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April 12, 2016 | Authored by: Vindicia Team

Why businesses should be clear about subscription billing and customer communication

Businesses adopting a subscription billing model must clearly define their terms and conditions to avoid negative press and multiple chargebacks. According to Business Insider, Kate Hudson's athletic line Fabletics and its parent company JustFab are under fire for misleading communication. Fabletics provides inexpensive fitness wear on a subscription basis: Consumers pay a fee and get a personalized outfit each month. However, in its advertising, Fabletics states members get their first outfits for a reduced rate of $25. As such, many customers who purchased the initial clothing set stated they were unaware they had essentially opted into a subscription service. Once they saw the recurring charges on their bank statements and understood what happened, frustrated members claimed it was difficult for them to cancel.

Subscription-based lingerie startup Adore Me faced a similar issue, a separate Business Insider article reported. Many consumers were unaware they had signed up for a subscription service that charged them on a monthly basis. Complaints of the practice became so widespread, BuzzFeed reported, that district-attorney offices in California began to investigate.

"This is becoming a business practice that we're becoming very concerned about," Kelly Walker, Santa Cruz County assistant district attorney, told BuzzFeed in regards to the issue with Fabletics. "We are setting up a task force here in California just to deal with these companies with automatic renewal or automatic negative option sales programs."

Subscription billing and a lack of customer communication
Negative option programs lure in customers with an enticing trial offer. These trials are often free or at a reduced rate, but companies require a customer's payment information before getting started. Once the trial period is over, the customer is instantly enrolled in a monthly subscription service, and fees are taken out automatically.

This practice isn't necessarily a bad thing. After all, one major benefit of subscription billing models is how they make the payment process easy for customers. However, issues rise when customers either don't know they're signing up for recurring billing or the company makes it difficult for them to cancel their membership. According to numerous reports, JustFab and Adore Me are guilty of both. Complaining parties on social media detailed the numerous hoops they'd have to go through to cancel their subscriptions. Those who wanted refunds were subject to similar frustrations - in Adore Me's case, consumers could only get store credit for up to one month. 

Both companies insisted they are very upfront about their business practices. JustFab told Business Insider it alerts customers at least 15 different times, most of which occur before the individual's first purchase. Meanwhile, Adore Me claimed it sends members push notifications, emails and SMS messages reminding them to shop or skip the current month. Whether these actions absolve the two companies of any wrongdoing remains to be seen, but they do stress the importance of clearly communicating with customers.

Clarity in subscription billing
As Business Insider noted, the reminder emails Adore Me sent weren't exactly forthcoming with their supposed intended purpose. The messages had subjects like "About your showroom" and "Your showroom is ready." These ambiguous titles are reminiscent of spam emails. Customers likely overlooked these messages, assuming their email client's filter didn't get to them first. Those who did open the emails had to scroll all the way to the bottom - below promotional content - to find the reminder to skip the month.

Similarly, JustFab customers had to sign in and click an option to skip each month. They also had to call the company directly to cancel their subscription altogether. 

What resulted from these two instances were several complaints to the Better Business Bureau and requests for refunds. Together, JustFab and Adore Me reveal how transparency helps businesses on a subscription billing model avoid negative press and chargebacks.

Businesses similar to these two counts on converting 100 percent of their trial users into paying customers by either not informing them of a change in charges or by being generally ambiguous about their terms. These gains quickly turn into losses, however, as customers' dispute charges and leave. These departing members generally don't come back, and the negative press discourages new subscribers from signing up.

Therefore, companies using subscription billing methods should be absolutely clear in their intentions. It's important these businesses make their terms and conditions plainly evident, and they should properly inform users why they're collecting their payment information.

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Vindicia Team

Vindicia Team

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