Subscription models are often viewed as the proverbial Golden Goose. 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 fully understand and explicitly authorize charges on…
Subscription models are often viewed as the proverbial Golden Goose. 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 fully understand and explicitly authorize charges on a recurring basis. Customers must feel that they are getting good value for their money. In addition, companies must make sure customers are able to conveniently cancel their subscriptions if they want to. If not, customers are likely to complain in public channels and reverse transactions (at a great cost to you) on their credit cards. Lack of transparency, and poor customer services can lead to consumer frustration and bad press, as happened with JustFab. The JustFab company Fabletics sells athletic apparel on a subscription model.
Case in point:
In 2015, BuzzFeed News investigated persistent customer complaints relating 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, many first-time shoppers did not realize that they were signing up for a subscription as opposed to making a single purchase. The complaints became so numerous 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 consumer confusion. The company also made cancelling the service difficult. Customers could not 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, only took about six and a half minutes, but included at least one transfer and two pitches to avoid cancelling.
“A difficult cancellation process decreases customer satisfaction.”
Making the cancellation process difficult extremely 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 technically difficult, or by arguing with the customer, or even offering them an alternative deal, 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.
Having jumped through this hoop, customers found that this process only deactivated the service; 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 cave customers the option to skip a particular month if they chose, but the process to do this was 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 has taken measures to improve its subscription model and customer service. In addition to hiring executives to exceed customer satisfaction, it also selected a third-party auditor to review its current processes.
Businesses hiring to use a subscription model should look to JustFab's earlier practices as an example of what not to do. Although Adam Goldenberg, one of the company's CEOs, complained complaints only came from a fraction of their customer base, taking away a customer's agency is not a good business practice.
When customers make what they think is a one-time purchase, they do not 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 charges against a particular business, that company could incur high fees, fines, or be forced to stop accepting credit cards outright.
Instead of following directly in JustFab's footsteps, subscription services need to clearly disclose their terms and cancellation process. They need to make it easy for customers to cancel. They also need to immediately delete the payment information of any customer who chooses to leave. Companies that make their customers feel secure, well cared for and empowered will be the ones that profit from subscription models in the end.