Friday, February 7, 2014

XM Radio's Weird Billing Offers

I wrote before about satellite radio.   It is a weird service, and when you try to contact them, it is very hard to get ahold of an operator.   I did get, in the mail, an offer for a subscription to XM radio.  The pricing, however, was bizarre:

Which would you rather pay?

$16.95 for one month's service

$33.90 for six month's service (Four months free!)

$118.65 for one year's service (Five months free!)

At first, you would think, "Gee, the one year service is the best deal, as you get the most free months!"

And if you thought that, you'd be an idiot.   Because the monthly cost, for the yearly contract, is nearly double that of the six month contract ($5.65 per month versus $9.88 per month).

And maybe that is by design.   We are all trained to think that a longer contract has a lower monthly cost and lower overall cost.  And we all think that more "FREE!" of anything is a good deal, when in fact, Free isn't.

But of course, all of these options have one thing in common:  They are negative option cancellation contracts.  If you sign up, and use a credit card to pay, they will continue to charge your credit card, until you say "stop" and their computers acknowledge that you said "stop".   Negative option is a sick game.

They do allow you to pay by check or money order, however.   Checks might be problematic, as an unscrupulous company (and a satellite service provider, of course, has the highest scruples, right?) could use the routing number and account number on your check to set up a demand draft on your account.

Fortunately, the local gas station (Flash Foods) has money orders for 50 cents.   By sending a money order, they can't automatically charge your credit card or debit your checking account.

They can, however, send you a bill, and if you don't pay it, they can send that to collections and ding your credit rating - so you'd end up paying it.

Negative option - what's not to like?   If you ever do a negative option deal, you have to watch these things like a hawk, and make sure you cancel the service before "regular billing rates" apply - or you will be screwed, big time.

In other words, doing business with companies like this, with their "free" come-ons and negative option contracts, is like negotiating with the Taliban.  There ain't a lot of trust on either side, and not a lot to be gained, even if a deal goes through.

XM radio, at about $6 a month, is no real bargain, anyway.   If you listen to it long enough, you hear the same songs over and over again, on each channel.   So, rather than being exposed to a large variety of music, you hear the same old oldies, again and again.  "Brown-eyed Girl" until you scream!

I also notice the signal strength isn't all that great.   Yea, it won't work in a parking garage, that's to be expected.  But even trees can kill the signal, if you live on an island with a tree canopy.   So the vaunted great reception can be not-so-great.

But the pricing schedule of XM radio does illustrate how elastic pricing works.  Some folks might sign up for this service at $6 a month.  Others are willing to pay $10.  Still others will pay as much as $17 a month.   And by offering all three options, the provider can realize the most profit from the venture.   The consumer who is willing to hassle more to get a "deal" can get a lower price - provided they don't get their weenie bit off by the magic of Negative Option contracts.


A neighbor has an XM radio, and after the three month trial period, they sign up for a year's service, thinking it is cheaper as they are "saving five months!" versus the six-month contract which saves only a paltry four.  Yea, they are paying nearly ten bucks a month for a service that I am paying less than six bucks for.

Anyway, the year is up, and she discoverers her credit card is dinged for nearly $200 - the cost of a year's service at full price.  She didn't realize she was signing a "negative option" contract.

An hour or two on the phone, and they knock it down to about $150 - which is still a lot of money.  Another year goes by.  You can guess what happens.

So, two more hours on the phone, and she talks them down to $150 again - still twice what I am paying.  And she congratulates herself on "saving money".

My partner explains to her why I sent in a money order - and what "negative option" means.

"I never authorized them to charge my credit card!" She says.  Oh, but she did.  It's right there in the adhesion contract - perpetual charging of her credit card, at least until the expiration date of the card.

This is how negative option works, and how wear you down technique works.

They count on you getting tired and just saying "to heck with it!" and letting it go - and they win, not a lot of money, but a little bit.

But a little bit, times 100 million people is a lot of money.  A real lot of money!