How to protect your site against pricing errors
This guide is based on UK law. It was last updated in
December 2008.
The IT and general press regularly report on stories of websites
whose sales systems have failed, allowing customers to place orders
for goods at unintentionally discounted prices. Unless the sellers
in question get their contract formation process right, they could
find themselves obliged to deliver the goods at these knock-down
prices.
But e-tailers need not lose out because of a pricing error, if
they follow a few simple legal rules and treat their customers
well.
Where pricing errors have caused a problem
In 2002, Kodak.com misstated the price of a digital camera on
its site; the £329 camera went on sale for just £100. Word of the
error spread rapidly across the internet, and it is rumoured that
before Kodak were alerted to the problem around 2,000 orders had
been placed. The company initially refused to fulfil the orders,
and legal action was taken by disgruntled customers who argued that
the company had entered into a contract from which it could not
withdraw. Eventually the company capitulated and honoured the
sales, but in the process it made a massive loss and suffered weeks
of bad publicity. For our news article at the time, see Kodak caves in to customers over pricing
error.
Pricing errors have also have been made by Amazon who cancelled
orders for Hewlett-Packard iPaq handheld computers, which had been
priced at £7.32 instead of the normal selling price of £275. These
cancellations resulted in many disgruntled customers and poor
publicity. For our contemporaneous guide, see Amazon.co.uk's pricing error.
What if the price is "obviously" wrong?
If the consumer is aware of the mistake before placing an order,
there may be no agreement between the retailer and the consumer.
When Digilandmall.com mistakenly priced a printer at Singapore $66
rather than around SGD $3854, at least six people placed multiple
orders which were automatically processed by the website. Later
that day Digiland became aware of the error and told its customers
that their orders would not be fulfilled. The customers challenged
this decision in the Singaporean courts, but lost – the court
decided that the customers had actually been aware that there was a
mistake as to the price of the printer before they placed their
orders and therefore there was no agreement between the
parties.
However e-tailers should be cautious about relying on this.
Firstly, pricing errors aren't always obvious to consumers, as the
internet is often seen as the place to find good deals. Secondly, a
contract will not be invalidated if the mistake relates to one
party's understanding rather than an actual term. For more
information about the effects of a mistake, see High Court upholds contract entered into by
mistake.
Practical steps for protecting your site
From a legal point of view there is no reason why companies
should be out of pocket for pricing errors, so long as they follow
a few simple rules, treat their customers well and comply with the
obligations of the E-commerce Regulations, the Distance Selling
Regulations and the Consumer Protection from Unfair Trading
Regulations.
Suppose TopTrombones.com is selling trombones to UK consumers
for £200 each, with free delivery. To comply with the E-commerce
regulations the pricing must be clear and unambiguous and it must
state whether the price is inclusive of VAT and delivery costs (for
more information see our guide on The
UK's E-commerce Regulations).
When a customer clicks the button to "buy," the site should take
him to a page displaying the terms and conditions. Pop-up windows
to display this small print should be avoided. Here are a few
things to include in these terms and conditions in order to comply
with the various regulations:
- make it clear who is selling (e.g. London Music Stores Limited,
trading as TopTrombones.com), together with the geographical and
e-mail address;
- describe clearly what the customer is getting, and what it will
cost including all taxes and delivery costs; and
- identify the arrangements for delivery of the trombone, and
point out that the consumer has a seven working day period during
which he can return the trombone for a full refund.
All of this information is required to make sure you comply with
your obligations under the E-commerce
regulations, the Distance Selling
regulations and the Unfair Trading regulations.
Structuring the contractual process
The next stage is to structure the contractual process in a way
which protects you from potential pricing errors.
Under the E-commerce regulations it is entirely possible to sell
on-line and take payment by credit card without actually concluding
the contract on-line. The important factor is to make it clear that
by placing an order the customer is making an offer on the site and
that the contract will be formed only if the customer's order is
accepted by the seller. It must be clear that taking payment from
the customer's credit card does not indicate acceptance. For more
information on the offer / acceptance structure, see our guide on
On-line Contract Formation.
This may, at first glance, seem unfair on the customer. It is
not, and it is entirely legal, but only if the site is up-front
about it, to avoid misleading the customer. On-line merchant
accounts provide for making refunds to a customer's credit
card.
Therefore the terms should explain that, while the customer's
card may be debited before the contract is formed, if the
customer's order is ultimately rejected, a full refund will be made
immediately.
TopTrombones.com terms and conditions might therefore include
the following provision:
"By clicking the 'Accept' button you agree to these terms and
conditions. By completing and submitting the electronic order form
you are making an offer to purchase goods which, if accepted by us,
will result in a binding contract."
The words, "if accepted by us," are very important.
If your terms and conditions appear as a separate page during
the order process, then make sure the page has fully loaded and the
user has scrolled to the bottom of the page before being able to
click his acceptance of the terms. Alternatively, if you only
provide a link to the terms and conditions during the order
process, you will need to include a checkbox which the user ticks
to confirm that they accept the terms and conditions, before
continuing. The checkbox should appear to the left of, and next to,
the acceptance wording; you should avoid relying on client-side
validation to confirm whether the user has ticked the checkbox. For
more information see our guide on On-line
Contract Formation.
When you get to the stage of taking the customer's money, the
page should make it clear that acceptance of payment does not mean
you are accepting the contract. TopTrombones.com's payment page
would state: "Your card will be debited with the sum of £200 when
you click the Submit button. This will be refunded if your offer is
refused." If your payment provider allows it, allow the customer
the choice of "submit", "clear" and "cancel" buttons.
When the card details are validated, give the customer a
confirmation page. This should not confirm a completed contract, so
avoid using phrases like "Your goods will be dispatched within 24
hours", as this will suggest that the offer has been accepted.
Instead, this page should confirm that the order has been received
and that the order is being "processed". This makes it clear that
you have not yet accepted the order. It might be helpful to give
the customer an order number at this stage so that he or she can
chase-up any problems. It is good practice, though not legally
required, to ask the user to click a button on this confirmation
page to indicate that he has read the confirmation – e.g. a
"Continue" button, linking to the homepage of site, and taking the
user out of the secure area of the site.
Many sites at this stage will automatically generate an email
confirming the customer's order. If you are going to do this it
should only really contain the information contained in the
confirmation page, and again avoid any language which suggests that
the contract is completed.
Once you have reviewed the order and are happy with it, you can
dispatch the goods. This will be enough to signify your acceptance
of the customer's order, but if you wish you can email the customer
to confirm that you have accepted their order and their goods have
been dispatched. In any event at this stage additional information
should be provided to any customers who are consumers, to comply
with the Distance Selling Regulations. This largely repeats the
information described above.
If before dispatching the goods you discover an error on the
site, for instance that a typo had labelled the trombones at £2
rather than £200 and someone ordered 500 of them, you can legally
refuse to fulfil the order.
Dealing with pricing errors
Many e-tailers appear to have taken notice of other businesses'
problems and have now put in place a good e-commerce process.
In August 2005, Argos mistakenly offered a £349.99 television
for just £0.49. This was the second time Argos had this problem,
but the company had clearly learnt from the first experience. The
company quickly removed the offer and successfully cancelled the
orders which had been placed. Argos could do this because its
website terms said that it would tell customers of any errors and
give them the option of cancelling or confirming their orders.
Crucially, Argos also made sure that customers accepted these terms
when they placed their orders, by requiring them to tick a box
confirming they accepted the terms and conditions. Argos also sent
customers an order acknowledgement which clearly stated that,
although an order had been placed, no contract had yet been made
with the customer. For more information about this example of a
pricing error, see our contemporaneous article Argos makes no mistake with 49p TV.
In 2005 Dell mistakenly advertised a $1600 Canon camera lens at
the knock-down price of $196. The company blamed the error on a
typo and gave consumers the choice of cancelling their orders or
accepting a replacement $230 lens. In doing so, Dell relied on its
terms and conditions which said that Dell was "not responsible for
pricing, typographical, or other errors". However there is a risk
that such a sweeping exclusion clause in consumer terms and
conditions may be challenged on the grounds that it is
unreasonable.
Of course, even if your e-commerce process and website terms
entitle you to cancel any orders, customer service will be crucial
at this stage. The email refusing the order must be polite
and if necessary apologetic for the misunderstanding.
Even if you have the right to reject orders, you may choose to
accept them as a gesture of goodwill and to encourage customer
loyalty. In 2006 a discount voucher intended for Threshers'
suppliers became available to all and sundry on the internet.
Threshers could have refused to accept the vouchers, but this would
have upset shoppers and could have damaged the company's
reputation. Instead Threshers turned what could have been a problem
into a marketing triumph by choosing to honour the vouchers – sales
went through the roof and, although its margin was reduced,
Threshers did not expect to make a loss. For more information
about this example, see Threshers' discount
voucher stampede was an act of accidental marketing genius.
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