SCVNGR Launches LevelUp to Compete With Groupon

SCVNGR, the real world location-gaming service, is applying game mechanics and a new business model to daily deals in an attempt to strengthen the relationship between merchants and their customers. With LevelUp, a pilot program that begins today in Philadelphia and Boston, SCVNGR is hoping to compete with local deal programs like Groupon and Living Social by offering a series of three deals to consumers, who unlock each one as they try out a business. The company is waiving any fees on the first deal to help encourage businesses to try out the service.

By leveling up — a term that comes from video games, and means that users unlock rewards as they complete certain levels — SCVNGR believes it can prevent consumers from abandoning a business after one daily deal and give merchants a shot at turning them into regular customers. That’s been one of the problems in the local deals space: Groupon and others are great at driving traffic to a business with big discounts, but then it’s up to the merchant to keep them coming back, and many consumers simply move on to the next deal.

LevelUp requires businesses to offer up three discounts or offers rather than just one. Consumers start with a “Try it” offer, then if they come back unlock a “Like it” offer and then have the chance to get a “Love it” deal. But SCVNGR is taking a different approach by waiving its fee for the first offer, only taking a 25 percent cut on the second and third level up. That contrasts to other daily deal programs, which can take up to half of the revenue from a one-time deal.

“Our job is get customers to come back,” said SCVNGR CEO Seth Priebatsch. “If they’re not coming back, we haven’t done our job; we’ve just created another Groupon clone.”

Priebatsch said LevelUp isn’t just meant to dangle more deals in front of a user. It allows businesses to boost follow-up visits by increasing the discounts available for higher levels to reward repeat visits. Or it allows a merchant to lead people along a path to discovering its services: A rock-climbing company, for example, can offer a beginner course as its first level and an intermediate course for its second offer. LevelUp doesn’t require a certain number of users to activate a deal — customers have seven days to redeem the first offer and then the merchant can set time limits for the second and third offer. It’s up to merchants if they want to offer additional discounts to customers beyond the three level ups.

Priebatsch said SCVNGR has analyzed its own data and found that it takes three visits by a consumer before they are likely to become a regular at a business or at least have that merchant at the top of their mind. He said the goal with LevelUp is to create regular repeat customers, who make up 60-70 percent of revenues for many local businesses.

“The guys who come in once a year are not meaningful for a business,” he said. “The people who come in once a week, that’s meaningful.”

Some other local reward systems use game mechanics. Foursquare, for example, has been offering specials for mayors, the top visitors at a location — but what SCVNGR is offering is a dedicated service that combines the reach of location-based services with the scale and power of bigger daily deal programs. It makes a lot of sense to me because what businesses want is a long term relationship with consumers and real loyalty. Many are already paying to offer daily deals. But I think it helps if the system is designed for repeat visits.

The fact that SCVNGR is also not taking a cut of the first deal is also going to be an attractive proposition for merchants. They’ll still need to dole out a fair amount in discounts but the risk is lessened if a campaign doesn’t perform. That should give businesses some incentive to try this out. If this works, I can imagine other daily deal sites might follow in SCVNGR’s footsteps.

LevelUp is the latest move for SCVNGR, which recently hit 1 million users and received $ 15 million in funding. Priebatsch said the company is using much of its existing sales staff to launch LevelUp. If the trial goes well, Priebatsch said the program will be expanded to other cities.