Some new subscription businesses are employing dishonest strategies to lure customers into subscribing to their services. However, companies using such tactics are exposing themselves to regulatory risks and hefty penalties, in addition to earning the wrath of their subscribers.
Subscription models are increasingly becoming the norm today. What was once the business model of choice only for media companies and utilities is now spreading its wings and disrupting other traditional industries including automobiles
and even B2B business applications
. While there are now many subscription businesses in the big league on Wall Street, an increasing number of companies are also employing misleading tactics to lure subscribers.
A recent case in point is US-based lingerie retailer Adore Me, which enrolled buyers into subscription programs by default instead of them explicitly opting in. According to reports
, shoppers were automatically signed up to a ‘VIP Membership’ plan for $39.95. This recurring billing
plan allowed customers to use the money for store credit every month. However, customers only came to know that they had subscribed to Adore Me’s service when their debit cards were declined or when they checked their bank accounts.
Moreover, according to some customer reports published by CNBC, Adore Me made it really hard for them to opt out of the plan. First, the company expected shoppers to uncheck a small box to opt out of their recurring billing plan, which many people did not notice. A lot of customers then had to haggle with the online retailer for refunds. In addition, Adore Me also took away the store credits of shoppers who unsubscribed from their service without any disclosure, which essentially meant that their money was lost.
Of late, many such sneaky subscription tactics
have come to light. Until recently, several leading utility apps on the iOS app store lured users to sign up for free trials and automatically converted their offering into monthly subscription billing plans. Many others used deceptive UI elements and made it extremely difficult to unsubscribe from services, among other scammy tactics.
Thankfully, the law is catching up with such organisations. The Federal Trade Commission (FTC) in the US has told CNBC that it is actively monitoring online subscription services for fraud and has settled cases against 12 companies for more than $400 million. The FTC has ordered Adore Me to pay $1.3 million to the customers misled by the retailer. However, despite the order, dozens of customer complaints against Adore Me are still pouring in.
Online dating website eHarmony, and more recently Apple, also had to settle class action lawsuits. Both the companies were found guilty of violating California’s Automatic Renewal Law (ARL)
which mandated that the automatic renewal or continuous service should offer terms in a clear and conspicuous manner.
Subscription businesses are about winning trust
We have always maintained that subscription businesses have an inherent advantage over traditional businesses because they get a chance to genuinely engage their subscribers over every billing cycle. This helps build brand loyalty and trust, something which is extremely difficult for traditional businesses.
Employing misleading subscription strategies, however, is an abuse of the trust customers place in your business. Your tactics will eventually be called out, leading to a bad reputation for your organisation. Worse still, you may attract hefty penalties from regulators who are increasingly trying to correct the asymmetry between businesses and users.
The foundation for any subscription businesses is a good subscription billing platform
with built-in checks and balances to deliver a superior customer experience as well as compliance. Such a platform will ensure that you manage your subscriptions easily, while also maintaining the utmost transparency with your customers.
Our advice: Stick to organic subscription growth tactics. Sure, it may take a little more time to grow but the trust and loyalty earned in this period will lay the future ground for building a truly remarkable subscription business.