How Subscription Model Pricing Is The Gift And The Curse [e228]

Legally Sound | Smart Business Archives - Pasha Law PC

Nasir and Matt talk about JustFab's crazy valuation for a company that offerssubscription based clothes. They also get into topics of the evils of subscription model pricing and cancellation policies. Full Podcast Transcript NASIR: Welcome to our podcast where we cover business in the news and add our legal twist to the business news. My name is Nasir Pasha. MATT: And I’m Matt Staub. NASIR: I would say you’re like the fashion guru of the two of us, wouldn’t you say? MATT: Well, first of all, I knew you were going to say that. I was about to say something because I knew you were going there and, two, I would disagree with that. I think you’re more fashionable than I am. NASIR: Well, no, that assumes that I’m making my own fashionable decisions. I would say that you make your own fashion decisions in a very fabulous way – just fab way. MATT: Just fab? Okay. Now I got you because that’s what we’re talking about – JustFab which apparently is a start-up worth one billion dollars. I’d never even heard of it so it’s kind of crazy how it can be worth that much. I guess I also don’t buy any clothes or anything like that online. NASIR: But you’re right. There shouldn’t be anything worth a billion dollars that we haven’t heard about. That’s just wrong. MATT: Yeah. Well, I think we can explain why they’re worth so much with the kind of their business practices and it all kind of stems from… it sounds like, well, there’s a bunch of different things going on with them but one of the things is this subscription model that they kind of lock these customers into but, you know, just going back a bit about the history of the company, I mean, it looks like they started off more so with diet pills and wrinkle creams, using free trials, and then locking people, and this is something that’s not new to them. That’s why, any time I see a free trial, I’m always hesitant and I rarely ever actually sign up for it. If I do, I make sure that it doesn’t automatically roll into an automatic reoccurring subscription because that’s when you get locked in and end up having to pay and you forget about it and that’s a lot of money out of your pocket for something that was supposed to be a free trial. That’s what they started doing here with these diet pills. Eventually, they moved on to more fashion clothing items, things like that. But then, they did a couple of curious things and I’m not even fully sure how exactly this works. It’s a subscription model to buy something like shoes. They pay for the subscription model. This one person was saying, “I thought I was getting a good deal on shoes and I didn’t realize that I was signing up for a subscription that would be difficult to cancel. I was trying to buy one pair of shoes. Instead of that, I got signed up for a VIP club which charges me $40 every month,” and basically, you know, it was apparently difficult for this one person to get out of it. They just tried to do a one-time transaction and ended up getting caught up into a month-to-month – or I assume month-to-month – at least some sort of subscription where it probably took them a while to get out of. I’m sure there was long times of notice you had to give before terminating the subscription, things like that. And so, do that with one person, okay; do that with a lot of people, I think that’s how you kind of get to that one billion dollar mark. NASIR: Yeah, the subscription model for products and services, it’s in every business now. I mean, pick any service – whether it is transportation to selling any kind of products online – there’s a subscription for that. I think one of the most famous ones is that razor club, right? MATT: Dollar Shave Club. NASIR: Dollar Shave Club or whatever. I think they seem to be one of the most successful – well, I don’t know compared to JustFab or not. But I think the problem with it – and I don’t believe the other subscription models do this – is that you only have a five-day window to cancel.