not promote loyalty among customers.

The daily deal scene blew up a couple years ago, with hundreds of Groupon imitators flooding the market. However, 1/3 of all daily deal sites shut down operations in 2011, finding that they simply don’t stand a chance amongst the sea of established competitors.

In response to the scoffs and sneers they have received, Groupon and LivingSocial have rolled out new programs to help establish loyalty and ensure customer retention.

Last October, Groupon launched Groupon Rewards to offer incentives for businesses’ most loyal subscribers. Now, the company is offering Groupon VIP to consumers in select markets—a paid loyalty program that gives shoppers a sneak peek at exclusive deals and the ability to request a refund for unused vouchers for $30 a month.

Similarly, Groupon’s rival LivingSocial also introduced Plus last November, where users pay $20 a month to receive access to closed deals. LivingSocial disclosed that it had a $558 million net loss in 2011, which could be a reason why it’s testing out the waters with a paid loyalty service.

The good news for these daily deal operators is that the numbers are looking up. According to a report from ForeSee, 44 percent of consumers who use daily deals return to the merchants that provide the offers and 47 percent plan to do so in the future.

The report suggests that daily deals may be on their way to becoming a service that brings in new business and inspires repeat business.

However, the question regarding the practicality of these paid loyalty programs is this:

If Groupon and LivingSocial save its best deals for its most loyal and paying customers, will that diminish the value of the “regular” deals? Is that a viable business strategy?

What do you think?

[Article first published as Are Daily Deals Upping the Ante? on Technorati].

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