Can Seth Priebatsch Muscle into Deals?

Seth Priebatsch fits the stereotype of tech entrepreneur. Brilliant? Check. Eccentric? Check. Dropped out of college? Check again.

The big question is whether he’ll hit it big early on like visionaries like Mark Zuckerberg, or if he needs some bruises before he fulfills his potential. Priebatsch’s initial effort, location service Scvngr, has done well enough, playing a distinct second or third fiddle in the location-services market. But Priebatsch might have stumbled into something bigger: using the gaming mechanics honed in Scvngr to change the game in daily deals by making them more about retaining customers.

LevelUp, a spinoff deals service from Scvngr, aims to do just that. Like most daily deals services, consumers have the opportunity to access deeply discounted goods and services via email offers. But unlike other services, LevelUp is not designed to be a one-and-done coupon service.

Retention is one of the chief complaints that merchants have about daily-deal distributors is that the distributor gathers and keeps all of the information about participating consumers. After the consumer redeems the coupon, most daily deals offer merchants no way of contacting that customer directly to foster a continuing relationship.

Chris Mahl, svp and chief brand alchemist at Scvngr, said that the underlying philosophies of the two services share DNA. “We spent a year [growing the Scvngr brand] learning about the importance of loyalty,” he said.

In essence, LevelUp has created an affinity program using daily deals as the carrot for consumers. The service has echoed of the video games that informed Priebatsch’s childhood. (During his keynote address at South by Southwest this year he described how the education system was really just a game, albeit a poorly designed one.) Each deal has three levels. Consumers who purchase the first level, for instance, $15 for $30 worth of merchandise, are then entitled to purchase a second, steeper discount. Consumers who bite for the second level can then earn even deeper discounts and more in-depth experiences. In order to combat the perception that participating in the program will be too expensive for most merchants, LevelUp takes no commission on the first level of discounts. The company takes a 25 percent commission on both level-two and level-three deals.

Mahl said that in the two-city test run, conversion rates for levels two and three have been 60 percent and 45 percent, respectively. “People are buying right through the cycle,” he said.

This is a far different proposition than Groupon or LivingSocial. Their premise is to bring customers to try a merchant. Whether they remain is really up to the merchant. LevelUp promises to stick with the merchant as it tries to convert a passerby into a regular. This could be a lucrative niche in deals moving beyond customer acquisition.

Merchants have no way of accessing information on who bought and redeemed a coupon through Groupon and its hundreds of clones. Mahl said LevelUp is working with its merchant partners to develop ways to change that deals paradigm.  He noted that a number of the company’s merchant partners, of which there are now 61, are using the third deal level to reward consumers with points in company-loyalty programs, so that the company not only has engaged the consumer over the course of three visits, the merchant has amassed valuable information about a repeat customer and provided new impetus for return visits.

Another aspect that distinguishes LevelUp from other deal services is the paperless coupon arrangement it has forged with American Express. Consumers who register their AmEx cards with LevelUp can have their deals loaded directly on to their credit cards. When a consumer redeems a deal using AmEx, LevelUp sends a push notification to the consumer’s mobile device and the deal shows up as a credit on the consumer’s monthly statement rather than as a discount on the point-of-purchase receipt.

“No more coupons, no need to show your phone,” said David Wolf, global marketing capabilities vp for American Express. “Everyone wants a discount. But when you are out at a restaurant, it’s nice not to have to shout about it.”

Even through Mahl said that people are engaging with LevelUp primarily through computers, he foresees a time when mobile engagement will become the predominant method for accessing and purchasing LevelUp deals and believes that the arrangement with American Express will make mobile engagement with LevelUp seamless and virtually invisible. Wolf also believes that LevelUp-AmEx partnership will serve as a model for the way this very young business develops. “We definitely think this partnership with LevelUp is going to be disruptive in the daily deals space,” said Wolf.

LevelUp is currently selling local deals in Boston and Philadelphia. It has also inked a national deal with jeans manufacturer Levi Straus, and as a consequence, LevelUp is redeeming offers in the Levi’s flagship store in San Francisco. Mahl said that the company will announce new locations soon.

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