There is a growing trend among businesses to shift from traditional transaction models to. So far, many businesses from all over the world have adopted this route. To the benefit of these businesses, the tech industry has also come up with ways to better facilitate the move—especially where online commerce is concerned—creating subscription billing software solutions that not only streamline what could be a complicated process but also to help automate many facets of it.
However, like with all business models, the subscription-based model does have its own downsides, one of which has recently come up in the headlines. It’s about negative option billing, and how some subscription-based businesses are catching flak from customers for using it. In this article, we’ll be talking about what this practice is and why you, as a business owner, should be as transparent to your customers about it as possible.
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What is negative option billing?
Negative option billing, in a nutshell, is a business practice aimed to attract new customers into taking up a subscription-based service by offering them a low or even waived entry fee for the first few billing periods, or a trial period. If the customer has not opted out of the service before or when this trial period ends, then the customer is automatically enrolled into the subscription service as a regular customer, and then charged with the non-discounted subscription fee for the succeeding billing periods.
As you can probably imagine, this practice has the potential to generate a lot of leads and attract a lot of new customers, even if the business has to take a small hit in earnings in order to carry out such a program.
Why has negative option billing become unpopular recently?
Negative option billing has gained a bit of notoriety in the news and social media due to some businesses either misusing the practice or outright abusing it. This often involves businesses failing to let their trial customers know what happens after the trial period expires, or simply making it difficult and time-consuming for these people to opt out of the subscription before they’re charged the regular, non-discounted subscription price.
The reaction from consumers about this particular practice has ranged from complaints on social media to serious legal action involving district attorney offices and complaints lodged with the Better Business Bureau.
Why should subscription-based businesses be more transparent about negative option billing?
To be absolutely clear, there is nothing inherently wrong about negative option billing, or using it as a way to garner consumer interest in your subscription service. When used right, negative option billing can increase your customer head count and add more to your recurring revenue stream. However, it is also very easy for your customers to feel as if they’re being tricked into paying for something they didn’t ask for, especially when their transition from discounted or waived billing to regular subscription billing begins.
Some other reasons why customers may feel negatively toward such programs include:
- It makes them feel like they’ve been swindled. Consumers nowadays are wary about scams due to their constant exposure to news items about malicious business practices. They can therefore be very suspicious of recurring charges seemingly coming from nowhere, and they could react in a very negative fashion once their bill arrives.
- It can register as card shock. Card shock can happen even when customers are expecting recurring charges for a subscription service. The sudden increase in the amount they’re being charged could create such a jolt that it may be enough to make them want to unsubscribe from the service.
All these could result in not only negative customer feedback and perception but also costly chargebacks and costly legal battles.
How can businesses use negative option billing without it backfiring on them?
The key to mitigating the negative perception toward negative option billing is transparency. For subscription-based businesses who want to use a negative option billing program to expand their customer base and boost their revenue, they have to be more blatant about all the details of their chosen program. The customers need to be made aware of all the program details, especially what happens after the trial period is over. They also must be notified well in advance when they are about to enter a regularly-priced subscription.
Besides this, businesses will also need to ensure that customers can easily opt out of the subscription service at any time. Some of the bigger complaints that arose from negative option billing abuse and misuse came from customers that had to go through convoluted or time-consuming procedures in order to cancel their subscription.
Others complained that their appeals to cancel their subscriptions were even ignored by the business, or that the cancellation process was deliberately concealed. This is definitely a red flag for consumers and they will not hesitate in lodging formal complaints about this as well as in social media.
The subscription opt-out process therefore should not just be easily accessible and streamlined, but also highly visible on your website, in your promotional materials, and in the dealings of your customer support executives.
Only by adopting these measures can subscription-based businesses use negative option billing and reap its benefits while avoiding customer backlash and legal problems.
Negative option billing is a valid tactic that subscription-based businesses can utilize in order to increase their customer base. However, to avoid potential blowback, businesses need to ensure that their customers are completely informed about the terms and conditions of their subscription. Subscribers should also be empowered with the ability to cancel their subscriptions at any time and with relative ease.