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Perhaps no online retailer has acquired a reputation for customer service quite like Zappos, which was acquired last year by Amazon for more than $900m.

Reputations, of course, are difficult to acquire and maintain, but very easy to lose. And for good reason: when something goes wrong, many companies respond in ways that end up tarnishing their reputations. Last week, a costly mistake put Zappos to the test.

A pricing bug on 6pm.com, a Zappos sister site that sells discounted products, surfaced in the middle of the night this past Friday. The bug gave customers the ability to purchase any product for no more than $49.95. The mistake was discovered six hours after it appeared, and by that time, Zappos was looking at a $1.6m loss. A $1.6m loss only if, of course, it decided to honor the purchases made by customers who took advantage of the pricing bug.

So what did Zappos do? It decided to eat the loss. Zappos Director of Brand Marketing Aaron Magness explained on the Zappos Blog:

While we’re sure this was a great deal for customers, it was inadvertent, and we took a big loss (over $1.6 million - ouch) selling so many items so far under cost. However, it was our mistake. We will be honoring all purchases that took place on 6pm.com during our mess up. We apologize to anyone that was confused and/or frustrated during out little hiccup and thank you all for being such great customers. We hope you continue to Shop. Save. Smile. at 6pm.com.

$1.6m isn't chump change, but it will hardly dent the finances of Zappos (or parent Amazon). But even so, I think it's safe to say that more than a few companies would have thought twice about honoring purchases made under similar circumstances.

Zappos, however, clearly understands that its reputation is worth far more than $1.6m and that sometimes eating a loss is the smart thing to do. Interestingly, one might even suggest that Zappos will only boost its reputation and customer loyalty with this move.

Hopefully, more and more companies will take a cue from Zappos and apply the same level of common sense when mistakes are made. After all, being penny wise and pound foolish is no way to manage a brand.

Photo credit: bschmove via Flickr.

Patricio Robles

Published 24 May, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2377 more posts from this author

Comments (3)

Andrew Lloyd Gordon

Andrew Lloyd Gordon, Digital Marketing Expert, Speaker and Trainer at New Terrain Limited

This is an amazing piece of customer service from Zappos. And one that many companies could learn from.

However, a loss of this scale would cripple smaller companies (which is the majority in the world).

Which is why, if it happened elsewhere, that a detailed and honest explanation of the problem and why, perhaps, a smaller company couldn't honour all of the purchases would satisfy many customers. 

Although, obviously, a discount on future purchases, perhaps, would sweeten the loss of such an amazing bargain :)

about 6 years ago

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Peter

We had a similar issue albeit sooooo much smaller on a clients site last month. And as Andrew mentioned for a smaller company it is just not feasible to swallow such costs with narrow margins to make. BUT we hope in our efforts to help our client we came to an agreement that worked for them as well as the customers baffled by the great deal they got.

To put it plain and sipmly, some one put a , in the wrong place and certain products became an absolute bargain.

Now we knew we had to tell people it was a mistake and they could not recieve the products at that price (remember we are not Amazon sized) however we tried to be as transparent as we could about the mistake as possible.

We explained the error and offered all customers involved a 30% coupon and extended our apologies. We even told them to tell their friends to use the code for the 48 hours it was available and we ended up making about 12% more sales than the ones that was placed during the error.

I guess it only goes to show, communicate honestly with your customers, admit when you are at fault and they will respond.

BIG cudos to Zappos for keeping it real 'Customers come first'!

about 6 years ago

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WHB

Zappo's reputation for customer service is not deserved, in my opinion.  I recently placed an order with them for three pairs of very expensive shoes.  For one of the three pairs, instead of size 13B, they delivered size 10A.  When I called to complain, their representative apologized profusely and promised to send me a coupon for $30.  (Roughly 3% - thanks!)  But the coupon never arrived.

These folks talk a good game.  No substance.  Really lousy service.  Take your business someplace else. 

over 5 years ago

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