What Are Negative Option Deals
Negative option deals are a dubious business practice that typically involves supplying a new product or service on a recurring basis to a consumer even if he or she has not asked for it — continuing to do so unless the consumer specifically declines it. Negative option deals became infamous across North America in the 1990s because of the marketing tactics employed by cable television companies. Consumers were being billed for TV channels they had not asked for, and then given the runaround when they tried to cancel.
Negative option deals are viewed unfavorably by most people as the deals are seen as a way for consumers to be bilked by the companies that they already do business with.
BREAKING DOWN Negative Option Deals
Despite the consumer backlash that inevitably arises when news surfaces of a prominent company using negative option tactics, such deals are not uncommon.
The Federal Trade Commission (FTC) identifies four types of negative option plans:
- Pre-notification negative option plans: These were often used by book and music clubs. In such plans, sellers would send periodic notices offering products. If no action was taken by the targeted consumers, they were charged for the products that the sellers continue to send to them. As the industry changed to become centered around digital distribution for books, music and other types of media, these plans have been in declining use.
- Continuity plans: In such plans, consumers agree in advance to receive periodic shipments of goods or provision of services, which continues until they cancel the agreement. Credit protection schemes are a type of continuity plan that falls in this category.
- Automatic renewals: These plans are typically used by the publishing, media and entertainment industries. It also includes access to a growing offering of digital and physical services. With automatic renewals, a consumer's subscription is automatically renewed upon expiration of the selected term unless the consumer cancels it beforehand.
- Free-to-pay trial offers: With these offers, consumers receive goods or services either free or upon payment of a nominal fee for a limited trial period, after which they are automatically charged a higher fee unless they cancel the offer or return the goods/services. This is an increasingly popular method of negative option marketing, presumably because there will always be a significant proportion of consumers who are lured by an irresistible free offer and forget to cancel once the trial period ends.
Other negative option deals identified by the FTC may include upsell and bundled offers. In upselling, a consumer receives a solicitation for an additional product or service after completing a primary transaction, such as balance protection on a credit card that has just been activated. With a bundled offer, two products or services are packaged together and cannot be purchased separately.