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The Rise of Subscription Models: FTC Doubles Down on “Trick or Trap” Practices

The subscription business model is on the rise and is here to stay. Subscriptions bring in upfront revenue, strengthen relationships with customers and give companies much deeper data on what sells. Even hotels and car washes have begun offering an enhanced and more exclusive experience — for a monthly or annual fee.

Done right, it’s a powerful tool for growth.

However, some consumers are facing challenges with subscriptions. After a while, consumers may want to cancel the subscription because it gets expensive, or they aren’t seeing the benefit anymore. According to a recent American Press Institute study, only 41% of organizations included in the study make it easy for people to cancel subscriptions online.

The Federal Trade Commission (FTC), an independent agency of the United States government whose principal mission is the enforcement of civil U.S. antitrust law and the promotion of consumer protection, now says such practices are part of a pattern used to trick or trap consumers — and they are illegal. In this blog post, we dive into the rise of subscription models, FTC’s enforcement and best practice to follow when rolling out a subscription model.

The Growth in Subscription Models

The subscription-based business model is a business model that charges customers a recurring fee — typically monthly or yearly — to access a product or service. The subscription economy has been on the rise for a while, and its wider and deeper reach in nearly every industry is expected to last. The UBS financial services firm predicts that this “subscription economy” will grow to $1.5 trillion by 2025, more than double the $650 billion it’s estimated to be worth now.

Already, companies Apple, Peloton and NBCUniversal’s Peacock video-streaming platform are reporting that subscriptions have been key drivers of revenue growth. For example, Peloton’s subscription revenue grew 144 percent in the first three months of this year compared with a year ago, and subscribers to Apple’s various services for fitness, games, music and podcasts have increased by 145 million in the past year.

FTC Promises to Ramp Up Enforcement on Trickery

However, the rapid growth of subscriptions has created challenges for the economy. Some companies make it extremely difficult to unsubscribe from subscription models which causes consumers to ultimately distrust the company.

The Federal Trade Commission (FTC) now says such practices are part of a pattern used to trick or trap consumers — and they are illegal. In a statement late last month, it promised to ramp up enforcement on such trickery. Instead, it insists that sign-ups must be “clear, consensual and easy to cancel.”

The statement puts companies on notice that they will face legal action if their sign-up process fails to meet those three criteria. The “enforcement policy statement makes clear that tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law,” stated Samuel Levine, director of the FTC’s Bureau of Consumer Protection. “Firms that deploy dark patterns and other dirty tricks should take notice.”

The FTC has brought cases challenging a variety of illegal subscription practices, and sued companies that hide important payment information — or even the fact that consumers would be charged at all — behind hyperlinks, hover-overs or in buried pages or inconspicuous places. It has similarly sued companies that make consumers wait on hold or listen to lengthy ads before they could cancel, the statement noted.

The FTC has also sued companies that converted free trials to paid subscriptions before the free trial ended. And recently, the FTC sued a company that failed to disclose that widely advertised, material benefits of the subscription were no longer available.

This makes it extremely important for businesses to provide consumers with easy access to their subscription plan to make changes, be able to unsubscribe, opt-in or opt-down from marketing preferences and easily send in privacy requests.

Provide Easy Access to Data and Choices Through a Preference Center

While prioritizing opt-ins is important, keeping unsubscribe rates low, ensuring easy access to cancellations and retaining opt-in rates is a strategy some businesses overlook. One strategy to prevent opt-outs or cancellations is to implement a preference center to empower data subjects and consumers with greater control over subscriptions and communications. A preference center can help subscription-model businesses provide customers was easy access to cancel subscriptions or opt down out of marketing communication choices between different topics, frequency, and medium options.

Some opt-outs or cancellations are inevitable but understanding the reason behind the reason can help marketers and publishers retain current subscribers. By understanding why consumers are opting-out, businesses may turn a negative situation into a positive.

There are several steps a marketer or publisher can take to salvage a cancellation or opt-out:

  • Ask why: By simply asking why the customer is cancelling or unsubscribing you may be able to make the data subject reconsider. If this does not work, you will at least gain more insight into the weak points of your campaign or business.
  • Make the process easy: By making the cancellation or opt-out process difficult, you run the risk of frustrating the consumer, affirming their decision to opt-out.
  • Provide an alternative: Instead, make the process simple and straightforward while also providing an alternative to limit or tailor communications or subscriptions.

If the business cannot salvage that relationship, they can use the insight gained to update communication strategies to prevent future opt-outs. This can prove to be a strong long-term strategy for retention.

Contact us today or sign up for a demo to learn more about how OneTrust PreferenceChoice can help!

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