“I must break you” - Ivan Drago, Rocky IV
A breakage model is a marketing strategy that uses tricks to get your money and keep it... not always in ethical or even legal ways! Businesses use them to coerce sales, slash away at marketing and fulfillment costs, and rake in extra profits in a way that doesn’t provide actual value for the customers’ money.
It starts to sound even worse once you realize that devious marketing people do this by allowing a customer to fail or even setting them up to fail!
Let's start with a quick example:
You open an email and it offers you a free 30-day trial for an online service called Ripoff Inc. When you sign up, you are asked to enter your credit card info... However, they tell you it'll only be charged 30 days later IF you decide to become a customer. You continue your busy life and 30 days later (without additional warning) a charge goes on your credit card. You forgot to cancel. They got you!
If you think the customer is to blame, you would be partially right. There is a large segment of people who will forget... that's the reason breakage models exist in the first place. However, what you may not realize is that the marketing teams behind these campaigns are often deliberately setting up the program in order to take advantage of our forgetfulness or passivity, and they engineer the marketing plan to encourage it.
The evil ones know exactly how to make things easier for you, but they don't. They don't because breakage models create profits when customers fail to take action.
Our example above is a classic breakage model, also sometimes called negative option marketing. Simply put, the company profits when you forget to do something. John Ulzheimer of smartcredit.com describes it as "falling backwards into the subscription".
Here's what happens:
- You forget to cancel a free trial before the first billing or later billings
- You forget to send back a product sent to you by mail or send it back too late
- You forget to claim the free gift they promised you
- You claim the free gift they promised you, but never get it
- You forget to use a free coupon or certificate you were given or purchased to get a discount
- You show up at a location and find out your offer isn’t what you thought. You end up being compelled to purchase something without the deal you expected because you’re already there
- Your incentive expires before you get to use it
- The incentive you are offered is a low quality gift or a substitute of what was offered in the promotion
- There are more steps involved than what was stated up front, and you abort the process before you get your incentive, but they already have your billing or contact info.
- There are hidden taxes or fees buried in the fine print
Incentive marketing is also a breakage model. Its key difference is that you'll be offered some other product or service (usually 3rd party) as a gift or “bait” for buying something or doing anything that results in you entering your credit card or contact info.
There is an endless source of cheap products or gift certificates available to provide as super low cost incentives. In fact, some businesses exist solely to provide businesses with these kinds of promotional giveaways. If you’ve ever seen all the “bonus gifts” you are offered for ordering from TV shopping networks, you’ve seen a common type of incentive marketing at work.
Your contact info is very valuable to marketers. Sometimes things like surveys will also promise you a gift just for completing them. If they don't sell you immediately, they'll follow up with you repeatedly until they either get your money... or you ask them to stop spamming you.
In fact, some companies get paid just for getting you to give them your email address... which they then sell to another business who needs leads to do more marketing! You can find all sorts of these types of offers in affiliate networks such as Clickbank.
Now, it's not entirely about forgetfulness. As I noted, the evil ones will do their best to make sure that happens. However, there are several strategies they may use to defeat you and take or keep your money. Here is just a sampling:
Rebill Without Warning
They could send you an email to give you warning that you will soon be re-billed, but they don't. They don't want to remind you, because if they do, you may cancel before they get your money.
No Cancellations Until Evaluation Period is Over
They will not let you cancel or get a refund until after your evaluation period is up. Part of the agreement you made (whether you realize it or not) is that you will "evaluate" the product or service for x days before cancelling. While you may decide you do not want the product or service early in your evaluation, by the time the fixed period is over, you may have then forgotten all about cancelling and miss the deadline.
Future Fulfilment and Expiry Squeeze Play
The coupon or gift certificate they provide you with cannot be used until some time in the future and may have an expiry date too. If you lose it before it's eligible to be used, it's gone. You may even forget to use it entirely. If it expires or you forget all about it, you lose, but they still keep your money or your contact info.
Forcing You to Claim Your Reward and Delay Processing
They may require you to “claim” or “redeem” your gift from another provider, and it surprisingly comes with a 6-8 week processing estimate. Imagine that. But 6-8 weeks later you’ll forget you were expecting anything.
Fake the Fulfillment
The most evil companies would be willing to not send you anything at all and leave it up to you to call to find out where it is. They’ll pretend it was “lost in the mail” or they have no record of your claim and promise to resend. Most times, however, 6-8 weeks later, you won’t remember that you were supposed to receive anything, so there will be no call, and you will never receive your gift.
Make it Harder to Cancel / Force Cancellation By Phone During Business Hours
They'll require you to call to cancel during business hours and might keep you on hold instead of letting you cancel immediately with a big [ Cancel ] button on their website. They want to make the cancellation process more challenging by including more steps or requirements... creating unnecessary friction.
You may be able to sign up instantly, because that’s when they’re getting something from you. When it comes to you taking something back (canceling or getting a refund) they don’t want to make that easy at all!
Call Center Experts in Retaining, Upselling, and Exploiting Your Weakness
When you do get them on the phone to cancel or get a refund, you'll be up against an operator trained to keep or get more of your money. They'll have an expertly written script ready to respond to your every objection. If you show any sign of weakness, they'll find ways to keep you subscribed or to discourage you from getting a refund. In fact, the best trained salespeople will not only retain you, they may even upsell you during the same call you made to get your money back!
Price Subscriptions Low to Fly Under Your Credit Card Radar
One top info marketing guru, Frank Kern, has been credited with describing a breakage model strategy where subscription pricing is kept low or "under the radar" in order to stop people from cancelling. Customers may continue accepting the re-billing even when they don't use a product or service, because the low charge on their credit card doesn't cause them any concern or blends in with other card activity and they don't notice.
Frank previously got himself in hot water with the FTC, but it was just a blip on the radar for him. Being a charismatic guy, and an expert copywriter, he began making income or success disclaimers funny and exaggerated, but apparently fully compliant with FTC guidelines.
Call in the Lawyers to Intimidate You
One of the most aggressive breakage models I ever observed was the cancellation process for a time share purchase agreement that involved a mandatory meeting with a lawyer who would proceed with a retention strategy. The sales team did a hard sell based on a 7-day cancellation agreement, and would ship you off to the legal team if you tried to cancel. So much for the "no questions asked" policy. It’s like a Chinese Finger Trap. Easy in, difficult out - otherwise known as a breakage model.
Are breakage models still being used?
Don’t expect them to disappear even though the FTC is always making moves to crack down on fraud and scammy business practises like breakage models.
However, there are some positive trends happening. In the Web 2.0 world, reputable tech start ups are beginning to do a much better job of structuring free trials or freemiums and are very pro-relationship with the customer. In fact, lately, they’ve been getting in more hot water about their privacy snafus and surreptitious use of data or postings to your social profiles.
They are becoming much less about breakage models and more about demonstrating value, building relationships with their customers, and aiming for more transparency. This is a move in the right direction, but it’s just a start. The info marketer industry by comparison, although under scrutiny from the FTC, is still filled with sharks and snake oil salesmen.
Side Note: I was billed $12 out of the blue for JibJab recently for an annual renewal. I forgot I had subscribed and I didn’t receive any notice that a re-bill was pending. They got me too! =)
Here are some counter breakage model terrorism strategies!
1. Try to recognize a breakage model before you begin. If you know what to look for, it can save you a lot of trouble. When you see the bait appear, remember what happens to fish! Ouch.
2. When you sign up for a free trial, immediately create a note in your calendar and set an alert (if you have a Smartphone) so that you’ll be reminded to cancel before you get billed.
3. If you find yourself in a breakage model, let the company know that you are aware of what is happening. Ask them to fix whatever problem they created for you including refunding your money.
4. If they do not agree to refund your money, let them know you’ll do several things when you get off the phone or send your email, etc.
A. Call your credit card company and submit a chargeback request
B. File a complaint with the FTC
C. File a report with the Better Business Bureau
D. Post a summary of your experience online at scam report websites
E. Link a report of your experience with the breakage model within your social networks accounts or blog about it
At minimum, file for your chargeback. The credit card company will work with you to resolve the dispute. It is absolutely mission critical for the business to keep their chargeback rates low. They know a lot of people are not even aware they can file a chargeback (or just won’t bother). When you let them know you are one of the people that does know the process, you’ll find that they will begin to work more favorably with you.
Depending on how grievous the breakage model they trapped you in was, I’d consider doing B and C regardless of whether they agree to fix the problem or not.
I’d also recommend D whether or not the issue is resolved in your favor, and E depends on whether you are willing to do a little consumer activism on your personal social networks or not. Not everyone is comfortable with that and sometimes your followers will view complaints (especially if they happen too often) as negative or annoying. Give it some thought before you make your decision.
TIP #1: You’ll have best results when communicating with them to maintain a confident and assertive tone. If you become aggressive or abusive, their frustrated reps may deliberately make things more difficult for you. Be firm and insistent, but keep your cool and follow through with A-E. Avoid a threatening tone to ensure their mood remains stable and keeps them open to giving you what you want.
TIP #2: Describe your experience clearly, but be wary of making claims that indicate illegal activity. You do not want the bad guys to be able to file a defamation lawsuit to shut you up. Tell your story and acknowledge that in your opinion it was an unfair and/or misleading business practise. I’m not a lawyer either, so this is not legal advice. Just be mindful of what you are saying to avoid getting yourself in hot water and consult with a lawyer if need be. For most small transactions, the legal option will never be worth it unless you’re willing to pay expensive fees to pursue “what’s right”!
Remember, breakage model marketers live by the following motto:
“A fool and his money are soon parted”
Don’t let them break you.
