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, 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 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

$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.