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Innovation Economy

Coupon services keep sprouting up, but will all of them make the cut?

By Scott Kirsner
Globe Correspondent / April 3, 2011

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Consumers have long complained about telemarketers calling in the middle of dinner to pitch new vinyl siding or satellite TV. Now, businesses face a similar scourge: salespeople from Groupon, BuyWithMe, LivingSocial, and other coupon services eager to get them to offer deep discounts on products and services.

“People call you daily,’’ says Bob Schwartz, director of marketing at Boston Duck Tours. “And once you offer a deal with one service, all the others will call you assuming you’ll do a deal with them.’’

We live in a golden era for bargain hunters. Subscribe to a few e-mail newsletters, or download an app to your mobile phone, and you will receive a stream of tempting offers: 38 percent off a Duck Tour ticket, half off a massage, or $125 worth of dry cleaning for 50 bucks.

Entrepreneurs, investors, and big companies are betting the new services represent a major shift in shopping behavior, and a powerful way to attract customers. Last year, Groupon, one of the biggest players, rebuffed a $6 billion acquisition offer from Google, and BuyWithMe, a company founded in Boston, raised $16 million from two local venture capital firms. Cambridge-based SCVNGR Inc. last month launched a new service called LevelUp, focused on persuading customers to return to a business after they use the initial coupon.

Last week, two former SCVNGR employees unveiled BloggerOffer, which gives bloggers a way to direct their readers to limited-time deals and earn a commission. Facebook and Google plan to get into the game, too. And Boston.com, the Globe’s online affiliate, will launch its own Boston Deals service this spring.

But could all this excitement about a new way of circulating coupons be an unsustainable blip?

Here’s how things work. Deals are offered for a few days only, and you have to pay up front with a credit card. You print a coupon to bring to the business, or, in some cases, show your mobile phone screen. As with old-fashioned coupons, there’s an expiration date.

Merchants typically receive about half the money you spend, with the rest going to the coupon service. (Usually, the service passes along the credit card processing fees to the merchants, too.) If a coupon goes unredeemed, merchants still keep their half.

These services emphasize they can help introduce new customers to a company without upfront outlays for advertising. Some of those customers may come back, or spend more than the coupon value on that first visit, executives at the services say.

Some merchants back that up. Lucy Valena, owner of Voltage Coffee & Art in Kendall Square, says she ran two discounts in February — normally a “dead time’’ — and business picked up almost immediately. “It created a lot of buzz,’’ she says, “and some people in the neighborhood told me that they hadn’t known that we existed, because they don’t walk by us in their normal routine.’’

Getting paid for coupons that consumers bought took longer than she would have liked, Valena says. She has planned another offer with Groupon, but hasn’t yet sent in the paperwork. Her concern: Too much discounting is dangerous for a business built on quality. “You don’t want to cheapen your reputation,’’ she says.

At Dellaria Salons & Spas of Allston, some of its 26 salons attracted repeat customers after offering coupons through EverSave and LivingSocial. But other locations just “really seemed to get deal-seekers who buy the coupon and jump from place to place,’’ says marketing manager Hayley Goff.

Some businesses, like East Coast Aero Club, a flight school at Hanscom Field in Bedford, have had astonishing success with the coupons. About one person a month used to show up for an introductory helicopter flying lesson, says Philip Greenspun, a flight instructor.

When the school sent out its first Groupon offer last year a lesson for $69, instead of the normal $225 it sold 2,600 lessons in a single day. Subsequent offers haven’t done as well, but, Greenspun says, Groupon “did revolutionize our business.’’

But others have tried the coupons, and say they wouldn’t do it again. Daryl Levy, co-owner of Deluxe Town Diner in Watertown, can’t deny a Groupon deal offering $30 of food for $15 increased traffic. But she wonders how many were already regular customers (“We looked at it as a bonus for them,’’ she says), and whether it was worth handing half the money to Groupon. Instead, Levy prefers to promote a $100 “frequent diner card’’ that gives the buyer $120 to spend: her business keeps 100 percent of that revenue.

Scott Walker, co-owner of the Cambridge store Greenward, has offered deals through Yelp and BuyWithMe. He says they have produced comparable or better results to traditional advertising, but adds he is concerned about the “downward spiral of, ‘I can’t compete unless I offer a deal, but I can’t stay in business selling so much at 50 percent off.’ ’’

Consumers certainly win with coupon services, and plenty of businesses seem willing to give them a spin. But I wonder whether many businesses will dangle one deal and never do another, or conclude that half off doesn’t make sense, and begin offering smaller discounts. And with less tantalizing deals, or simply too many messages filling their inboxes, consumers will pay less attention. Buying a few Groupons that they never use might also cause consumers to rethink future purchases.

Today, about 60 different services circulate deals in Boston; more than 300 do so nationally, according to Eversave chief executive Jere Doyle. Eversave, which operates in 16 cities, is a 10-year-old Wakefield company that began distributing local discounts last June.

Doyle doesn’t think all the services will survive, but he notes that small and mid-size businesses spend about $60 billion a year on marketing. As a result, he says, “We don’t think this is going to be a winner-take-all category. The companies that figure out how to create loyalty for merchants and get people to return will be the ones that will win.’’

Scott Kirsner can be reached at kirsner@pobox.com.