Groupon Is Trying to Fix Its Loyalty Problem with Groupon Rewards

The company wants to give people an incentive to return to the businesses they try

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Groupon's doing a little self-improvement. While the daily deals site bubble looks on the verge of bursting, as customers, participating merchants, and various clones have fallen off, Groupon hopes to reinstill faith in the model with its latest offering Groupon Rewards. It works like a customer loyalty program, reports TechCrunch's Erick Schonfeld. "For instance, after a customer spends $50 or $100 at a store over time, she might get a Groupon Reward of $20 worth of goods for $4." It's one of those loyalty cards that supposed to keep you going back to the same coffee shop because people returning to the businesses that do Groupon deals is exactly what Groupon needs.

Groupon sells its model to merchants, promising deals will lure new customers who will theoretically return again sans coupon. It doesn't always work like that, as we've noted before. Forbes's Zack O'Malley Greenburg broke down the numbers last year:

Out of the 150 businesses surveyed, two-thirds reported that their Groupon promotions were profitable–but the remaining third claimed to have lost money on their Groupon experience... Similarly, just 13% of the latter group’s Groupon customers returned to the business in question, compared to a healthy 31% of the former. 

Groupon Rewards solves that problem: It keeps people hooked. "Groupon already has millions of credit cards on file. Now it is going to turn those credit cards into digital versions of the buy-10-get-one-free punch cards from the coffee shop that you stick in your wallet," explains Schonfeld. Instead of a one-time offer, Groupon gets customers to spend more, as they work towards another reward.

Of course Groupon gets something out of this besides merchant satisfaction. The participating retailer gets to choose how the virtual punch-card will work. But Groupon reaps the benefits of the second deal, as Schonfeld explains.  "However, unlike a regular Groupon deal, the merchant will not keep half of the coupon amount. If the reward is a $4 coupon for $20 worth of goods, that entire $4 will go to Groupon."

This article is from the archive of our partner The Wire.