Zappos Pricing Glitch Costs $1.6 Million, Forces Process Change

After a site last week suffered a pricing glitch that cost the company more than $1.6 million, the retailer put in place a new procedure to prevent any single employee from accidentally changing prices, according to Zappos CEO Tony Hsieh. Amazon bought Zappos last year for about $850 million in a mostly stock deal.

On his site's blog, Hsieh wrote that the current software—which is all homegrown by Zappos—was so complex it was difficult for non-programmers to feed it information. "Unfortunately, the way to input new rules into the current version of our pricing engine requires near-programmer skills to manipulate, and a few symbols were missed in the coding of a new rule, which resulted in items that were sold exclusively on (Zappos partner site) to have a maximum price of $49.95," he wrote. "We already had planned on improving our internal pricing engine so that it will have a much easier to use interface for our business owners."

In E-mailed comments to StorefrontBacktalk, Hsieh said a planned fix was twofold: making the user interface more user-friendly and putting in place more human checks and balances.

What did he mean by the system being simpler? "We meant that a simple typo could have profoundly different effects on the outcome of the pricing engine. The intent of the new system is so that business owners won't be able to accidentally make typos as easily," Hsieh said.

As for those checks and balances? Hsieh said: "For example, instead of allowing one person to make pricing rule changes on his/her own, we are implementing an approval process so that it will take at least two people to make a pricing rule change."

Asked if he thought such changes—or, for that matter, any changes—could prevent such glitches, the CEO said, "Probably not. But hopefully the chances of them occurring can be minimized."

Zappos has been rather legendary in its focus on good customer service, which is beyond the loyalty ratings that attracted Amazon. Even though the prices of many items were wrong, the company chose to honor the prices anyway. Zappos even went out of its way to declare that the employee who inadvertently caused the fix wasn't fired. "To those of you asking if anybody was fired, the answer is no, nobody was fired. This was a learning experience for all of us," Hsieh posted on the site. You'll note he didn't say if that employee was perhaps disciplined. No? Look, this was a $1.6 million typo. It's unlikely that a bonus and a promotion featured prominently in that conversation.

But honoring those prices was indeed a classy move. And it's one not universally maintained by other E-Commerce sites, although the size of the losses probably had a lot to do with it, especially when looking at recent price glitches from Amazon and a rather large price hiccup from Best Buy.