Negative Option Marketing Guidelines

Negative Option Marketing Guidelines

bigstock_Marketing_1968244It’s safe to say that a person who receives a bill every month for something they never ordered or can’t return is an unhappy customer.  And yet, this happens all too often with negative option billing programs- those which require a customer to take affirmative action in order to not receive a product.   There are four basic types of negative option programs:

1.  Pre-notification Plans:  Most often utilized by book and record clubs, with a pre-notification negative option plan, consumers agree to get periodic notices offering a product, and unless they take action to decline it, the item is sent and the consumer is charged.

2.  Continuity Programs:  With continuity programs, buyers agree to receive periodic deliveries, which they’ll get until they cancel.  Many weight-loss products are sold in this manner.

3.  Automatic Renewal Plans:  In an automatic renewal plan, sellers continue a customer’s subscription until the customer cancels.  Automatic renewal plans are most often used with magazine subscriptions.

4.  Free-To-Pay Conversions:  In this type of negative option program, consumers receive free merchandise for an initial “trial” period, after which time sellers keep sending the product and charge a fee until consumers affirmatively cancel.

Negative option billing is nothing new. Many book clubs have been using them in one form or another since the 1950’s, but despite this fact, more than a few consumers fail to read the fine print.   Even that wouldn’t be such a large problem if companies made it easier to cancel their programs, but many consumers feel harassed or intimidated when they try to cancel membership, which adds insult to injury when they feel ripped off in the first place.

The problem is, most negative option programs need at least two or three months of successful billing before they see a profit, largely due to the cost of marketing and securing a customer.  If they stress the less appealing attributes of the program, they’re less likely to make a sale, and if they make it too easy to cancel, they’ll quickly be out of business.

Some state governments have attempted to ban negative-option programs, but at this point only Hawaii has actually done so.  According to Negative Options, a report by the staff of the Federal Trade Commission (FTC) marketers who attempt to conceal the truth about negative option may draw the wrath of the Federal government.  The FTC report offers the following guidelines to negative option marketers:

–       Use plain language to explain the terms of the offer. Many negative option programs rely on bewildering legalese to explain the material terms of their offers; however, the FTC requires sellers to explain what the customer will receive, how often they’ll receive it, how much it will cost, and how to cancel in plain English.

–       Be clear and conspicuous. Illustrate the key terms of your offer in a way that grabs the attention of the consumer. Place the terms of the deal where they’re going to be seen and label them to highlight their importance.

–       Disclose the terms before customers pay.  Consumers need the details of the deal before they say yes, not afterwards.

–       Get buyers’ affirmative consent.  Require consumers to take an affirmative step to demonstrate their consent.  Leave an affirmation box on a website unchecked, or require them to go through a recorded verification script.

–       Don’t make it too difficult to cancel. Establish a simple system for handling cancellations.  By doing so, you’ll protect your business from violations and fines, but will also establish some customer goodwill.  Who knows?  You may even be able to convince them to stay.

Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.

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