Site looks to rival Groupon with trio of deals

By Rachel Metz
Associated Press / July 10, 2011

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SAN FRANCISCO - Groupon’s online coupons save people cash, but they’re not always great deals for merchants. Some businesses complain that bargain hunters rarely return after scoring a cheap meal or massage.

A new site called LevelUp believes it has a way for restaurants, nail salons, and other local businesses to keep people coming back. To drum up repeat business, the company offers consumers a series of three deals, each better than the one before.

Online deal sites abound, but LevelUp hopes to stand out by giving people an initial offer that’s on par with competitors’ - and following that up with even better deals. After three visits, LevelUp figures that customers will be familiar with the merchant enough to return, even without discounts.

It’s still too early to say whether enough consumers will be willing to pay full price - a key factor that will determine whether LevelUp becomes a serious threat to Groupon or remains one of hundreds of wannabes.

Groupon created a new marketing phenomenon catering to people’s hunger for bargains. It offers the chance to purchase discounts targeted to a person’s city and preferences. For example, someone might pay $20 for a $40 gift certificate to a spa, restaurant, car wash, or yoga studio.

The Chicago company’s initial public offering of stock is expected to be in high demand, even though it lost $413 million last year on revenue of $713 million.

The harsh reality of the online coupon business is that the concept of offering customers deep discounts is easy to replicate. All you need is a sales team to craft deals with merchants, and an e-mail service for blasting those offers to people who sign up.

But rivals have difficulty breaking through because market leader Groupon already has 83 million people subscribing to its daily offers by e-mail, and second-place LivingSocial has 39 million. By contrast, LevelUp has just 100,000 subscribers.

LevelUp comes from the folks behind Scvngr, a mobile-gaming start-up in Cambridge, Mass., created by 22-year-old Princeton dropout Seth Priebatsch.

LevelUp, whose name is gamer-speak for the act of rising to a higher status in a video game, launched in Boston and Philadelphia in March. It plans to expand this summer to major markets such as San Francisco, New York, and Chicago. Most of the businesses it works with are local, but deals have included larger brands, such as Levi’s.