New York City baker Eileen Avezzano says she has a better way than Groupon Inc. (GRPN)’s online deals to entice customers to buy her cheesecakes again: She doles out loyalty cards that reward buyers for return visits.
The cards, designed by Cartera Commerce Inc., are digital instead of physical, and are linked to credit cards consumers already use. They let merchants provide a discount, or a reward such as airline miles, every time consumers buy. A shopper may swipe a card, and a retailer will automatically deduct some money off the bill.
Groupon is seeking to raise as much as $540 million selling 30 million shares for $16 to $18 apiece, according to regulatory filings. Photographer: Tim Boyle/Bloomberg
Businesses like Avezzano’s can use the programs to collect data on when customers shop, how often they return and how much they spend — way beyond the scope of old-fashioned paper punch cards. That can make them even more valuable than coupons from Groupon and LivingSocial. About 900 million transactions will be conducted with cards connected to merchant loyalty programs in 2015, generating $1.7 billion in revenue for the providers, Aite Group LLC estimates. That’s up from $300 million in 2011.
“I see them going head-to-head,” said Peter Krasilovsky, a vice president at researcher BIA/Kelsey. “It’s an evolution of the deals space. The goal is to go beyond new customer acquisitions and become part of the integrated business of merchants.”
The digital loyalty program market began exploding around 2010, when startups and venture capitalists starting thinking about how to bring loyalty punch cards into the digital age, Krasilovsky said in an interview. Makers of loyalty-card software have attracted more than $155 million in venture capital, he said.
Cartera raised $12.2 million this month in a round of funding led by Venture Capital Fund of New England. Along with Cartera, startups such as Plink LLC, CardSpring and Mirth Inc. are gaining attention in the world of merchant deals.
“We think it’s a massive opportunity,” said Jeffrey Bussgang, a general partner at Cartera investor Flybridge Capital Partners. “Card-linked marketing benefits card issuers and consumers equally.”
These loyalty programs, which reward buyers on top of any airline miles or points their credit cards already offer, are often cheaper than coupon providers, too. LivingSocial and Groupon, the biggest provider of daily discounts, typically take a 30 percent cut of a transaction, versus 5 percent to 15 percent when a loyalty-linked card is used. The competition adds to concerns facing Groupon, whose shares have tumbled 51 percent since its initial public offering in November.
Some loyalty programs let consumers get rewards of their choice such as cash back, discounts or virtual currency for games like Zynga Inc. (ZNGA)’s FarmVille. American Express Co. (AXP)’s Zynga Serve Rewards card allows fans to amass the currency when they shop and use it for the online game.
Virtual currencies are seen as a way to attract people in their 20s, said Ron Shevlin, a senior analyst at Aite.
“Zynga has a large portion of players who are highly engaged in their games,” said David Messenger, executive vice president of online and mobile for American Express. “We can connect that online engagement with offline behavior.”
Plink, a Denver, Colorado-based startup, has designed a loyalty program that lets users earnFacebook Inc. (FB)’s virtual currency by dining at more than 25,000 restaurants such as Burger King Corp. and Outback Steakhouse. CardSpring allows clients to build their own Web-based and mobile applications for cards that can deliver coupons, digital receipts and loyalty programs.
Mirth, whose program is currently in trials in New York, rewards frequent customers with a 3 percent discount on purchases whenever they swipe their cards at participating restaurants.
“A lot of merchants have voiced their frustration with deep discounts and deals,” Jeremy Galen, Mirth’s chief executive officer, said in an interview. “With us, you don’t have to lower your price.”
On June 19, online-payments startup Square Inc. also introduced a loyalty program, letting small businesses offer rewards to customers who swipe credit cards through its handheld readers.
Increased competition may further damp analysts’ expectations for Groupon. The Chicago-based company in March reported a “material weakness” in its financial controls and said fourth-quarter results were worse than previously stated because of higher refunds to merchants.
A survey earlier this year by Susquehanna Financial Group and daily-deal aggregator Yipit showed that about half of businesses that had offered an online deal-of-the-day weren’t planning to do so again in the following six months. Merchants were concerned about a low rate of repeat business from new customers gained through such offers, the survey found.
“We continue to question whether Groupon can sustain its high growth and begin to generate sizable profits while scaling back marketing costs,” Edward Woo, an analyst at Ascendiant Capital Markets LLC, wrote in a May 15 note.
As a result, Groupon’s IPO has been among the worst market debuts for a Web company since the dot-com crash. Closely held LivingSocial, whose backers include Amazon.com Inc., Lightspeed Venture Partners and AOL Inc. founder Steve Case, doesn’t disclose sales or earnings figures.
Both LivingSocial and Groupon have started their own loyalty programs. LivingSocial introducedits first co-branded credit card with JPMorgan Chase & Co. in May. Cardholders can earn points that can be converted into DealBucks and used toward LivingSocial deals.
Groupon’s Rewards program, which gives consumers points for shopping at participating companies with a registered credit card, was rolled out nationwide at the end of the first quarter.
“We are signing up hundreds of merchants every week, and have hundreds of thousands of customers on this platform,” said Jay Hoffman, vice president and general manager of the Rewards program. “The adoption has been incredible.”
Still, some business owners view rival loyalty programs as a better investment than daily deals.
“With Groupon, it’s a one-time offer — it doesn’t last,” New York baker Avezzano said. Customer numbers at Eileen’s Special Cheesecake have jumped 18 percent since the shop started using Cartera’s loyalty technology a year ago, she said.
Article Source: http://www.bloomberg.com/news/2012-06-26/groupon-challenged-by-startups-in-doling-loyalty-cards.html
The “loyalty” aspect of our service is what has really fueled a lot of the interest we’ve been getting recently. There has been a huge spike in interest in SMS and other mobile marketing services since the beginning of 2012. And, for the past few years, the Groupon model has been relatively popular. The concept of social buying and heavy discounts was very compelling to small businesses that were looking for ways to drive business. However, we saw some backlash with this model.
The deep discounts and one-time buys are not ideal for the goals and needs of certain businesses. I’ve seen about 60-90% of business owners say they will never do another Groupon again. So if you look at the business market and see that most businesses will not use Groupon again, then how does Groupon have any kind of future?
We always knew that the No. 1 fail point of Groupon was that they had no client retention model. We knew they would eventually have to evolve into a loyalty company—and they did when they came out with Groupon Rewards.
Now, the company is distancing itself from small businesses. They realized their model failed to deliver loyalty, so they started offering a lot of other type of products. Now their focus is on “rewards”, which they obviously did out of demand in the marketplace. But, many businesses dislike Groupon because although they can offer great discounts to customers, they aren’t able to get their hands on the list of people who bought the Groupon. That list is important in building loyalty and personal, engaging interactions among customers.
At SMS Masterminds, we have taken the time and energy to build a very campaign-based and service-based program. We understand the concept of loyalty and how it relates to the needs and opportunities of small business marketing.
There are several elements of a loyalty program that absolutely must be included for the program to be successful. And guess what—Groupon has incorporated virtually none of them. Here are some of the must-have components to a successful loyalty program:
Personal Relationship Building
Whatever system you use for your loyalty program should be one that rides the trends of the loyalty marketing industry and the demands of consumers. Consumers are demanding relationships—they want to feel important and buy from people that they like. If a brand can create a personality and get people to like it, that brand will win over customers. It’s about making an effort to make the customer experience personal and engaging.
Engaging Ongoing Messaging
A loyalty program needs to have consistency in its touch points. We are in a very fast-paced industry today and people expect instant gratification. With our loyalty marketing program, consumers are constantly engaged—receiving text message updates and rewards for checking-in on the Loyalty Rewards Kiosk. With Groupon Rewards, there is no engagement. It’s a system that tallies up totals, and who knows when you will receive your reward.
Timely Push Technology
You want to be able to PUSH your message out there. In order to continue that personal relationship with consumers, you must be able to reach them and provide them with something of value. Push technology is so important in marketing—and that’s why mobile is so big right now—because being able to push out your message and almost INSTANTLY reach consumers is unbelievably powerful.
In-House Engagement Element
You need to have something in-house that people can engage with when they walk into your business. There needs to be something they can do, touch, see, feel—whether it’s a table tent or some other form of signage or a Loyalty Rewards Kiosk conveniently located at the point of purchase—so customers can see, in that moment, how many check-ins they have so far, how many rewards they’ve earned, etc.
Habit Forming Consumer Use
A loyalty system needs to teach your customer how to buy. A successful program can help them develop habits that they will continue to act on over time. Consumer buyer habits are one of the most critical elements of any analytics because understanding what your customers are doing and helping them further mold their buying habits will directly affect your bottom line.
Social Media Integration
It’s 2012. If you are still aboard the anti-social media “I don’t see how it will help my business” train, then you should probably get off at the next stop. You can no longer turn a blind eye. Social media is out there, it’s big, and you can’t deny the success that many businesses have using it to promote brand awareness. A system with elements of loyalty, brand building and consumer engagement should absolutely include social media to round off the entire experience.
If you’re in the marketing industry, you’re going to have people ask you about the differences between Groupon and other loyalty marketing programs. Be prepared to answer those kind of questions by being informed.
Anyone can buy a full-page advertisement in a newspaper, but it’s what the ad says and how it looks that makes the difference of whether it works or not. It comes down to service. When we see other companies providing a technology-only solution, it comes up short in terms of what expectations should be. Value is the key, which is why our system has been built the way it has and how it has remained sustainable among all the other variations that are out there.