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Can Groupon Rewards Transform Local Commerce?

That's the plan, says CEO Andrew Mason. A new national loyalty program is one way it's trying. Here's how the deals company plans to go beyond discounts and to "help merchants grow."

Yesterday's nationwide launch of the Groupon Rewards customer loyalty program was the latest step in the Chicago company's attempt to move away from its identity as solely a purveyor of deals and toward being known as a provider of a range of services for local merchants.

The Rewards program allows merchants to set up loyalty programs for their customers. Instead of relying on a buy-10-get-one-free punch-card-style system, merchants can design their own terms, like giving a spa treatment after a customer spends a certain amount of money.

The program is run digitally, so customers don't even have to stuff another set of paper cards in their wallets. Groupon automatically tracks how much customers spend where via the credit card associated with their account. Both merchants and customers can see where they stand by logging in to their individual Groupon accounts. 

The program was piloted in Philadelphia beginning in the fourth quarter of last year and is now available in 26 markets, with another 10 on deck. Groupon says that about 30% of eligible merchants in each market have signed up to participate. While many top national brands like Starbucks and Best Buy have amped up their own loyalty programs of late, the local market is fairly wide open, though Groupon may ultimately compete with the likes of Foursquare for your loyalty.

Groupon Rewards general manager Jay Hoffman tells Fast Company the program acts as a natural complement to deals. If deals are about getting customers in the door, Rewards are about getting them to keep spending. Groupon and other deals programs have suffered backlash from some merchants who said deals weren't necessarily a good strategy because deal-buyers didn't necessarily become regular customers.

If deals are about getting customers in the door, Rewards are about getting them to keep spending.

As such, Hoffman says, the Rewards program is part of an overall effort at Groupon to become more useful to local businesses. "We're trying to become more of a marketing platform for merchants," he says, "which means that, not only are we helping them with customer acquisition to bring a whole bunch of customers in, but we're also a tool to bring customers back."

On Monday, Groupon CEO Andrew Mason released his annual letter to shareholders in advance of next week's expected earnings report. The letter says the company plans to become "the operating system for local commerce."

"We're building an integrated suite of tools and services that we believe will profoundly change the way we shop locally," Mason wrote. Later, he said, "In the coming quarters, we will release the products that we believe complete the foundation for our ecosystem."

Mason's letter said that, while many industries have been transformed by the Internet, local commerce is one that still has not. "We are focused on what is arguably the last great white space in the consumer landscape that has yet to be disrupted by the Internet," he wrote. "The opportunity before us is substantial: Merchants need customers, and customers crave simple tools to discover and buy locally at a great price." Groupon, he said, is "best positioned to provide" those.

Mason did not elaborate on what new services the company will offer. (And Hoffman declines to comment as well.) But the CEO's letter said, "Today, Groupon is a marketing tool that connects consumers and merchants. Tomorrow, we aim to move upstream and serve as the entry point for local transactions."

While Groupon is not moving away from deals (the letter says there's still lots of opportunity in their core offering), director of communications Julie Mossler tells Fast Company that, going forward, merchants won't necessarily have to be running deals with Groupon to make use of its other services, like Rewards or Scheduler, a service released last year which allows merchants to book appointments. 

"People are leaning on Groupon to help grow their business," she says. "And there's five or six different tactics that we're going to use to help them do that."

[Image: Flickr user cavorite; Homepage image: Library of Congress on Flickr]

E.B. Boyd is FastCompany.com's Silicon Valley reporter. Twitter | Google+ | Email

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