Can an opt-out marketing model really work online?

Marketers have been using the opt-out concept for years, forcing customers to take action if they don't want a certain product. Now this technique is moving to the online world. Learn why companies must use it carefully to avoid a backlash.

By Sunil Sharma

Recently, The Washington Post ran a story about how companies are using perfectly legal marketing strategies of "negative options" to sell magazines, natural gas, cellular phone services, health club memberships, lawn care contracts, and other goods and services. According to Jean Ann Fox, director of consumer protection for the Consumer Federation of America, as quoted in the Post article, "It's no longer a world of consumer consent, but consumer rejection," which puts more pressure on customers. The Post article goes on to detail various pros and cons of the practice for both the customers and the marketing companies. It also covers what various consumer advocates and lawmakers think about it. This practice is gaining popularity and raises some interesting issues for the brave new world of e-mail marketing, namely, "To opt in or not to opt in."

E-mail has emerged as a "killer app" for marketing on the Internet. However, it can be labeled as spam and attract the wrath of authorities and Internet service providers (ISPs). Hence, to exploit the potential of e-mail as an effective marketing tool and to avoid their messages being labeled as spam, Web marketers have been going to great lengths to employ permission-based e-mail marketing, which is an opt-in model. But the success of offline marketers in employing the "consumer rejection" technique raises the question: Could (and should) online marketers do the same thing and switch from an opt-in to an opt-out model?
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An illustrious history in offline marketing
This opt-out technique—also known by such terms as advance-consent marketing, continuous-service agreements, or negative options—requires that customers must act to prevent a sale from taking place. Mail-order music and book clubs have been using it for a long time. They send you the goods, and if you do not act to return the items, your account is charged for the goods. Other companies use it to extend the subscription period by sending a letter saying that unless you act, we will extend your subscription and charge your account. There are many other ways that the negative options are being used or could be used.

The reason for this increased usage of negative-options marketing is quite obvious. A lot of consumers do not notice the negative option, which is usually in small print, in their communications with the company. Other times, exercising the opt-out requires effort and time from the customer that he or she may not be willing to spend. Thus, by default, the customer stays with the company and often purchases something. The proponents of the strategy say that it results in increased retention rate, convenience to customers, and lower costs. On the other hand, the detractors of the practice say that it creates customer confusion, is inconvenient, and is unfair.

How will it work online?
But what are the implications of using such a technique for an e-mail campaign? What are the ways that someone could use negative-options marketing in the online world? Would it be effective? Would it run afoul with "spam watchdogs"? The answer to these questions is the typical answer that a consultant gives: “It depends.”

If done correctly, the negative-options technique has the potential to generate more revenue for the company, provide better services to customers, and avoid the spam label for the company’s marketing materials. If done incorrectly, it could alienate customers, impair a company’s reputation, and in some cases, result in the company losing its ability to send e-mail.

E-mail campaigns could generate direct or indirect revenues—direct if the e-mail program uses a subscription/advertisement-based model and indirect if it uses other programs to generate revenue. Negative options could be used for both types of e-mail campaigns. Without going into the actual mechanics of successful and litigation-free implementation of advance-consent marketing, we can identify some of the ways that it could be used.

The risks and the benefits
In the heydays of the Internet bubble, when everyone wanted to dabble in the stock market, the number of subscription-based investment newsletters mushroomed. Some of these were the traditional offline newsletters that were going online, and others were start-ups.

A number of these newsletters employed the advance-consent marketing technique. Such e-zines and newsletters usually increase their subscriber base by offering a trial period. With advance-consent marketing, they can continue billing their subscribers after the trial period. Subscription-based sites like The Wall Street Journal, the International Guild of Professional Consultants, and other professional organizations could also extend subscriptions using negative options.

Based on negative options, companies can also get permissions to use customers’ personal information for various purposes. This becomes highly significant under the Gramm-Leach-Bliley Act of 1999, which allows banks, brokerage houses, insurers, and credit card companies to share personal information about consumers—including where they shop and their credit histories—with other, nonaffiliated companies, unless a consumer opts out.

Some of these techniques are already in use, and marketers can devise many more. But they always come with their share of problems. The biggest resistance will come from privacy advocates who may not consider opting out fair to the customers. Some customers would find them convenient and useful, whereas a number of customers would find them a nuisance and a headache. Some of the companies would be able to increase customer loyalty and satisfaction, whereas others would alienate their customers.

Despite its numerous pros and cons, there is no denying the fact that negative-options marketing is a very potent tool in the online world. And though its use will increase in the future, it will also raise a number of red flags.

Strategic and results oriented, Sunil Sharma has more than 15 years of experience in management and IT consulting. An entrepreneurial consultant and founder of a business-to-business e-commerce company, Sharma has provided consulting services to large and small firms in the UK, Far East, India, Europe, and the United States. His areas of expertise include strategic management, strategic marketing, and business planning for high-tech firms.

This article was originally published by gantthead on May 11, 2001.

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