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Column: In ‘membership economy,’ automatic renewals favor businesses more than consumers

People on treadmills at a gym
Automatic renewals of subscriptions and memberships — the gym, Amazon Prime, streaming services — have become crucial to many industries.
(Ringo H.W. Chiu / For The Times)

Enrique Klapp received an email the other day informing him that his subscription to Norton 360, an internet security service, had been automatically renewed for another year at a cost of $109.99.

The only problem: His subscription doesn’t expire until next month. And he wasn’t sure if he wanted it to continue.

Klapp’s experience might seem small in the grand scheme of things. But automatic subscription renewals have become a key aspect of what’s been called the “membership economy” — a commercial system based on locking people in to never-ending customer relationships.

Amazon does it with its Prime members. Fitness clubs do it. So do most publications, including this one.

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The selling point for automatic renewals is convenience. From a consumer’s perspective, you won’t have to worry about your service or membership lapsing. That’s not a bad thing.

The benefits to businesses are perhaps even greater. Churn, or turnover in customers, is reduced, thus lowering customer-retention costs. Future revenue can be anticipated for planning purposes.

And perhaps the biggest benefit: Businesses know that lots of people won’t bother with the hassle of canceling a subscription. They may not even know they still have a relationship with a company.

That’s just free money for the service provider.

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Daniel McCarthy, an assistant professor of marketing at Emory University, compared automatic renewals to a Roach Motel — “You check in but you can’t check out.”

He said companies, particularly ones that don’t put much effort into customer satisfaction, will fight to maintain the practice of automatic renewals.

“They know this is more profit-maximizing for a firm,” McCarthy said.

Perhaps that’s why many state governments are taking a more active role in regulating such practices.

California enacted one of the country’s toughest such laws in July 2018. Section 17602 of the state Business and Professions Code requires “clear and conspicuous” disclosure of automatic-renewal terms.

It also requires a California consumer’s “affirmative consent” to such an agreement — that is, an opt-in to automatic renewals — and notice every time a subscription has been renewed.

Significantly, the state also requires that people be able to cancel subscriptions online. Some companies try to make the process as difficult as possible, requiring written requests sent by mail.

Hollywood resident Klapp, 64, told me he called Symantec, owner of Norton, LifeLock and other digital-security brands, and complained that he didn’t want his subscription renewed — at least not until it expires next month.

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“The guy told me it is a standard industry practice,” he said.

Klapp said the service rep tried repeatedly to convince him to stay but eventually agreed to end the contract.

A Symantec spokeswoman, asking that her name be withheld as per the company’s “general policy” (which is a strange policy for spokespeople), said automatic renewals “enable uninterrupted protection.”

“This is key to help keep our customers safe and protected against an unintentional lapse in coverage,” she said. “However, the customer can turn off the automatic renewal feature at any time.”

In fact, I recommend it. I turned off Norton’s automatic renewal for my home computer. The company responded by offering me a lower price to continue my service, which I took.

Sometimes opt-out systems work better for consumers than opt-ins, said Stephen Spiller, an associate professor of marketing and behavioral decision-making at UCLA. For example, employer-sponsored retirement programs, which may automatically enroll new hires.

“Opt-out policies can be useful nudges to help people do what they want to do anyways,” which in this case is saving for their sunset years, Spiller said.

“But if consumers have trouble remembering to cancel an ongoing service, or they fail to notice that they’re still paying for a service that they meant to discontinue, these sorts of policies can make it feel like the firm is taking advantage of a consumer’s innocent mistake,” he observed.

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A big problem with automatic renewals is they rely on a concept known as a “negative option feature.”

What this means is that if a consumer does not proactively cancel a subscription or membership, it will be viewed by the business as a desire to continue service. No further approval for renewal is required.

Your silence, therefore, is taken as permission to charge your card.

As automatic renewals become ever more ubiquitous, with many households having multiple such relationships with businesses, it’s time that the negative option feature be discarded.

Instead, state and federal laws should include a mandatory annual opt-in. People should be asked once a year if they want to maintain a subscription or membership. If they do, fine.

But if they don’t respond, their silence should be taken as a desire to end the service.

Klapp received an email from Symantec saying his automatic renewal had been deactivated, which is what he wanted. Shortly afterward, however, he received another email saying it had been reactivated until December 2020.

Mistakes happen. But Symantec’s head fake is the sort of thing many consumers might easily overlook.

After I contacted Symantec, Klapp said he received a call from the company assuring him that his subscription would end next month, would not once again be reactivated, and the $109.99 he’d already been charged would be refunded.

I understand why businesses adore automatic renewals. And I appreciate that for many people they’re convenient.

Personally, though, I must be managing about a dozen different subscriptions and memberships — publications, streaming services, Amazon, the gym, etc.

I’d sacrifice a little convenience for the control that comes with being asked once a year if I want to renew.

Treat customers with respect, they’ll remain customers. That used to be known as good business.


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