I’ve been noticing a trend lately of a new way that companies are tricking us into paying more for products. Well, it’s not really a new system, but rather it is an old system that they have realized can be applied to their business model to make more money.
What is this method and have you signed up for it?
The Gym Membership Model
I like to call the method the gym membership model, but it is basically a subscription service. It works like this:
Instead of paying a one-time price for an item, you pay a much lower price, but you are on the hook until you cancel.
Here is how it works using a real example. The WWE used to charge $40-$50 for their monthly wrestling pay-per-view show. Now the price is just $9.99. The catch? You pay that amount per month.
On the surface it appears you are saving $30-$40 a month by going this route. But many people just buy the bigger events, which happen 2-3 times a year. By getting you to focus on the lower cost, you ignore this and sign up.
If you don’t cancel after the event – which most people don’t – you end up paying more, much more in the long run.
And that is why so many companies are turning to this model. They see how well it works for the gym industry. The gyms gets you to sign up out of emotion and then you stop using the gym and they keep collecting a monthly fee.
Ways to Avoid the Subscription Model
One way you beat this game is by doing research and finding an alternative. Is there another company out there with a similar product or service that only asks for a one-time payment? If so, you are probably better off going this route rather than the monthly payment.
Another way to beat these companies is by keeping your emotions in check. Why do you really want the product or item in question? Is the price difference really a big savings? Here are 10 Things to Consider Before You Buy Something.
If you can stay rational, you have a good chance of skipping the product in the first place. Skipping expenses is a great way to save money.
How to Buy the Subscription Product Without Overpaying
For those that you do go ahead and buy, you have to set up a plan to cancel the service so that you don’t end up spending more than you planned.
How do you do this? There are a few options.
Strike While The Iron Is Hot: right after you finish using the product for the original reason you bought it, call or email to cancel the service.
Set Up Reminders: if on the other hand you will be using it for a set amount of time, set a reminder in your phone. When you get the reminder, make sure you act on it. There is no point in setting it if you simply ignore them.
Also, try to have the reminder notify you when you are least busy. There is no guarantee on this, but think about your typical day. You know when you usually take a break, eat lunch, or have down time. Schedule the reminder to alert you at these times.
For me, an alert between 5-6pm wouldn’t work because I am making dinner during this time and any call, email or text that comes in gets ignored. A better time for me would be 7pm after dinner when I am relaxing.
One Other Danger to Watch Out For
Lastly, one additional point about these subscription plans. Watch out for the ones that get you to try it out for $1 or for free for the first month. These deals are especially effective at getting you to sign up. The problem is that the second month has the normal pricing and if you are like most and you forget to cancel, the company comes out ahead. How many of you took advantage of a free trial from Netflix for a month and still pay for it?
Be sure to use the same strategies outlined above for this situation to make sure you don’t overpay for products or services by forgetting to cancel sooner rather than later.
As more and more companies move to this revenue model, you need to pay more attention to how you are spending your money. At first glance, it looks like a great deal. But soon you will start noticing all sorts of monthly subscription fees coming out of your checking account or being charged to your credit card.
If you have to sign up for a plan like this, be sure to use the tactics I’ve mentioned so that you don’t end paying more than you had planned for.
Are you paying for any subscriptions that you aren’t using?
More on Spending
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- 10 Frugal Tips from the Tightwad Gazette
- Give Yourself an Allowance to Control Spending and Save Money