Everyone loves a deal, and group buying companies like Groupon have cashed in on that in a big way.

But as a publicly traded company, keeping the momentum going is a must for Groupon, which is not only facing competition from other group buying services like Living Social, but which is also trying to keep consumers and merchants happy as daily deal fatigue sets in.

When it comes to consumers, Groupon is experimenting with a VIP service that it has been rolling out in select cities over the past weeks. As reported by Business Insider, the offering, which costs $30 per year, gives members early access to deals, the ability to purchase past deals and 'Anytime Refunds.'

The logic is obvious: by offering a VIP service, Groupon isn't just capturing an extra $30 in revenue from a subscriber, it's encouraging them to become more loyal to Groupon, in turn sparking more sales.

That sounds like a good idea on paper but the big question is what's in it for the merchants? Groupon, of course, serves a two-sided market, consumers and merchants, and arguably the merchants are more important. After all, without a constant flow of merchants willing to offer discounts on their products and services, Groupon has nothing to market to its users.

Yet many merchants have become more skeptical about services like Groupon, questioning just how wise it is to heavily discount to get customers, many of whom may never return, through the doors. Some say that the deals being offered by group buying sites are becoming less attractive, which may be a reflection that merchants are either avoiding the daily deal model altogether or becoming more savvy (or sneaky depending on your perspective) about what they offer.

With this in mind, it's worth considering that Groupon's VIP service might be half-baked. If some merchants are starting to avoid Groupon, and others are beginning to offer less attractive deals, Groupon's real problem is on the merchant side, not the consumer side. Instead of offering a VIP membership to any Groupon subscriber who can spare an extra $30, Groupon should focus on rewarding the type of subscribers who can satisfy its merchants the most. In other words, Groupon's imperative is to segment its subscriber base into two parts: subscribers looking for long-term relationships, and serial cheapskates.

Of course, this would require Groupon to do more in the way of tracking, something which it has for some reason done less of than one would expect. But if Groupon wants to survive and thrive, a $30 per year VIP membership probably isn't the game-changer it needs.

Patricio Robles

Published 16 February, 2012 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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