It is no secret that Visa’s new chargeback and fraud monitoring thresholds have merchants revisiting their tactics and models, so much so that negative option marketing may become increasingly rare, perhaps disappearing altogether.
What is Negative Option Marketing?
In a report prepared by the Federal Trade Commission, negative option marketing is defined as the ‘act commercial transactions in which sellers interpret customer’s failure to take an affirmative action, either to reject an offer or cancel an agreement, as assent to be charged for goods and services.’
The Columbia House mail order music club in the 1970s and 80s is a prime example of negative option marketing. After joining Columbia House, the club member received a dozen albums of their choice for cheap, provided he/she purchased a set number of albums within a set time frame at club prices. Columbia House mailings were sent to club members each month with a suggested ‘album of the month.’ With the mailing, club members were required to return a form to list which albums they wished to purchase; to purchase the suggested album; or to make no purchase.
If the club member was negligent in returning the form, Columbia House interpreted the no-response as an indicator to send the suggested album of the month, and would therefor ship it, with a bill included. Club members were at liberty to return it, but it was a tactic that left a bad taste.
Current Examples of Negative Option Marketing
Such marketing tactics are more prevalent now with free trial offers of vitamins, nutraceuticals and magazine subscriptions. For example, a consumer signs on for a month-long free trial for vitamins, but must indicate at the end of the month whether he/she wishes to continue receiving them at the supplier’s cost.
The consumer forgets to do so, while the supplier interprets the no-response as consent to maintain sending the vitamins, thus charging the consumer’s credit card.
Why it Will No Longer Work
Merchants that practice negative option marketing see high chargeback rates. With Visa’s new chargeback protocol, this is a dangerous tactic for merchants more than ever.
In April of 2015, Visa announced it was modifying its chargeback monitoring program effective Jan. 1, 2016. In a nutshell, Visa was cutting its chargeback tolerance level in half, from 2 percent and/or 200 chargebacks per month to 1 percent, 100 per month.
With chargeback levels twice as stringent, merchants are going to have to re-think their tactics.
What Can Merchants Do?
The best solution to counter chargebacks through negative option marketing is communication with the consumer. Mail-order merchants should maintain contact via e-mail or telephone notifying customers of the end of free trials or subscription deadlines.
If the consumer who signed on for the free trial wants to discontinue, merchants should make it easy for them:
- A one-click, opt-out button in an e-mail or on the merchant website.
- A toll free phone number with a fast discontinuation process.
- A phone call to the customer, simply asking whether they wish to continue.
How does your mail order/telephone order business handle trials? Please leave a comment below.