Merchant Offer Networks and the Players Powering It All

Navigator Edition: July 2012
By: Jeff Crawford and Kenneth Coe

Continued economic uncertainty and lingering effects of the recession have transformed the traditional spending habits of a full spectrum of consumers, from the under-banked to the ultra-wealthy.  In fact, one study conducted by GfK MRI found that Groupon users are twice as likely as non-Groupon users to belong to households with an annual income of more than $100,000; a statistic that likely would have been lower in a pre-recession era.  The precipitous fall in financial markets around the world just three years ago has sparked a movement to save, which has also raised the popularity of merchant-funded programs offered by both financial institutions and daily deal companies. The adoption of these innovative incentive programs by all socioeconomic classes has contributed to their rapid deployment and growing revenues.

As issuers and daily deal sites attempt, not only to attract new customers, but also to motivate current customers to change their spending habits, business structures are evolving to accommodate all possible incentive segments. For example, in an attempt to stay competitive in a growing market, issuers are looking to make offers that both extend beyond traditional points multipliers and are more relevant to their customers, like discounts particular to a consumer’s transaction history or location. Meanwhile, after being scrutinized for low levels of customer retention following initial offer redemption, daily deal providers are establishing standalone rewards currency to promote more consistent member activity. Even more interesting is the interaction that takes place between the two as a result of using similar providers to source offer content. Paving the way for this interaction are providers investing in a technological infrastructure that allows for features like location-based, real time offers, and card-linked discounts. The fascinating juxtaposition of daily deals and merchant funded offers in the consumer’s daily activities lends itself to one question: How will these two industries co-exist?

Emerging partnerships with financial institutions signal increased cooperation. American Express has partnered with Facebook to supply users with offers based on their “Likes” and the “Likes” of their friends. They have also teamed up with Foursquare, allowing cardholders to redeem card-linked offers using their synced card at nearby locations.  American Express also began the mobile pilot of My Offers, which uses a cardmember’s “spend graph” and an offer engine to recommend and rank relevant merchant offers in real time. Bank of America, who has long had the WorldPoints Mall and Add-it-Up programs, has launched their own “daily deal” service, BankAmeriDeals, which offers debit cardholders deals and discounts based on their  transaction history. In May, Capital One acquired start-up Bank-Ons, a mobile location-based application that syncs with a user’s online banking app and allows them to view and redeem offers at businesses around them.

Daily deal providers have often been criticized for providing minimal profit margins with respect to the value the offers actually create for a business by failing to drive follow-on customer activity. To combat these allegations, daily deal enterprises are attempting to modify some of the value propositions for consumers and merchants through additional product suites. Groupon, for instance, has announced the nationwide launch of Groupon Rewards, a card-linked service that allows users to unlock Groupons after reaching certain spend thresholds set by merchants. This is an attempt by Groupon to make offers more effortless at the point of sale while appealing to merchants who need enhanced tracking and reporting to better understand their return. To improve effectiveness of offers, the company has also announced the addition of Groupon Now, a real-time, location-based offer distribution network, where consumers can view multiple deals in their proximity rather than just individual deals distributed via e-mail. LivingSocial has also found a way to have their faithful users increase spend through the program by giving consumers a credit card. They recently announced the launch of a co-brand card with Chase, signaling the entrance of daily deal sites into the credit card atmosphere. Cardholders earn 5 points per dollar spent at LivingSocial, 3 points per dollar on dining, and 1 point per dollar on all other retail.

Behind all of the innovative financial institution programs are the merchant funded providers that power the rewards engines. LivingSocial has partnered with NextJump, a provider that already had its own daily deal-like service. Groupon has partnered with Cartera Commerce to let customers earn points, miles, and cash-back on Groupon purchases through financial institution merchant-funded programs. Other merchant funded providers have decided to acquire or create their own daily deal sites instead of partnering with existing ones. Affinion Group, for instance, recently acquired daily deal purveyor Eversave. Edo Interactive, a merchant funded provider that services many local banks and credit unions, recently launched what it describes as “geocommerce” offers, or offers from merchants that are based on location and use previous transaction history. The card-linked offers allow consumers to receive and redeem offers in real time with no check-ins or merchant point-of-sale modifications required.

As the daily deal providers begin to team with the same players powering the merchant-funded offers for issuers, it is possible we will see similar offers across multiple players. As we have already begun to see with the strategic partnership of Groupon and Cartera Commerce, it is possible that the players will simply use these partnerships for scale advantages, sharing user bases to increase distribution and to diversify offer content.

It is unlikely we will see a full consolidation of the daily deal and merchant funded rewards industries as their businesses serve different strategic purposes. Their co-existence, however, should prove a fascinating interaction of a conservative approach to customer retention (merchant-funded) and the social inspired schools of thought (Groupon and LivingSocial).  As new initiatives by merchant funded providers seek to improve deal relevancy and proximity, daily deal providers and issuers will continue to be drawn to the underlying opportunity to improve customer activation and purchase frequency, even if it means partnering with their competitors’ provider.

For more information, please contact Jeff Crawford, Senior Consultant specializing in Mobile Commerce and Emerging Payments,; or  Kenneth Coe, Analyst specializing in Loyalty and Issuing,

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