December 31, 2009, 12:00 AM

Amid Senate investigation, some e-retailers check out of membership clubs

Following a Senate Commerce Committee report that three membership club providers and more than 450 participating e-commerce sites have generated $1.4 billion by misleading consumers, some e-retailers are terminating their participation in the clubs.

 

Following a recent report by the U.S. Senate Committee on Commerce, Science and Transportation that three online membership clubs and more than 450 participating e-commerce sites generated more than $1.4 billion by misleading consumers, some e-retailers, including Buy.com Inc., BuySeasons Inc. and VistaPrint N.V., are terminating their participation in the clubs, according to the committee and retailers contacted by Internet Retailer.

“We are not planning on continuing these programs after Dec. 31, 2009,” Jeff Wisot, vice president of marketing at Buy.com, tells Internet Retailer. Although Wisot didn’t elaborate, other retailers say they have terminated participation in the membership clubs to focus on other strategies that offer customers more value.

The 35-page Commerce Committee report, “Aggressive Sales Tactics on the Internet and their Impact on American Consumers,” was released in November along with documents listing 88 e-commerce companies that have each generated more than $1 million in revenue by participating in the online membership clubs offered by Affinion Group, Vertrue Inc., and WebLoyalty Inc.

The committee, chaired by Sen. Jay Rockefeller (D-WV), says it decided to investigate the practices of the membership clubs because thousands of online consumers have complained to state attorneys general, the Better Business Bureau, and other consumer advocates that the enrollment process used by the clubs was “misleading and deceptive.”

At issue is the method the clubs have used to enroll online shoppers without clarifying related charges to their credit cards. Under a typical scenario, a shopper who had just completed an online purchase on a participating retailer’s web site would see a pop-up offer for an extra price discount related to that purchase. Shoppers would be directed to hit a “continue” or similar button to accept the discount. Many shoppers were unaware that when they hit the button the credit card number that they had used during the purchase would be charged a monthly fee to join a membership club, the Commerce Committee report says.

The report notes that Affinion, Vertrue and WebLoyalty altogether have enrolled more than 35 million consumers since 1999, and that, as of June, 4 million were currently enrolled.

Venlo, Netherlands-based VistaPrint issued a statement in November saying it would terminate its relationship with an affiliate of Vertrue as of Dec. 20, and that it would no longer make membership rewards or similar programs available to VistaPrint customers. Although VistaPrint says it had begun winding down third-party membership programs in 2008 to concentrate on other products and services, it added that ending the programs “is also appropriate in light of the recent U.S. Senate Commerce Committee inquiry into a variety of membership rewards programs, including the sufficiency of their disclosures to consumers.”

Jalem Getz, president and CEO of BuySeasons, which sells costumes and party supplies through multiple e-commerce sites, says he terminated his company’s WebLoyalty membership club participation after deciding that its value proposition didn’t suit the type of relationships that BuySeasons likes to have with its customers.

He adds that most of the WebLoyalty-related revenue associated with BuySeasons in the Commerce Committee report was generated at party supplies retailer Celebrate Express before BuySeasons acquired it in 2008. BuySeasons is a unit of Liberty Media Corp.

WebLoyalty and Affinion say they have modified their online enrollment practices in recent months to ensure that consumers are aware of what they are joining. The most notable change, they say, is that the enrollment process now requires shoppers to re-enter the last four digits of their credit card account numbers to make them aware they’ll be charged for joining the membership club. Vertrue did not return a call for comment.

A spokeswoman for WebLoyalty notes the majority of its client retailers have continued participating with its membership club. She adds that one reason cited among retailers for terminating club participation was that the new requirement to reenter credit card data during the enrollment process made it less likely that shoppers would enroll.

As noted in the Commerce Committee’s report, at least some participating retailers grappled with the issue of whether they should continue with membership club enrollment practices that were strong revenue sources but that produced concern and complaints among customers.

The report gives one example of a request by a retailer to have a membership club provider better clarify the enrollment process so it would not be misleading to customers. The answer from the membership club, according to the report, was: “We can do that, but with these changes your CEO is decimating a program that delivered more than $516,000 in pure profit to you in 2008. If you operate your web site on a 10% net profit margin, our payments to you represent over $5 million in sales revenue.”

Following are the 19 web site operators listed in a Senate Commerce Committee document as having each generated more than $10 million in revenue through membership club fees, also known as post-transaction marketing fees because shoppers incur them after completing an online purchase:

1-800-Flowers.com
Buy.com
Classmates.com
Columbia House
Confi-Check
Expedia/Hotels.com
Fandango
FTD
Hotwire
InQ
Intelius
MovieTickets.com
Orbitz
Priceline
Redcats USA
Shutterfly
Travelocity
US Airways
VistaPrint

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