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
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,
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 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 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, 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 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 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 gave 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 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’s earlier practices 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 not a good 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 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.
