LevelUp is available on apps for the iPhone and Android, and through a website. Priebatsch believes the site will help make the service more mainstream, even though the location-based capabilities of phones allow for more engagement with the businesses.
“Loyalty is about more than repeat visits and repeat purchases,” Priebatsch says. LevelUp encourages users to check in at the promoted business once they’re there, and offers additional rewards for users who recruit friends and bring them along.
SCVNGR raised $15 million in venture capital in January, primarily from Google Ventures, and the company plans to devote the money to projects like LevelUp, which will be launched as separate brands. SCVNGR plans to spend $1 million launching and promoting LevelUp over the next four to six weeks.
LevelUp charges a 25 percent commission on each deal—less than half what daily-deal sites typically charge—and it pays all credit card fees. In addition, it keeps for itself only the commission from purchases of the higher-level deals. The commission from level-one deals goes to local nonprofits.
“We’ve avoided this sort of promotion altogether until now,” says John Pepper, CEO and cofounder of Boloco, a Boston burrito chain that is the first company to launch a promotion through LevelUp. The company decided to try the pilot service, he says, because they were already looking for ways to encourage new customers to come back. Pepper was also attracted to LevelUp’s plan to contribute to local nonprofits, which he says Boloco always does as part of its marketing efforts. While he acknowledges that it is costing a lot for his business to run the LevelUp promotion, he hopes it will be rewarded with a corresponding degree of increased customer loyalty.
Utpal Dholakia, an associate professor of management at Rice University who has studied the economics of daily-deal sites such as Groupon, says LevelUp is “very interesting, very cool, and very cleverly done.” Dholakia previously found that many businesses do not profit from online social promotions and often fail to form lasting relationships with the customers a deal draws in.
But Dholakia says the LevelUp model is not perfect. Three escalating promotions may be expensive for small businesses to run, he notes—many businesses find that running a social promotion can eat through a marketing budget quickly. He also worries that customers will get a “price shock” after the string of promotions is over. “Ideally, you might want to wean the customers off the discount,” he says.