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Groupon Rewards: New Deal Offers Loyalty Rewards Customers

Groupon Rewards

MICHAEL LIEDTKE   09/28/11 02:40 PM ET   AP

SAN FRANCISCO — Groupon has come up with another way for bargain hunters to save money as the online coupon distributor prepares to raise money from wary investors.

The additional savings will be offered through a customer loyalty program that Groupon unveiled Wednesday.

Merchants who join the service can now set a spending target for customers to hit, after which they qualify for an even steeper discount than Groupon usually offers through the millions of daily deals it sells each week.

The new feature is meant to please consumers and merchants alike as Groupon tries to revive interest in its initial public offering of stock. The program launched Wednesday for merchants in the Philadelphia area, and consumers there will start getting the promotions Oct. 14.

The IPO had Wall Street buzzing when Groupon first filed its plan in early June because of the company's sizzling growth rate. But interest has waned amid doubts about Groupon's accounting, leadership and ability to maintain its lead in a market now drowning in daily deals.

After cutting its stated revenue by half last week, Groupon signaled it still intends to complete an IPO to raise up to $750 million. The company, which is based in Chicago, hasn't specified a timetable for pricing the IPO, but analysts now expect it to occur within the next month, unless the already shaky stock market gets even rockier.

If Groupon's new program works as company envisions, consumers who spend enough money to qualify 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.

Merchants will have the final say on the size of the discounts.

Groupon's attempt to foster more customer loyalty addresses one of merchants' most common complaints about the daily deals on everything from manicures to meals. Many people who buy such deals redeem the coupons don't spend anything extra or return, leaving merchants with a loss after splitting the revenue with the coupon distributor.

Offering larger discounts to repeat customers is similar to the approach of one of Groupon's many rivals, LevelUp, which gives shoppers who make three visits to a merchant a better deal each time. Another competitor, BuyWithMe, launched its own rewards program this week. And still other services offer better discounts to customers who notify their online friends and followers that they are shopping at a certain store or eating at a particular restaurant.

Groupon is promoting its rewards program as the easiest because shoppers need only tie their spending to a single debit or credit card to start working toward a payoff from a merchant. The system also will make it simple for merchants to monitor customer loyalty, said Jeff Holden, Groupon's senior vice president of product.

Philadelphia is one of the first places LevelUp introduced its service this year.

Groupon's daily deals became so popular that Internet search leader Google Inc. unsuccessfully tried to buy the company last year for $6 billion. Google has since started its own deals service called "Offers" in an attempt to catch up to Groupon, which sold 32.5 million deals to 23 million customers in April through June alone.

Despite its popularity, Groupon hasn't been making money as management has focused on expanding into new markets. The company now offers deals in 175 North American markets and in 45 countries.

Groupon has lost a total of $623 million since its 2008 inception. Criticism of its accounting prompted Groupon to restate its revenue so it now cites only the amount of money it keeps from selling coupons. In the first six months of this year, Groupon now lists its revenue at $688 million, down from the previously reported $1.5 billion.

On the same day Groupon shaved its revenue, the company also revealed that its chief operating officer, Margo Georgiadis, had left the company after just four months to return to her former employer, Google.

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Filed by Ramona Emerson  |