Negative option offers are nothing new in marketing, as companies have been employing the tactic for decades with Book of the Month clubs and CD offers. But with new technology comes new potential pitfalls.
With negative option offers, consumers typically get a free trial membership or a free product, and when they sign up, they provide information including a credit card number. Then, if they fail to cancel within that free trial period, they are automatically enrolled in the service and are billed at regular intervals, says Stephen Weisskopf, senior attorney at Theodora Oringher Miller & Richman PC.
“Negative option marketing is not illegal, and it can be a very effective marketing tool, but you have to do it the right way,” Weisskopf says. “The key is to set it up the right way from the beginning, not waiting for a call from the Federal Trade Commission or a complaint from a plaintiff lawyer.”
Smart Business spoke with Weisskopf about how to stay out of trouble with the FTC, avoid class-action lawsuits and stay in your credit card companies’ good graces by using negative option marketing the right way.
What best practices can a business employ to help it avoid the potential pitfalls of negative option offers?
The general rule is that you need to make the terms and conditions of your offer clear and conspicuous. If you’re offering a free trial membership, you have to provide the key disclosures in close proximity to where the offer is made on your Web site.
Be upfront with terms so consumers know what they’re getting into. If you’re saying, ‘Sign up for a free trial membership in my service,’ immediately below that should be the disclosure that it is free for 30 days and that if you do not cancel within 30 days you are agreeing to be automatically enrolled in the service and you will be automatically charged. It should also be clear what the charges are, when the charges will occur, how they will be charged, how to cancel, and any other key terms and conditions. You should also make consumers click on an ‘Accept’ or ‘I Agree’ button whereby they acknowledge their agreement to the previously disclosed key terms and conditions.
What you shouldn’t do is make consumers hunt for the key terms and conditions by placing them, for example, at the bottom of the Web page, having them in a small font or making consumers click on a hyperlink to go to a separate page to find the key terms.
As you are designing your advertisements, the key concept to keep in mind is whether a reasonable consumer is likely to be deceived by your advertisements. That’s the general standard courts and the FTC employ in evaluating allegedly deceptive advertisements.