With Groupon on the verge of going public, and Google, Facebook, and just about everyone else rushing to copy the idea, there’s no question that the model has been a huge hit with consumers. But there are still some questions as to just how much it helps out the businesses offering the deals. It’s essentially a loss leader model, so the success metrics can be tricky to accurately gauge. Bloomspot has a take on this model based around success — for both merchants and customers. And investors are buying into it big time — to the tune of a fresh $40 million in funding.
To be clear, Bloomspot does not orient themselves around group deals. Instead, they focus on offers from high-quality merchants looking to connect with their best customers. Said another way, they’re not looking to send deals to the masses, they’re looking to connect certain vendors with (hopefully) loyal consumers. The offers they serve are more highly tailored for specific interests and demographics. And again, they believe they’ve now nailed the model that will work.
“We’ve closed the loop on the business model,” Jasper Malcomson, Bloomspot’s CEO and co-founder, tells us. The key, is data.
Bloomspot gets permission from both their users and vendors to look at and analyze the credit card data used at places where Bloomspot is running an offer. This allows them to see not only that an offer was used, but how it did in terms of helping the vendor sell other products to the customer. Yes, they’re looking to see if the “loss leader” is actually a “loss leader”, or really just a “loss”. They then present this data back to the vendors in a fully transparent way. (Here’s a sample of what that data looks like, obviously anonymized so it could be made into a sample.)
But here’s the real key: Bloomspot uses this data to predict how much a customer is going to spend with a merchant based on the offer. And they guarantee a certain level of profitable spend. If the offer doesn’t lead to that, Bloomspot makes up the difference from their own commission. In other words, the vendor really can’t lose.
Bloomspot is comfortable enough in their model to do this (as well as make the data fully transparent). They’ve been running their specific high-quality offers for months now, so they have the data to back all of this up as well. They believe they’ll be able to accurate predict how much additional spending an offer will send to a vendor.
Okay, but why would a customer go along with this — the use of their credit card data? Because Bloomspot offers them a number of rewards for participation. First of all, if you buy a Bloomspot offer then use the same credit card with the merchant, Bloomspot will give you 25 percent back on your next offer purchase. Second, the continued use of the same credit card essentially turns it into a loyalty card for you. This helps Bloomspot show certain vendors that you’re a “great patron” that should get a special offer, beyond the ones offered to the public.
“All of this is most powerful when it’s not just about savings,” Malcomson says. “It’s a recognition system. In a way, it’s less about discounts and savings, and more about recognition and status,” he says, noting that places like Las Vegas have been doing this for decades now. If you spend a lot of money gambling, a casino will comp other things for you. “In many ways, that’s exactly what we do,” he says.
Obviously, this kind of model would not work for all businesses. But it makes sense for higher-quality ones — mainly in the restaurant, spa, and resort hotel space. “We believe this is about the quality of your customers,” Malcomson says.
As mentioned, the company has just closed their Series B round of funding. The $35 million round was co-led by InterWest Partners and Columbia Capital. Also participating are Menlo Ventures, True Ventures, QED Investors, Harrison Metal, and individuals such as Erik Blachford (former CEO of Expedia) and Gary Parsons ( former Chairman of Sirius XM Radio).
Additionally, Bloomspot closed another $5 million round of venture debt from Western Technology Investment. This gives them a robust $40 million in new capital to work with and to prove this new model works. They had previously raised around $11 million, including a $9 million Series A last September.