The US Federal Trade Commission has proposed new rules that will likely affect e-commerce subscriptions.
These FTC changes, called the “click-to-cancel” rules, will require any business selling subscriptions to add a simple cancellation mechanism on the same site as the original transaction and involve the same number of steps, i.e., the one-click subscription requires. just one click to cancel.
The FTC last month announced proposed changes to its 1973 “Adverse Option Rule” to address consumer concerns. These rules define how subscription sellers must communicate offers, ensure consent, manage payments, and facilitate cancellation.
The last part caused great concern.
Cancellation struggles
The typical American has a monthly subscription of $273, according to a 2021 survey by West Monroe, a Chicago consulting firm. These subscriptions were for services and products, from video streaming to delivery of coffee beans and boxes of dog toys.
Considering there will be 250 million US adults in 2023, subscriptions are huge business. Unfortunately, some subscribers struggle to opt out.
A 2021 Chase Bank survey found that 56% of consumers had difficulty tracking or canceling subscriptions. At least some of that is likely to be related to e-commerce, given that subscription platform Sticky.io estimates that 24% of US consumers have at least one retail subscription.
“Online marketers have that effortless sign-up thing. But when consumers want to cancel, some of those same companies create obstacle courses designed for frustration and failure. Two practices challenged in recent FTC cases illustrate this. One company required people to call a phone number to cancel, then left them for a long time. Another company ignored cancellation requests unless consumers sent them to a single, hard-to-find email address authorized to accept cancellations,” FTC Senior Counsel Leslie Fair wrote.
“Naughty” cancellations, as the FTC puts it, are more likely for services than for physical products, as leading e-commerce platforms typically make cancellation straightforward.
So while e-commerce businesses haven’t been bad actors, merchants running a subscription model could be affected if the proposed changes are implemented.
Selling products through subscriptions helps merchants and consumers. An example is Chewy’s Autoship program for dog food.
Potential implications for e-commerce
If adopted, click-to-opt-out rules may affect e-commerce navigation, operations and marketing.
Easy cancellation. The most obvious impact on online stores would be the addition of a simple cancel button. This should be relatively easy, as platform and application developers will likely make the necessary compliance changes. However, merchants must ensure that these updates occur.
Operations. The proposed rule requires annual notices for non-physical products and would limit offers that attempt to change a buyer’s mind about cancellation.
For example, an online merchant could not offer a discount, such as deferring or deferring cancellation, without obtaining the subscriber’s permission. It can also affect how sellers follow up or resell to customers who have canceled.
Marketing. Having a prominent click-to-cancel button can increase unsubscribes and thus impact customer lifetime value and, by extension, e-commerce marketers’ investment in acquiring new subscribers. A business that offers a 20% discount to shoppers who subscribe to a product replenishment will likely need to recalculate the profit potential of that model.
Subscriber churn is a key performance indicator for merchants using a subscription model.
how to prepare
The FTC announced the proposed change in April 2023, but the process began nearly five years ago. Therefore, it will likely accept some (or all) of the changes.
Merchants offering subscriptions can begin implementation by making relatively simple changes to their websites and cancellation procedures. Marketers can assess the potential impact on churn rates and customer acquisition costs and plan accordingly.
Despite the changes, e-commerce subscriptions should remain viable and effective revenue generators.