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Negative option marketing refers to a commercial transaction in which a seller interprets a customer's failure to take an affirmative action, either to reject an offer or to cancel an agreement, as affirmative assent to be charged.
Negative option marketing can pose serious financial risks to consumers if appropriate disclosures are not made and consumers are billed for goods or services without their consent. With the explosion of Internet marketing, negative option offers are as much a fixture of online advertising as in any other advertising media.
There are four types of plans that fall into the negative option marketing category:
- Prenotification negative option plans -- A seller sends periodic notices offering goods. If the consumer takes no action, the seller sends the goods and charges the consumer.
- Continuity plans -- A consumer agree in advance to receive periodic shipments of goods or provision of services, which they continue to receive until they cancel the agreement.
- Automatic renewals -- A magazine seller, for example, may automatically renew a consumer’s subscription when it expires and charge for it, unless the consumer cancels the subscription.
- Free-to-pay or nominal-fee-to-pay conversion offers -- In these plans, a consumer receives goods or services for free (or at a nominal fee) for a trial period. After the trial period, the seller automatically begins charging a fee (or higher fee) unless the consumer affirmatively cancels or returns the goods or services.
The problematic aspects of negative option marketing tend to fall into three broad categories:
- failing to disclose adequately or misrepresenting the material terms of negative option offers;
- failing to obtain consumers’ express informed consent before billing or charging them; and
- failing to provide effective means for consumers to cancel a negative option.
Internet-based negative option Edit
Internet-based negative option marketing poses unique issues. For example, webpage design affects the form, content, and timing of negative option disclosures. Marketers must consider whether to disclose material terms on the ordering pages, in hyperlinks, or in pop-up windows. In addition, marketers must determine the appropriate stage of the transaction to make material disclosures. Additionally, online research suggests that people interact with webpages differently than print materials and may not read the same notices and disclosures online that they would offline.
See also Edit
- FTC, Advertising and Marketing on the Internet: Rules of the Road.
- FTC, Dot Com Disclosures: Information About Online Advertising
- FTC, Negative Options: A Report by the Staff of the FTC's Division of Enforcement (Jan. 2009) (full-text).