SCVNGR Rolls Out Location-Based Deals Service in Boston, Philadelphia

“SCVNGR is kind of a weird company.” That’s what it says in its press release today, so you know it’s true. And not only because it needs to buy a vowel.

The Cambridge, MA, location-based gaming startup’s latest “weird” move is a potentially lucrative one. It is entering the local deals sector to compete with group-buying giants like Groupon, LivingSocial, and BuyWithMe—but with a new dimension of game mechanics. SCVNGR announced today it is rolling out a pilot program, called LevelUp, in Boston and Philadelphia, whereby consumers can cash in a same-day deal (like spending $5 to get a $10 value at a burrito joint) and then unlock subsequent (and better) deals, or “levels,” at the same establishment.

Founder and chief exec Seth Priebatsch thinks this approach could solve the “one and done” problem with daily deals, by getting consumers to return to stores and restaurants they like as they progress up in levels (like a video game). “It’s vastly better for both consumers and merchants,” Priebatsch says via e-mail.

Priebatsch adds that the new service is the “first implementation of a local deal that actually promotes loyalty,” but is also “one that we assume still needs some work before it’s ready for national ‘prime-time.’” To that end, the company says it is spending about $1 million in each city (Boston and Philadelphia) over the next six weeks to analyze the results of the pilots.

Of course, the startup faces heavy competition from big local deals players, plus all the smaller mobile companies that are finding their way into the location-based deals arena from the local search, payment and coupons, and social shopping sectors. But game mechanics has always been SCVNGR’s strength.

The company started off doing institutional scavenger hunts, then progressed to location-based games and “challenges.” In recent months it has focused more on rewards programs for local merchants. Priebatsch hinted at the company’s entry into the local deals space last August. “If you [a local business] are using Groupon, BuyWithMe, or LivingSocial, you want to pair that with getting them to play SCVNGR,” he told me. “You want to capture that traffic, and then get them to come back.”

SCVNGR kicked off 2011 with a bang, raising $15 million in new financing led by Balderton Capital, with previous investors Google Ventures and Highland Capital Partners also participating. The company’s valuation in that round was reportedly just over $100 million.

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