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Zappos will honor $1.6 million pricing mistake

The online retailer earns praise from customers, but some think it's merely a PR stunt.

By Karen Datko May 25, 2010 3:56PM

A pricing-engine mistake at a Zappos.com sister site, 6pm.com, capped all prices at $49.95 for the first six hours of Friday before the error was caught. Now, in a brilliant customer-service move, Zappos says it will honor all of the orders placed and eat the $1.6 million mistake.

 

Hopefully, someone somewhere got the $1,000 GPS for just under 50 bucks. Customers overall, it appears, are impressed with the company's response.

"Wow, you mean they didn't pull an Amazon and just canceled all those orders? Crazy!" a reader commented at CNET News. Amazon acquired shoe and apparel online retailer Zappos last year.

 

This is certainly a departure from how many online retailers handle pricing mix-ups and gaffes. For instance:

  • Buy.com agreed to a $575,000 settlement after 7,000 customers sued because they couldn't get a $588 Hitachi monitor incorrectly advertised for $164.
  • Best Buy got tons of condemnation -- and lots of free publicity -- when it listed a 52-inch high-def TV online for $9.99. The erroneous offer was not honored.
  • Amazon incorrectly priced comic-book collections that normally sell for $125 or so for only $14.99. Amazon made good on some of the orders and gave other buyers $25 gift certificates.

Here's what else Zappos did right:

 

It announced the mistake, rather than hope no one would notice. Zappos CEO Tony Hsieh initially tweeted about the mistake on Sunday afternoon, adding, "I guess that means no ice cream for me tonight." He later gave a further explanation on the blog at Zappos' website.

Even though our terms and conditions state that we do not need to fulfill orders that are placed due to pricing mistakes, and even though this mistake cost us over $1.6 million, we felt that the right thing to do for our customers was to eat the loss and fulfill all the orders that had been placed before we discovered the problem.

Hsieh added that he didn't have ice cream on Sunday night.

 

Zappos turned the error into a feel-good moment for everyone, including potential customers. That's not surprising for a social-network-savvy retail site that built $1 billion in sales in 10 years -- growth "driven primarily by repeat customers and word of mouth," the Harvard Business Review says.

 

Zappos put a human face on this. A recent article in Advertising Age recommends, "When reaching out to the offended masses on Twitter and Facebook, try not to impersonate Lumbergh (the robotic-voiced boss in the movie 'Office Space')." Zappos gets it. Thus, we get the mea culpa on Twitter and the ice-cream remark.

 

Some customers appreciate such insight. Another reader of CNET News remarked: "$1.6 million for national exposure and media attention -- about the same price as two Super Bowl ads . . . (still, I wouldn't want to be the employee that was responsible for this!)." No one will be fired, Hsieh said.

 

Still, some people are skeptical.

"There were that many people shopping at 6pm.com through the middle of the night? I was thinking this is some sort of publicity stunt myself," reader "janccm" posted at PCMag.com.

 

Some customers pointed out that they saw items selling for more than $49.95 during the mix-up. Hsieh later explained that items for sale at both Zappos and 6pm.com were not affected by the mistake. "So there you have it: Zappos is an online force for good, not evil. Now if only its parent company would employ the same customer-friendly strategy when it screws up," Caleb Hannan wrote at Seattle Weekly's Money blog.

 

BTW: Hsieh's book, "Delivering Happiness," is coming out soon, "so this million-dollar computer mishap, and Hsieh's response, could evolve into a savvy marketing event," wrote Edward Moyer at CNET News.

Does Zappos belong in the Customer Service Hall of Fame for honoring the reduced prices at its sister site, or is this just savvy marketing?

 

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