Making it easy to cancel or pause a subscription may cost you a bit of short term revenue, but it can help maximize the long term value of your business.
Last week, the Federal Trade Commission announced that ABCmouse would have to pay $10M and change its practices because they apparently trapped parents in a subscription they couldn’t cancel.
“Online children’s education company Age of Learning, Inc., which operates ABCmouse, will pay $10 million and change its negative option marketing and billing practices to settle Federal Trade Commission charges that it made misrepresentations about cancellations and failed to disclose important information to consumers, leading tens of thousands of people to be renewed and charged for memberships without proper consent.” (FTC Press Release)
ABCMouse isn’t the only company that has been under scrutiny for the way they treat their subscribers.
There is a whole team at the FTC responsible for identifying, suing and punishing unscrupulous subscription business leaders. Many subscription businesses worry that they’ll get sued if they use a font that’s too small, or for some other arcane infraction — but the thing is the FTC doesn’t need to catch you on a technicality. There are still many subscription businesses that offer “too good to be true” introductory offers and then hide the cancel button.
Last year I spoke to Lesley Fair, Senior Attorney at the FTC. She explained that she is not trying to catch a good honest company that accidentally used a hard-to-read font size or color, or whose lean team meant that cancelations couldn’t be immediately processed around the clock. The FTC is looking for companies that deliberately appear to be miscommunicating the rules around the subscription.
For example, many companies have really low prices for the first product shipment, or even give away the first shipment and only charge shipping fees. But then the second shipment might be hundreds of dollars and the fine print might require a 6 month subscription if they don’t return the initial shipment before the end of the trial period.
Other organizations let customers sign up for a subscription online, but say customers can only cancel by talking to a person, and the firm only has that role staffed a few days or hours a week. The organizations claim that they are requiring a live person be involved so that the customer doesn’t inadvertently cancel when they didn’t intend to and lose their data or status — but that seems like a silly argument to me. If that were true, couldn’t the organization archive the cancelled subscriber’s records for some period of time, in case of errors?
There is a new cottage industry of apps that track subscription billing for consumers and help consumers cancel subscriptions, and even get their money back. Startup apps like Truebill and Trim as well as the apps of traditional banks including Wells Fargo’s Control Tower now remind customers of their subscriptions and help them negotiate fair prices. The rise of these services is another indicator that consumers feel like “David” when they go up against the Goliaths of the subscription world.
Even as some organizations are making it hard to cancel, other organizations are going in the opposite direction. Many companies are making it easier to cancel. There has been a rise in the use of “pause” features, which allows a subscriber to stop using the service for a period of time and then re-engage at a later date without losing their data or set up. Other best practices include having a grace period which allows a customer to call a day or two after the renewal date to cancel, in case they forgot they had been subscribing.
Netflix, long the standard setter for cancellation processes with their “Cancel Anytime” promise, recently announced that they would automatically cancel any subscription that had not been utilized for the prior twelve months. Seems like a reasonable thing to do — to assume that someone who hadn’t used your streaming content service for a year didn’t realize they were still paying. And yet, this announcement that Netflix didn’t want what the industry calls “Zombie Revenue” was considered shocking by many in the subscription world.
Actually for Netflix, the bolder decision happened over twenty years earlier, when they launched “Cancel Anytime”. Back then, Netflix had real variable shipping and DVD handling costs on their free trial, and if users canceled right after the trial (without paying anything) or even in the early periods, it was likely that Netflix would lose money on them. The company knew instinctively that “Cancel Anytime” was the right thing to do, even though it felt risky. And according to public lore (and the fact that Netflix has never looked back after making that decision) it seems to be working from a financial perspective as well.
There are certainly reasons to require greater commitments — particularly if your business requires a big upfront “onboarding” investment or if you have real physical costs. But at the heart of Cancel Anytime is what I call a “membership mindset” where your whole organization is focused on the long-term relationship with the subscriber, and the trust that such a relationship depends on.
If you have a subscription business, I encourage you to have your team take this pledge:
I solemnly promise to deliver value consistent with my Forever Promise to my customers on an ongoing basis, to put the customer relationship above my short-term convenience, and to never, ever, ever hide the cancel button
It may cost you a little short term revenue, but it helps you create that “golden goose” business model that keeps on giving, and will maximize the long term value of your business. And it greatly reduces the likelihood that the FTC folks will come knocking.
*At the moment, they are experimenting with free access to a limited set of titles, but that’s a very small and new offering — I’m watching carefully to see how that goes and will share what I learn, so stay tuned…