These days, many businesses find success through subscriptions business models, giving customers continuous access to a product or service by charging a recurring fee.
This model works well for a wide variety of industries, including retail, food and grocery, software, online content and more. Based on the number of boxes, streaming video companies and organizations selling software as a service, it seems all a business needs is a creative idea and a flexible payment processing partner to start using a subscription billing model.
Using subscriptions is a great idea in many ways. Businesses can count on receiving a consistent amount of revenue each month, which allows them to better forecast future profits.
However, there are a few pitfalls to watch out for. Businesses selling subscriptions must make sure their customers know they'll be charged on a recurring basis. In addition, companies must make sure customers have no problem cancelling their subscriptions if they want to. If not, customers are more likely to issue complaints and – even worse – chargebacks. Dubious subscriptions can even lead to a newsworthy amount of bad publicity, as was the case with JustFab.
JustFab inconveniences shoppers
In 2015, BuzzFeed News investigated persistent customer complaints regarding Fabletics, a subscription service by Kate Hudson that sells women's sports apparel. Customers would pay each month and receive a selection of athletic gear in the mail. According to the complaints, however, many first-time shoppers didn't realize they were signing up for a subscription as opposed to making a single purchase. The complaints became so great that JustFab, Fabletics' parent company, paid $1.9 million in 2014 to settle a consumer protection lawsuit which claimed several of its brands, including Fabletics and ShoeDazzle, failed to clearly explain their terms of service to customers.
"We were concerned that consumers had signed up for essentially a shoe or an outfit of the month club without enough disclosures where the consumer could determine that," Kelly Walker, assistant district attorney for Santa Cruz County, told BuzzFeed news. "This is becoming a business practice that we're becoming very concerned about."
"JustFab made cancelling its service difficult."
The JustFab website referred to subscriptions as VIP Memberships, leading to the consumer confusion. The company also made cancelling the service difficult. Customers couldn't unsubscribe from the website directly. Instead, they had to call the customer service line of whatever subscription they held – a process which, in the case of Fabletics, took about six and a half minutes, at least one transfer and two pitches to avoid cancelling. Still, this process only deactivated the service, and customers who wanted to remove their credit or debit card information had to make additional phone calls to erase their data completely. Trying to do so online proved fruitless. The Fabletics website only allowed shoppers to update their card information, not erase it. In addition to this difficult process, some customers complained JustFab still charged them after they canceled their accounts.
Fabletics gave customers the option to skip a particular month if they chose, but the process was just as cumbersome. Customers had to remember to log into their account by the 5th of the month and click a button to opt out.
Fixing the situation
To its credit, JustFab did take measures to improve its customer service, Bloomberg reported. In addition to hiring executives to oversee customer satisfaction, it also selected a third-party auditor to review its current processes.
Businesses hoping to use a subscription model should look to JustFab as an example of what not to do. Although Adam Goldenberg, one of the company's CEOs, insisted complaints only came from a fraction of their customer base, taking away a customer's agency is simply a bad business practice.
When customers make what they think is a one-time purchase, they don't expect to be charged month after month. Once they see the recurring bill, the first thing they'll do is call their bank to dispute the charges. If enough banks issue chargebacks against a particular business, that company could incur higher fees or be forced to stop accepting credit cards outright.
"A difficult cancellation process decreases customer satisfaction."
In addition, making the cancellation process as difficult as JustFab's ultimately decreases customer satisfaction. In the case of subscription services, if a customer wants to leave, it's best to let them go without a fuss. Impeding the cancellation process by making it difficult or hard to find makes customers feel like they've been conned, and they're more likely to file a public complaint.
JustFab made one more mistake by not removing its customers' payment data instantly. This meant some shoppers were allegedly billed after cancelling, further increasing the risk of chargebacks.
Instead of following directly in JustFab's footsteps, subscription services need to clearly disclose their terms and cancellation process. In addition, they need to immediately delete the payment information of any customer who chooses to leave.
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