Customer Retention

FTC Rules Would Impact Ecommerce Subscriptions

The U.S. Federal Trade Commission has proposed new rules that will likely impact ecommerce subscriptions.

Called the “click-to-cancel” rules, these FTC changes would require any business selling subscriptions to add a simple cancel mechanism on the same website as the initial transaction and include the same number of steps — i.e., a one-click subscription requires just one click to cancel.

The FTC announced last month the proposed changes to its 1973 Negative Option Rule to address consumer concerns. These rules establish how subscription sellers must communicate offers, ensure consent, manage billing, and simplify cancelation.

The last part has raised much concern.

Cancelation Struggles

A typical American has $273 per month in subscriptions, according to a 2021 survey from West Monroe, a Chicago-based consulting firm. These subscriptions were for services and products — from streaming video to coffee bean shipments and boxes of dog toys.

Given the 250 million U.S. adults in 2023, subscriptions are a massive business. Unfortunately, some subscribers struggle to opt-out.

A 2021 Chase Bank survey reported that 56% of consumers struggled to track or cancel subscriptions. At least some of these are likely to be ecommerce related, given that subscription platform estimated 24% of U.S. consumers have at least one retail subscription.

“Online marketers have that frictionless enrollment thing down pat. But when consumers want to cancel, some of those same companies set up 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 and then left them on hold for ages. Another company ignored cancellation requests unless consumers sent them to one hard-to-find email address authorized to accept cancellations,” wrote Lesley Fair, a senior FTC attorney.

Cancellation “mischief,” as the FTC put it, is more likely with services than physical goods since leading ecommerce platforms generally make canceling straightforward.

So while ecommerce businesses have not been the bad actors, merchants deploying the subscription model could be impacted if the proposed changes are implemented.

Screenshot of a Chewy dog food product page showing the auto-ship option.

Product sales via subscriptions help merchants and consumers. This example is Chewy’s “Autoship” program for dog food.

Potential Impact for Ecommerce

If adopted, click-to-cancel rules could impact ecommerce navigation, operations, and marketing.

Easy cancellation. The most apparent impact on online stores will be adding a simple cancel button. This should be relatively easy since platform and app developers will likely make the necessary compliance changes. Merchants should ensure those updates occur, however.

Operations. The proposed rule requires annual notices for non-physical products and would restrict offers attempting to change a shopper’s mind about canceling.

For example, an online merchant could not offer a discount such as postponing or rescheduling a cancellation without first obtaining the subscriber’s permission. It could also impact how sellers follow up or remarket to customers who canceled.

Marketing. The presence of a prominent click-to-cancel button could escalate unsubscribes and thus affect customer lifetime value and, by extension, the investment by ecommerce marketers to acquire new subscribers. A business offering a 20% discount to shoppers who subscribe to product replenishment would presumably require recalculating that model’s profit potential.

Subscriber churn is a key performance indicator for merchants employing the subscription model.

How to Prepare

The FTC announced the proposed change in April 2023 but started the process almost five years ago. Hence it will likely adopt some (or all) of the changes.

Merchants offering subscriptions could jumpstart implementation by making the 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, ecommerce subscriptions should remain viable and effective revenue generators.

Armando Roggio
Armando Roggio
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