Merchant Exchange Tries Exclusivity as Hook in Daily Deals

While the luster fades on some daily deals and rewards programs, a New York-based startup is trying to set itself apart from rivals in this market by essentially being less social. Merchant Exchange is a website that connects consumers to deals. But what makes it different is the merchants do not broadcast the same deals to everyone. Think of it as a more selective system, where merchants dole out different offers based on how frequently each patron makes purchases with them.

Co-founder Michael Tolkin says one-year-old Merchant Exchange is now raising its first outside funding, which he wants to close at about $1 million. More than 75 premium brands and merchants, including Alton Lane tailored apparel, Longchamp handbags, and Regent luxury cruises, use the platform, which is divided into shopping, dining, entertainment, and travel categories. Tolkin says Merchant Exchange is also in talks with private jet companies and high-end merchants, who are considering incentives aimed at affluent clientele.

The platform’s emphasis on premium brands, Tolkin says, helps bring deals to what he calls an underserved segment. “Luxury brands are very wary of participating in the noisy social ecosystem,” he says. A more discrete approach to reaching customers, he says, may help maintain the image of such brands.

Merchant Exchange does not handle deals or any purchases itself. Rather, the platform gives consumers a place to sign up for offers from multiple merchants who largely offer premium and luxury items. “The idea was to digitize data and make it much easier for the consumer to manage his or her commercial relationships with various rewards programs,” Tolkin says. Merchant Exchange charges retailers and brands a per-message fee for reaching out to its members.

The spread of mobile technology, along with consumer interest in receiving special discounts from merchants, has driven the growth of check-ins and daily deals. However such incentive programs can be a hassle when customers are bombarded with sometimes unwanted marketing messages from stores they rarely visit, Tolkin contends. “Loyalty programs are valuable, but the fragmentation with different points of registration and management makes it a real burden on the consumer to participate,” Tolkin says.

Merchants Exchange, he says, gives merchants just a slice of anonymous information about each consumer as it pertains to transactions within their own stores. That may appeal to shoppers who do not want their buying habits examined closely. Furthermore, not everyone wants to alert the social networking world to where they got a great deal. “In many cases, you don’t want to make public where you shop and dine,” says Tolkin.

Daily deals, while initially popular, are now facing questions about their effectiveness in helping retailers bring in repeat business. “The [return on investment] for many merchants simply is not there,” Tolkin says. “It’s cannibalistic to their business. The economics don’t work out.” From a consumer perspective, special offers shared en masse may be less appealing. “There’s not much special about a deal being broadcast to the entire world,” he says.

Merchant Exchange seeks to address such issues by helping retailers offer incentives that match consumer shopping patterns. “If you go three or four times a day to coffee shops, you should be treated better within that category than someone who drinks coffee once per week,” says Tolkin. His company offers some guidance to participating merchants on how to structure their incentives.

Merchant Exchange is thus far heavily concentrated in New York market in terms of merchants and consumers, Tolkin says. Members tend to be 25 to 40 years-old with discretionary cash to spend. Though this may be a smaller niche of consumers, Tolkin says merchants want to attract these well-heeled customers.

Tolkin previously co-founded a gourmet chocolate startup called Foodilly while attending the Wharton School of University of Pennsylvania. Though he did not develop Foodilly beyond its early stages, Tolkin caught the entrepreneurial bug. Merchant Exchange grew out of Tolkin’s frustration with other types of consumer loyalty programs that use tedious methods such as punch cards or that offer the same incentives to all customers. “It was more work than it was worth,” he says. Merchant Exchange was founded in April 2011 and the website launched one year later.

Tolkin sees Merchant Exchange as a way to deepen the relationship between merchants and their customers in ways that are not possible on social networks. “Social media, while a powerful tool, is primarily about establishing relationships between peers,” he says. “The ‘like’ function is not all that powerful.”

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