The human machine is programmed to obtain pleasure and avoid pain. It isn't hard to satisfy the urge for the former with rewards, be they metaphorical or concrete. We see this in games that reward players for doing well or completing auxilliary tasks. Xbox Live achievements may not have any value in the "real world," but we still see gamers struggle for hours to complete them. The system sets a challenge and then rewards its completion just by acknowledging it. Yes, your gamerscore goes up, and other users can see how much "cred" you've accumulated, but even gamers who never log on to Xbox Live get excited by the promise of completing achievements. It's partly a status construction, but there's some inherent fun to it as well.
We see a similar reward system on the flash gaming site Kongregate, which grants badges for milestones achieved ingame. The structure of these systems creates a sort of metagame where each individual game is part of a larger complex of rewards. You might play a game on Kongregate not because it's fun in itself, but because you enjoy the rush to accomplish the badge. The fun comes from the structure of the macrogame and not necessarily the quality of the microgame. Kongregate, whose games are user-submitted, also rewards developers by predominantly featuring popular or quality games on their front page. Not every game features ingame badges, only those that Kongregate deems worthy. Developers and gamers are therefore playing two sides of one macrogame simultaneously.
SCVNGR takes this idea and applies it to the real world. It's similar to location-based services like Foursquare and its knockoffs, only it awards points for completing "challenges" at certain places (usually businesses). Again, the fun is not in the completion of the individual challenge, but the collection of points throughout a series of challenges--the metagame.
The latest companion site to SCVNGR, LevelUp, combines reward-based metagame mechanics with the web discount phenomenon popularized by Groupon. While Groupon offers huge discounts to web-savvy users, it works on a one-time basis. Just because you visit a business when its products are dramatically discounted doesn't mean you will form an attachment to that business. Companies that participate with Groupon consider the expense to be a sort of advertising, but it may actually be less effective than traditional advertising in building brand loyalty. LevelUp, on the other hand, rewards users when they patronize a business more than once. By indicating that you've taken advantage of a LevelUp coupon, you become eligible for an even better discount. You graduate to level two in the system, and your repeat visit saves you more money.
It's a good idea and an interesting twist on the discount trend, but I wonder why you can only level up twice. Like Pokemon, LevelUp takes on a three-tiered structure, allowing you to evolve your discount from good to better to best. But why stop there? Why not work with businesses to develop further incentives to keep their customers coming? It's as though it only takes three visits to establish permanent loyalty. You don't have to keep offering discounts that whittle the price of a product down to zero, but I don't see why the system couldn't offer a few long-term benefits, like rotating coupons or special access to events.
Maybe the slight gaming twist is enough for LevelUp to legitimately compete with Groupon. It does seem like it would make the coupon-chasing experience more fun on the whole. Either way, the company probably has further developments in the works. Their Chief Ninja seems determined to build the world's gaming infrastructure, and I'm sure the pilot of LevelUp isn't his final move.