Zappos Admits Pricing Mistake Cost It $1.6 Million; But Is Upfront About Taking The Hit Itself
from the such-is-life dept
For many years we've seen stories of companies making pricing mistakes at e-commerce stores. The news of those mistakes tends to spread very quickly, with lots of people piling on to order something for way less than it cost. Inevitably, the company realizes the mistake, and usually contacts everyone who ordered to let them know the order won't be fulfilled because it was a mistake. I actually have no problem with this, though some people think it's horribly evil. Either way, what seems to almost always happen is that the negative publicity that follows leads the company to change its mind and honor the original price. Sometimes, it actually takes a lawsuit to make that happen.However, this weekend, it looks like Zappos had a pretty massive pricing glitch on its sister site 6pm.com. It lasted a few hours. But what's different this time is that once Zappos fixed things, it immediately decided that it would still honor the wrong prices, even though the mistakes would end up costing the company (now owned by Amazon) $1.6 million. Now, between Amazon and Zappos, the two companies have a ton of money, and continue making a lot of money every day. But, no matter what, a $1.6 million pricing error is still a big deal. Big enough that you would think that the company could potentially withstand any sort of PR hit to trying to not honor those prices (perhaps offering up some sort of gift certificate or benefit to those impacted, instead). However, for a company that bases its entire reputation on bending over backwards to make customers happy, it appears they quickly decided that it was best for their overall reputation to just eat the $1.6 million, and keep (or even boost) that customer service reputation.
Filed Under: customer service, losses, pricing
Companies: zappos
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OMG..
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Good customer service is good marketing
Greed isn't pretty on the small scale, either.
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If only this was the rule and not the exception.
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1.6 million? Really?
I've never seen anyone call it 'horribly evil' or the like. I have seen people who look at it from the view of the consumer, who may have to wait a week or more for the refund they'll be getting instead of the item that they ordered. Your statement makes it sound as though everyone who disagrees is horribly unreasonable, which isn't the case.
Indeed, when I managed a jewelry store, our policy was to stand by our pricing, even when there were errors, regardless of whether or not we were responsible for those errors. In other words, the buck stopped with us.
I don't take the view that doing otherwise is 'horrible evil', but it is bad business.
...even though the mistakes would end up costing the company (now owned by Amazon) $1.6 million...
Exactly how did they 'lose' 1.6 million dollars? Did they 'lose' it the way that the producers of The Hurt Locker 'lost' millions of dollars to illegal downloads?
It seems reasonable to assume that 1.6 million is the number of dollars that the items would have cost if purchased at full price, or that it's the number of dollars that Zappos, Et Al would have made if the items were purchased at full price, or some other version of the old 'lost sales' argument.
The true number of dollars lost would be the cost of the items, minus the amount paid, which would be $49.95 in this case. I haven't seen any sort of information that leads me to believe that Zappos is using this number, as opposed to an inflated one intended to garner sympathy and publicity for what was simple good business.
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You would have if this story was about how Zappos didn't honor the mistaken price. In fact I remember a story not too long ago where this happened and the comments were filled with people who were crying foul.
"Indeed, when I managed a jewelry store, our policy was to stand by our pricing"
Brick-and-mortar stores are a different story. You might get a handful of sales before someone realizes the mistake and corrects the price. And at that its usually that someone forgot to take the sale price tag off an item that is no longer on sale. But in an online situation where the transactions are processed by computers and not a sales person, a simple typo could lead to thousands of orders at unreasonably discounted prices before anyone gets wise to whats happening.
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Re: 1.6 million? Really?
In some of the past threads on this topic, people got pretty heated with people feeling entitled to the lower price, and accusing me of helping big companies try to pull "bait-and-switch" scams.
Your statement makes it sound as though everyone who disagrees is horribly unreasonable, which isn't the case.
Certainly didn't mean to imply that everyone who disagreed felt that way. But there are some people who are quite vocal on this.
Indeed, when I managed a jewelry store, our policy was to stand by our pricing, even when there were errors, regardless of whether or not we were responsible for those errors. In other words, the buck stopped with us.
Sure, and that's a perfectly reasonable policy to take. But, as others have noted, you're much more likely to catch that quickly at a store. In the online world, where news and transactions can spread in a split-second, thousands of people can get in on a "deal" before anyone notices.
Exactly how did they 'lose' 1.6 million dollars? Did they 'lose' it the way that the producers of The Hurt Locker 'lost' millions of dollars to illegal downloads?
That's a fair point. I had actually assumed from the text that he was literally talking about the cost of goods sold, minus the false retail price. I did not think he meant the difference between the false retail price and the accurate retail price. However, if it's true that it's the latter, then, you are right and the $1.6 million could be a lot lower.
It seems reasonable to assume that 1.6 million is the number of dollars that the items would have cost if purchased at full price, or that it's the number of dollars that Zappos, Et Al would have made if the items were purchased at full price, or some other version of the old 'lost sales' argument.
Indeed. Again, I had assumed he based this on COGS rather than correct retail price, but you could be right.
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I disagree. There may have been a smaller number of errors, resulting in a lower amount of losses, but that's just to scale. Several thousand dollars to us is the same as several million to them.
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Re: Re: 1.6 million? Really?
So you believe that once sales pass a certain volume, the rules change?
I disagree. There may have been a smaller number of errors, resulting in a lower amount of losses, but that's just to scale. Several thousand dollars to us is the same as several million to them. Several customers to us is several thousand customers to them, and so on.
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Re: 1.6 million? Really?
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It's the law !
It's illegal to 'bait and switch' in Australia, so it might be good for them to accept their losses. But if it was here in Australia, they would not have any choice.
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That seems to be exactly what happened here, except the misinformation went to a digital system, rather than a human one. :)
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If similar safeties were built into the Zappos system, this wouldn't have happened. This isn't an isolated incident - the only thing that makes it really news-worthy is Zappos' positive response to it.
I guess what I'm trying to say is that I sympathize with Zappos, but the fact that it happened in the first place and went on so long is their fault, and absolutely could have been prevented, just as it can be prevented in a brick-and-mortar store when people with sense are paying attention.
With that in mind, I don't see why their customers should be punished for their regrettable lack of foresight.
I want to say that in my store, as in many stores, our prices and tags are created by a computer program, so glitches are possible - and have happened before. In both cases, I caught it when I came in. Once it was after a few hours, once it was three days. Neither time did we punish the customers by demanding that they return the jewelry or pay a higher price, even when we still had the jewelry in our custody.
The second time, the sales associates spent the day busily and happily overriding the system, sure in their knowledge that a certain category was being eliminated and that's why we were offering such deep discounts. :P Once again, we didn't punish the customers, even when we could have.
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That's not what I said. What I said was that it's much more likely to catch it *because a human reviews the purchase* before it's completed. That's not true in the online world.
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The one and only time I've yet seen a price mishap was in my favor. I purchased an item that I believed was on sale because it had a sale tag on it. The person ringing it up noticed immediately, saying 'Hey, this sale ended three days ago... Where did you find this?' I showed her, she found the couple of items that still (mistakenly) had tags on them and took the tags off. I got the sale price of the item.
I cannot believe that a human being would not notice a pricing discrepancy... Make sure you aren't employing robots? ;)
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Zappo?
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When I started working as a teenager, I worked in the jewelry department, then in the home department, of a J.C. Penney's. The sales were what they told us the sales were, based on departments. It was easy for someone to tell someone else the wrong percentage, or for someone to mix up the departments, resulting in alot of price mishaps. I never would have known if my information was wrong, because all of our instructions were vocal, and we had alot of one-day sales.
In addition, at the beginning of every shift, I had to go find ten random items and look them up in the system (an old DOS-based thing) and write down the item number, description, original price and sale price on a form. This was so someone could correct all of the pricing errors in the computer, that I wouldn't have known about. I would have happily scanned the item and sold it at the price it rang up, or, if the customer could prove that the item was in a sale category or looked like it was in a sale category, for the sale price.
This store, as every Penney's did, employed at least one person whose sole responsibility was fixing all of the incorrect prices out there, in one small department store. I did notice that the jewelry department had a much smaller amount of pricing errors, but they also had a fraction of the inventory, and a more competent manager. :P
Further, not only have I been responsible for whole groups of people who made repeated pricing errors, and seen software glitches that created pricing errors, but I see pricing errors happen all the time, in a large variety of stores, especially with sale items.
Indeed, pricing errors are so common that most stores offer you the opportunity to look at the prices as they ring up your items, so you can alert the clerk when the price is wrong and they haven't noticed. :) I have three kids and shop alot of sales, so I'd say catching a price error is weekly for me, even if it's something as little as a sale item that rang up full price.
I cannot believe that human beings are anything close to infallible.
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Mixed approach
I would send a nice polite email to all people who took advantage of the wrong price saying something along these lines: "Hey, we made an honest mistake and mispriced it, bla-bla. We kindly ask you to click here to cancel your order, but there is no obligation, bla-bla. We would greatly appreciate it if you help us out and cancel it. It is totally our fault and if you would like to keep your order, we will honor the price."
I bet you that by being humble and appealing to the sense of decency will work and a big percentage of people will feel ashamed and cancel the order. I would go out on a limb and say it would be 70-80% and majority of people are decent and see themselves that way.
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Wait
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Re: 1.6 million? Really?
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Interesting
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