Media Money with Julia Boorstin

Why Groupon Popped: Secret Weapons of Reserve & Rewards

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If Groupon's been plagued by a slew of questions about its business model and accounting issues? It's more than just pent-up demand and interest in the Internet space. The company has a few tricks up its sleeve to keep consumers.

Over a dozen friends and colleagues in the past week have asked me: "Did you get an invite to Groupon Reserve?" Without fail, people are curious about anything secret and exclusive, and this is a perfect example. Groupon quietly launched an elite, invitation-only program with special high-end deals. And this -- along with a rewards program -- may be just what the company needs to distinguish itself from the slew of copycats and grow its business.

Groupon sent out an invite on October 27 to some high-spending users: "To thank you for your loyalty, we'd like to invite you to be among the first members to receive our select premium service, Groupon Reserve. As a member of Reserve, you will occasionally receive exclusive offers for premium experiences, like today's offer to Bice."

The deal of a three course tasting menu for two at Bice, a midtown Manhattan restaurant, for $70 was critiqued on some blogs by not being gourmet enough to appeal to a truly high- end audience. But there's no denying it's a good deal at a high-end restaurant. And there's no question that the more exclusive the offer, the more appealing to consumers.

Groupon may be going public because of its massive size, but its strength may be in the ability to think smal l-- by focusing on certain niche groups, like high-end consumers.

Another smart move-- Groupon's working to keep merchants coming back with a new program, Groupon Rewards. Many merchants think of Groupon as a one-time marketing expense-- if it works they gain new customers, if it doesn't work, they lose some money. Either way, there isn't a lot of incentive to *keep* using Groupon over and over, lest they accustom customers to getting their products or services at a major discount. But Groupon rewards connects merchants to customers, giving them good reason to keep using the platform, beyond the traditional deal-a-day model. If this works, this could be what Groupon needs to keep both customers and merchants loyal.

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