Featured Article : Subscription Sales Scrutiny

23rd August 2023

Following the news that US Federal regulators have sued Amazon, alleging that people have been “tricked” into buying hard-to-cancel Prime memberships, we take a closer look at ‘inertia selling’.

What Happened With Amazon Prime Subscriptions? 

Back at the end of June, the US Federal Trade Commission (FTC) announced that it was taking action against Amazon.com Inc, for “enrolling consumers in Amazon Prime without consent and sabotaging their attempts to cancel”. The FTC, which alleged that Amazon had been involved in this kind of inertia selling for years, went so far to say in its complaint that Amazon had been using “manipulative, coercive, or deceptive user-interface designs” which it describes as “dark patterns,” designed to “trick consumers into enrolling in automatically renewing Prime subscriptions.” 

The FTC Chair Lina M. Khan, said in the complaint: “These manipulative tactics harm consumers and law-abiding businesses alike.” 

Denial From Amazon

Amazon issued a statement in response, denying the TFC’s allegations, saying they were “false on the facts and the law” and that “The truth is that customers love Prime, and by design we make it clear and simple for customers to both sign up for or cancel their Prime membership.” 

Inertia Selling 

‘Inertia selling’ is a controversial sales technique which usually applies to a company sending unsolicited goods or services (or a subscription for services) to individuals with the expectation that they will buy or continue to buy the items. The idea is that the inertia of the consumer (i.e., the natural tendency of consumers to avoid taking action and stick with the default option) will mean that they either keep and pay for the item or to continue a subscription service, often without fully understanding the terms and conditions involved.

As the name suggests, this approach relies on the consumer’s inertia to drive sales, rather than obtaining explicit consent or agreement for the transaction.

Making Things Too Difficult 

In the recent complaint against Amazon by the FTC, it was alleged that making the option to purchase items on Amazon without subscribing to Prime was difficult for consumers to locate by not being clear in the transaction that in choosing that option consumers were also agreeing to join Prime for a recurring subscription. Also, the FTC alleged that when consumers tried to cancel Prime membership, they were faced with multiple steps, first having to locate the cancellation flow, and then being redirected to multiple pages that presented several offers to continue the subscription at a discounted price, turn off the auto-renew feature, or to decide not to cancel. The FTC said that only after clicking through these pages could consumers finally cancel the service. In other words, its alleged that consumers may have been tricked into consent in the first place and then the sheer complication of cancellation made consumers give up and opt for keeping the service.

Is It Illegal? 

Although these “dark patterns” (as described by the FTC) sound as though they must be illegal, it’s not quite as clear cut. Inertia selling is generally considered to be an unfair commercial practice under UK law, and it can be illegal. For example, UK consumer protection legislation like the Consumer Protection from Unfair Trading Regulations 2008, is designed to prevent unfair or deceptive practices, including inertia selling. These laws require that businesses provide consumers with clear, truthful information so they can make informed choices.

If a consumer in the UK receives unsolicited goods or services, they generally are under no legal obligation to pay for them. The law typically considers these unsolicited items to be gifts, and the consumer may not be required to return them. Also, companies must not demand payment for items that were not explicitly ordered as doing so could be considered an unfair commercial practice and may result in legal consequences.

However, for the consumer, it’s essential to carefully read the terms and conditions of any contract or agreement entered into, as there can be instances where the business has a legal basis for providing additional goods or services and charging for them. It appears, therefore, these situations can sometimes be nuanced.

Change Is Coming 

Although some areas of these practices may be nuanced, in April in the UK, the government announced that a new Bill will give the Competition and Markets Authority (CMA) new powers to clamp down on “subscription traps.” The changes will also require businesses to give consumers clearer information before they enter a subscription contract, issue a reminder when (for example) a free trial or low-cost introductory offer is coming to an end, and a reminder before a contract auto-renews onto a new term, and give consumers a straightforward way to exit a subscription contract.

In March this year, in the US, the FTC proposed a “click to cancel” provision requiring sellers to make it as easy for consumers to cancel their enrolment as it was to sign up. This change looks likely to help tackle hard-to-stop free trials, and auto-renewals (subscription traps).

In the EU, The CPC Network (coordinated by the European Commission) recently asked Mastercard, VISA and American Express to introduce a series of changes in their rules to ensure that traders provide clear information to consumers on recurrent payments before they enter into a subscription.

Others 

Inertia selling is not new but arguably, with the kind of subscription economy we now have, it may be easier for companies to use those practices. It’s worth noting that it’s not just Amazon that allegations of inertia selling of subscriptions have been made about. Other examples (and there are many more than these) include:

– Way back in 2013, when Adobe transitioned to its Creative Cloud subscription service, it received criticism about its subscription-only model and its cancellation policies.

– In 2015, Sky faced an Ofcom investigation for allegedly making it difficult for customers to cancel, e.g. cancellation requests not being “verified” without a call by the customer.

– In 2019, a Guardian newspaper report highlighted many companies which let customers sign up online but required a phone call to leave, e.g. Weight Watchers (WW), Ocado Smart Pass, British Gas Homecare, Which?, and others. The point was that requiring cancellation via phone call could be something that consumers forget.

– In 2020, the CMA took action against Roland for not making it sufficiently easy for online customers to cancel their digital piano rental agreements.

– Three, Vodafone, and EE all came under scrutiny from the CMA in the UK for the terms of their mobile phone contracts, some of which allegedly made it difficult for customers to switch providers or cancel their services.

– As in the US, gym chains in the UK have faced scrutiny for their cancellation policies. The CMA has now taken steps to ensure that gyms are transparent about their terms and conditions.

– In 2021, while the primary concerns with Viagogo (the multinational ticket exchange and ticket resale brand) surrounded ticket reselling, some consumers also complained about subscriptions that were difficult to cancel. This led to investigations and enforcement action by the CMA.

– Last year, as part of its investigation into the online console video gaming sector, the CMA identified concerns about some features of Microsoft’s auto-renewing subscriptions. For example, the CMA was particularly concerned about whether it was clear upfront that contracts would automatically renew, how easy it was to turn off automatic renewal, and whether people may not have realised they were still paying for services they no longer used.

What Does This Mean For Your Business? 

As we have moved more into becoming a subscription society, regulating all the practices has become more complicated. One of the chief concerns is how to protect consumers from business practices that essentially make the barriers to entry of a subscription contact incredibly low (or virtually invisible) and the barriers to exit extremely high through means such as excessive complication – two key characteristics of inertia selling.

In the US, UK, and EU matters such as hard-to-stop free trials, auto-renewals (subscription traps), and making consumers work hard to cancel are all being addressed with new proposed laws and new powers being given to regulators. For businesses offering subscriptions and wanting to avoid penalties, this will mean a review of their subscription process paying particular attention to clarity and options in sign-up and providing an easy way to cancel (with enough reminders along the way). Although Amazon is the latest to come under the regulatory spotlight it is by no means the only company to have been warned or had action taken against it by regulators over how subscriptions are sold, handled, renewed, or cancelled.

Although more legislation is in the pipeline and scrutiny more intense than ever, there is still some way to go in successfully tackling the many practices and nuances related to inertia selling. In the meantime, in the UK, customers who believe they have been the victim of inertia selling can report the practice to the CMA or their local Trading Standards office for further investigation.