Senate: Online Retailers Make Millions Through Aggressive Sales Tactics

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Web companies have earned more than $1.4 billion in the last 10 years by duping millions of online shoppers into paying monthly fees for services they didn't want, according to a new Senate report.

The report, "Aggressive Sales Tactics on the Internet and Their Impact on American Consumers," by the Committee on Commerce, Science and Transportation, focuses on strategies used by the post-transaction companies Webloyalty, Affinion and Vertrue, as well as their business partners, including sites like Classmates.com, Fandango and Orbitz.

"In exchange for 'bounties' and other payments, reputable on-line retailers agree to let Affinion, Vertrue, and Webloyalty sell club memberships to consumers as they are in the process of buying movie tickets, plane tickets, or other online goods and services. The sales tactics used by these three companies exploit consumers' expectations about the online 'checkout' process," states the 35-page report.

The paper grows out of an investigation spearheaded by Sen. Jay Rockefeller (D-W.Va.) of so-called "mystery charges." The probe was launched in May, after thousands of people complained that they had unwittingly enrolled online in paid membership programs.

"American consumers shouldn't have to worry that their favorite websites are ripping them off during the checkout process," Rockefeller said Tuesday. He added that the committee "needs to start thinking about the legislative steps we can take to end these practices."

Companies in the post-transaction space target consumers who have just made purchases at sites like Orbitz and Fandango. The companies send pop-up ads to those consumers, offering them discounts.

In the past, people who clicked through landed on a site where they could enroll in coupon programs by providing their email address and clicking a 'yes' button. Once they did so, the e-commerce sites shared credit/debit card information with the post-transaction companies, which then began charging consumers monthly fees of between $9 and $12 and sending them coupons and discounts.

Many consumers said that they didn't realize that their credit cards would be charged. A group of consumers also filed a class-action lawsuit against Webloyalty that was settled for $10 million in August.

Webloyalty recently changed its sign-up procedure to require consumers to re-enter the last four digits of their credit cards. The company also now says it sends at least 5 emails in the initial 30-day trial membership, before consumers are charged, and allows people to easily cancel. After the hearing, the company said in a statement: "We only want members in our programs who want to be members so they can take advantage of the opportunity to save hundreds of dollars a year, and even a few complaints is too many,"

Rockefeller had pointed criticism for the e-commerce sites that partnered with the post-transaction companies, including 88 online businesses that have each made more than $1 million through these types of deals. "What I find most outrageous about these scams are the reputable online businesses that have been willing to take part in these scams," he said. "We've all heard of these companies, and we've probably shopped at some of their Web sites."

The committee identified 19 companies that made more than $10 million each through partnerships with post-transaction companies. That roster includes 1-800-Flowers.com, Classmates.com, Fandango, MovieTickets.com Orbitz, Shutterfly and Travelocity. Classmates.com alone earned more than $70 through such arrangements, according to the report.

Since the investigation began, some online retailers have changed their procedures. Orbitz now requires people to enter the 3-digit security code on their credit cards when they sign up for a membership after making a purchase on the site.

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0 comments on "Senate: Online Retailers Make Millions Through Aggressive Sales Tactics".

1. Kirby Winfield from comScore
   

   commented on: November 18, 2009 at 10:27 a.m.

   Watch out Intelius, you're next.

2. Ben Judd from Univ of New Haven
   

   commented on: November 18, 2009 at 11:06 a.m.

   These abusive practices harm the entire online industry. We need to review our affiliate relationships or we will loose our credibility.

3. Scott Pannier from 47 Media
   

   commented on: November 18, 2009 at 5:58 p.m.

   Wendy, you must have written this article with a deadline. In the 4th to last paragraph, you end a quote/sentence with a comma (,"). In the 2nd to last paragraph it reads "Classmates.com alone earned more than $70 through such arrangements, according to the report." Didn't you mean $70 million? I guess it is newsworthy when a Senator wants to insert himself into the business world and steal some headlines for himself (see government's waste of US taxpayer dollars, I mean involvement, with Roger Clemens and Congressional hearings regarding performance-enhancing drugs in baseball).

   Companies have been upselling and giving away "free" trials to consumers for years; how do you think Cendant grew to be the cream of the crop for VC's? I don't even know what happened to them, but they were all about FREE Traveler's Advantage for 30 days and then they start charging you $20 or some amount automatically. People that will be part of this class-action lawsuit are the same people who thought they could actually get a $400 iPod for free. Just a few weeks back, I was told I would get $40 in gas because I was a valuable member. Member of what? They couldn't say. That's when you run the other way.

   In the cases of Travelocity, Classmates, Orbitz, and others, I don't know the specifics, but at the end of the day, those marketers become publishers and it's all about squeezing as much revenue as possible during the transaction. Effective CPM's or RPM's went from $200 up to $400 and $500+ when Classmates offers up their subscription-based service for $0 in exchange for that user signing up for a Netflix trial. Agree that something needs to be done but the practice of upselling to someone buying has been around way before TrialPay, WebLoyalty, and Syndero came along.

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