Subscription trap legislation. The growth opportunity.3 min read

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So… there’s been an update to subscription trap legislation. Before we all panic and think it’s the next Millennium bug (showing our age there), let’s have a look into what is going on.

A quick summary

On Wednesday the 20th of April 2022, the UK government announced new legislation that is aimed at clamping down on subscription traps. 

The Competitions and Markets Authority (CMA) will be given extra powers to be able to deal directly with businesses that do not adhere to the new rulings. These powers include; the ability to award compensation to customers and fine firms up to a staggering 10% of their global turnover (or up to £300,000 in the case of an individual). These new powers will replace what was a long, drawn-out court process.

A key part of this new ruling will be aimed at targeting ‘subscription traps’ in which businesses make it difficult for customers to exit their contracts.

Subscription traps and how to avoid them

• Provide clearer information to consumers before they enter a subscription contract.
• Issue a reminder to consumers that a free trial or low-cost introductory offer is coming to an end, and an additional reminder before a contract auto-renews onto a new term.
• Ensure consumers can exit a contract in a straightforward, cost-effective and timely way.

Focus on consumers

The Department for Business, Energy and Industrial Strategy (BEIS)  reports that the average UK household spends around £60 a year on unwanted subscriptions. 

The new laws aim to put the consumer first and modernise the current subscription service experience. Currently, companies face very little regulation when it comes to offering subscription services and the methods available to consumers to cancel these subscriptions.

Consumer Minister Paul Scully said,

“We’re making sure consumer protections keep pace with a modern, digitised economy. No longer will you get caught in a subscription in which there’s no end in sight.”

https://www.gov.uk/government/news/new-rules-to-protect-consumers-hard-earned-cash

The subscription growth opportunity

Whilst we understand that this legislation change may sound daunting, it’s important to highlight the opportunities. Here at Upzelo, many subscription businesses have used our retention software to tailor their subscribers’ offboarding experience by creating custom audiences and cancellation flows. Statistically, businesses that shy away from dealing with retention properly, have higher levels of cancellations and lead to customers talking about brands in a negative light.

Let’s look at this in a different way. Businesses focus a lot of time, money and energy on their onboarding experience. They hire sales teams, account managers and support agents to streamline and make customers feel welcome when signing up. This process is often supported with a piece of software, for example, a sales pipeline product, a CRM and a billing/invoice management system. So why do we purchase these software products and hire talented employees? It’s to make the onboarding experience simple, easy to understand, quick and cost-effective – i.e. it’s proven to work.

In the vast majority of cases, these same employees are also tasked with customer retention at the point of cancellation. So whilst businesses provide them with the tools to make the onboarding experience great, they don’t aid them with the same tools needed to manage the offboarding experience. Instead, businesses try to retain all of their customers in the same way, which statistically does not reduce churn/cancellation rates.

In summary, this legislation should be seen as an early indication to enable businesses to provide their teams with the best possible solutions to manage customer retention and subscription churn. Building custom experiences for each subscriber provides the business with more insight into why customers are looking to cancel and how to increase revenue, whilst keeping customers happy and staying compliant. It’s time to avoid fines, invest in retention software, and create intelligent cancellation experiences to build and grow your subscription business.

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