Customer disdain for this 'innovative and disruptive' business model is only growing

Facebook/Birchbox

Subscription models are incredibly popular.

Look no further than Netflix, Amazon Prime, Dollar Shave Club, and Carnivore Club. It seems easy — sign up and you have a product each month, for a fixed price.

But at the same time, many subscription-based retailers have come under fire for not having clear disclosures about their billing practices. 

And some companies, despite being seemingly transparent about the fact that they're subscription-based, make cancelling their memberships difficult for customers.

Most recently, nonprofit ad watchdog Truth in Advertising has filed complaints with the FTC, New York Attorney General, and District Attorney in Santa Clara, California against startup lingerie company Adore Me on May 9. The points largely relate to Adore Me's subscription model, which it calls a VIP Membership, through which "members" pay $39.95 to receive a set of lingerie each month — but only if they log on and choose the products they want.

Adore Me also lets customers skip a billing cycle one at a time, but they have to make sure they select to "shop" or "skip" by the fifth of month. Should members fail to do either, their credit cards get charged, and in turn, they get store credit to use at any time.

Adore Me has added a policy wherein members can get an automatic refund for the most recent month's charges if they fail to select shop or skip, without having to deal with customer service. Adore Me CEO Morgan Hermand-Waiche highlighted this policy to Business Insider in January.

The policy, however, could be hurting the company. Bloomberg recently reported that Adore Me had a 30% spike in refunds with a 15% dip in subscriptions.

Upon cancellation —which is, according to reviews on the Better Business Bureau, an arduous process — members lose their credits. (One commenter on The Lingerie Addict said she was able to cancel her VIP Membership but had $200 in credit, all of which disappeared once the cancellation took effect.) That's one of Truth in Advertising's primary complaints with the company.

"I think what really focused us on Adore Me was one particular provision in their terms and conditions which I found to be absolutely outrageous," Truth in Advertising's Executive Director Bonnie Patten told Business Insider on Monday, "which was that when a consumer attempts to cancel this membership, that the company takes any un-used credit from the consumer."

Truth in Advertising's suit comes on the heels of many consumers' frustrations; Adore Me currently has an F rating with the Better Business Bureau and over 680 consumer complaints.

Another common complaint is that some people claim they don't even know they're becoming VIP Members from the start. The company, however, claims it makes it clear to consumers. The VIP Membership price is the more heavily flaunted and advertised; it's also the default selection.

Facebook/Birchbox

Hermand-Waiche maintains that the retailer is completely transparent and discloses everything through consistent emails, SMS messages, push notifications, and a pamphlet that members receive with their first package. He stressed this to Business Insider in January.

Adore Me, however, isn't the only subscription company to come under scrutiny recently. In the fall, JustFab (which houses Kate Hudson's athleisure line, Fabletics) found itself enmeshed in a scandal after customers called it a scam; they claimed the fine print was exceedingly difficult to discern.

Buzzfeed reported that consumers didn't realize they were being signed up for a "membership." Moreover, after finding unwanted charges on their credit cards, they said they had to call customer service to put an end to their billing cycle. The company has amassed over one thousands complaints with the Better Business Bureau.

Then, in late October, Bloomberg reported the company would be audited. Bloomberg also reported that JustFab was looking into changing its policies; it was going to consider offering members the ability to unsubscribe online. Not being able to cancel memberships online was a huge issue with the company that Buzzfeed outlined in an initial report regarding the scandal.

Still, some experts think that JustFab uses this model to optimize success, even if it's misleading.

"It's a model that allows [JustFab] to make more money ... Unfortunately, misleading marketing works. And that's what this company is, in some part, using to be so successful," Patten told Bloomberg.

Facebook/Birchbox

That's not to say subscriptions are entirely faulty.

At the end of 2013, Entrepreneur suggested that subscription-service model was a hot ecommerce trend for the following year.

And there has been no shortage of boxes for consumers to choose from — from grooming and beauty boxes to boxes with artisanal beer to boxes for dogs.

But the core product that many of these boxes sell is the box and the subscription, as opposed to selling the product, with the membership sneaking up afterwards. Birchbox is ostensibly a box of makeup samples; Adore Me markets itself as a lingerie company with fast-fashion prices. That's a reason some people might feel duped.

Still, Adore Me's CEO Hermand-Waiche chalks up the complaints — which he told Business Insider pale in comparison to positive reviews — to the fact that some people don't know how subscription services operate.

"I think that the membership and subscription shipping concepts are extremely innovative and disruptive, and used by companies such as Amazon, Dollar Shave Club, Birchbox, and Adore Me," Hermand-Waiche wrote to Business Insider in January. "But sometime there are shoppers who aren't familiar with subscription-based services and memberships and as a result are unsatisfied with their experience."

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