Consumer handcuffs, harmful to business relationships due to their restricting nature, are currently under scrutiny by the Federal Trade Commission (FTC). The FTC plans to take action that would require companies to make the termination of services as straight-forward and easy as their initiation.
During my tenure as in-house counsel, automatic renewal clauses, often found in contracts, were a continual source of annoyance. These are clauses where terms are set so the agreement renews automatically and can only be terminated during a specific time frame, under precise conditions. Failure to fulfill these conditions results in the continued enforcement of the contract for another year.
Such complex conditions often pushed me to negotiate for the removal of such contractual obligations and instead opt for a more flexible agreement. Often dubbed as ‘happy clauses,’ these allowed both parties involved to terminate the contract at will, provided they give a month’s notice upfront. With such a clause in place, there is a mutual implication for both parties to work towards the success of the deal.
In the realm of consumer relations, these ‘handcuffs’ often make for a troublesome ordeal. Despite the ease of signing up for services, the process of cancellation is typically a daunting task. However, under the FTC’s proposed rule, if a consumer signs up on a website, they should also be able to cancel their subscription on the same website – a fundamental change which has been met with strong opposition from the business community.
In my opinion, if your business model is primarily dependent on revenue generated from unwilling customers trapped in recurring payments, this constitutes what I term as ‘bad revenue’. This revenue is not earned through a sustainable model, but rather based on limitations imposed on customer freedom. Instead of attempting to trap consumers into these subscription models, businesses should focus on offering valuable services that customers actually need.
A notable survey of 6,000 consumers, conducted by subscription management specialist Recurly, found evidence suggesting these high-friction cancellations are detrimental to business. It reported that 84% of consumers consider ease of cancellation as the top factor influencing their subscription decisions, with 77% stating that they would be more willing to subscribe if the cancellation process was convenient.
Expectations are high that the FTC will issue some form of ‘click to cancel’ rule in 2024, which might potentially extend to requiring businesses to inform customers about unused subscriptions. Now is an ideal time for businesses to focus on improving the customer experience, potentially enabling customer-centric subscription models, and simplifying cancellation processes.
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Original article available here.