Does Groupon Complicate the Closed-Loop Market?

The rise of social buying sites such asBuyWithMe, Groupon, and LiveSocial has added a new element into theclosed-loop prepaid world by making use of an old idea. Thesecompanies have used the Internet and e-mail marketing to makevouchers a growing business in the twenty-first century.

Consumers can buy a voucher for goods or services at a steepdiscount through these e-mail offers. One benefit of this is thatit has given small merchants the chance to offer a prepaid productwithout the need for a processor, a card manufacturer, or point ofsale terminal changes. Second, merchants have a chance to generatetraffic into their stores and reach potential customers with anoffer that many buyers perceive as low-cost, and thereforelow-risk. Third, customers can access deals they may have otherwisenot known about.

Efforts have been made to tap into these benefits by majorretailers such as The Gap and Amazon.com. A question remains as towhat value larger merchants derive from these kinds of offers.However, it appears that the group selling market will remainactive for the time being.

As merchants consider these offers, they should make sure to pairup with those companies that have a reliable list of potentialcustomers. Also, merchants must make sure that they are not simplyoffering good deals only to an existing customer base. While itmakes sense to reward the best customers, a company wants to do sodirectly, and not through a third party. Finally, because themarket is a nascent one, partners should be vetted for stableness.A merchant would do no good to set up an offer with a company thatfolds before delivering any benefits.

These sites do complicate the closed-loop market, but the task formerchants is to integrate them into the spectrum of closed-loopofferings to make them a valuable tool for finding new customersand increasing sales.