Credit cards: The next move for daily deal sites?
March 07, 2012
When merchants sign up with one of the daily deal companies -- such as Groupon or LivingSocial -- to offer a special discount to the company's email subscribers, it's not unusual for the merchant to get swamped with new customers. The phone rings off the hook and their establishment -- be it a restaurant, salon or spa -- is suddenly booked.
The problem is that this phenomenon is often short-lived. All those new customers disappear after the discount has run its course and most never return.
In an effort to battle the fickle nature of its followers, LivingSocial, the second-largest daily deal company behind Groupon, will become the first daily deal company to launch its own credit card. The idea, LivingSocial Chief Financial Officer John Bax told Reuters, is to help merchants keep those new customers coming back.
How the LivingSocial card will work
The card, which carries no annual fee and will be offered by Chase, will give users 10 credits each time they make 10 purchases a month withit. These credits, known as Deal Bucks, can be used to purchase LivingSocial deals.
LivingSocial also told Reuters it plans to offer short-term funding through the program for merchants, although it didn't offer specifics on how that might work. But if the LivingSocial card follows the pattern of many rewards cards, it could also offer perks to shoppers who frequent LivingSocial affiliates.
Why this credit card was expected
The credit card announcement is a first among the burgeoning number of daily dealers, but it doesn't come as much of a surprise. A survey by Lightspeed Research last year found that more than a quarter of LivingSocial's customers would be interested in a LivingSocial-branded credit card application, and more than a third of Groupon's customers would like to apply for a credit card from that company. LivingSocial has more than 26 million email subscribers.
The subscribers are, in general, a pretty attractive group. According to Lightspeed, when Groupon and LivingSocial's customers are compared with all credit card holders, they:
- Are 50 percent more likely to have more than $75,000 in annual household income
- Have better credit scores
- Use their credit card three times as often
- Are twice as likely to pay their credit card balances in full each month
Groupon last year launched its own effort to keep its customers coming back to participating merchants with a reward system that deepened discounts to shoppers who spend more or return to retailers more than once. For instance, if you spend enough to qualify for the rewards, your discount on the next deal might go to 80 percent rather than the 50 percent offered to everyone else.
Enhancing merchant loyalty
The daily deal business is relatively new and there is a lot of volatility in the market. According to Time, 23 million people bought daily deal vouchers in 2009 and the runaway success of these deals sparked hundreds of small start-ups in various markets. They've offered deals on everything from groceries to cruises and even college tuition, but a third of these daily deal sites closed shop last year because they were unable to sustain their business.
Whether offering credit cards will help the remaining daily-deal companies to thrive remains to be seen. Still, you shouldn't be surprised if you receive a credit card offer in the near future that bears the logo of your favorite deal site.