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How To Start With Your Wholesale Dropship Supplier Program |
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How to Start With Your Wholesale Drop Shipper: Once you've found a few manufacturers and distributors, such as by using the supplier references or Inventory Browser tool in your FREE Inventory Source account, you'll need to get on the phone and contact them directly. You will want to have a few things in order, including your official business name and your Tax ID or Resale number. Your Wholesale Drop Ship Product Business Name and Tax ID Number It is easier then you think to set up your business as a legal entity. The U.S. Government's Small Business Administration maintains a web site that has all the information you need to get your wholesale dropship product company up and running and explains how to apply for a Tax ID or Resale number in every state. You can search for the requirements in your state by clicking here: http://www.sba.gov/ The process of setting up your wholesale dropship business legally is actually a LOT easier than most people realize. In many states, you can get all the paperwork done the same day, and is easy and inexpensive when you do it yourself. Of course, there's no shortage of lawyers and accountants to help you incorporate your business if you'd rather not deal with the paperwork. Some wholesale dropship companies will also ask for a credit reference. Some suppliers bill monthly and others will bill you at the time of purchase, this shouldn't be a problem. If they do require credit references, though, you can usually just provide them with the name and telephone number of your bank. Do not let these steps stop you from getting started. You might find a “supplier” who says you don’t need anything, but odds are you might not be dealing with a true supplier. If you have credit references then you are on the right track, but if not, your credit report or bank reference should still allow you to get started with your wholesale dropship product selling website. FOR NON-U.S. BUSINESSES
Drop shippers based in the U.S. are generally not willing to drop ship internationally. There are simply too many hassles with customs or the shipping expense can be more then the product. If your target market is UK customers, you will want a UK based supplier, but if you want to make money you can still use US or Canadian based suppliers to sell to US or Canadian based customers. You do not need to be from the country where your customers are, but it is best if your supplier source is from the same place as your drop ship customers. Questions You'll Need To Ask When you call, simply ask to speak with someone about becoming a vendor for their products. Once the switchboard puts you through to the right person, they'll be able to answer any questions you have, including: What is the wholesale price they can offer you on their products?
You'll need to make sure that the wholesale price they offer is low enough that you will be able to generate a good profit based on what you will be able to sell their products for. You can view many of the wholesale prices for the suppliers in your free InventorySource.com tools, but you should still talk with the supplier about the prices. Some supplier programs will not show the prices until you have been approved for a reseller which can take a few days….BUT DO NOT pay some setup fee to be able to view the products. You might need to provide some details for your account setup, but it is wise to avoid a “supplier” if you need to pay before you can download the price list. Do they charge a per order drop fee?
Most companies who drop ship will simply add the cost of UPS or FedEx shipping onto your wholesale price, but some will also charge you a handling fee (generally between $1 and $5). This is to offset their cost of picking, packing, and processing the order for you. This is very common. Think about it, they might sell the same DVD to Best Buy as their supplier, but Best Buy is asking for lots of 1,000s of DVD players at a time as well as other products. It is easy to ship in bulk…..you are asking them to go to the warehouse, and process the order and paper work, and find, pack, and send just a single player to one of your customers. A few dollars to make up for the non-volume purchase on your wholesale account is still a great deal for your wholesale drop ship product business. Do they have a monthly minimum of products they will drop ship?
Some companies will require that you sell a minimum dollar amount of their products each month. A few will also have a monthly maximum of units they will ship for you. Other programs ask you to start your account. This is not the same as a fee. They want you to be serious about selling products as it can cost them time and effort to setup your account. Also, they want to make sure you are really going to be a serious reseller business and do not just want to go through the account process so you can get a few deals for your upcoming holiday or birthday shopping. How do they bill you?
Most drop shippers will bill your credit card the wholesale price of the product plus shipping and handling as soon as they receive an order from you. With others, you may be able to set up a monthly billing cycle where you submit payment for all orders at the end of each month. How do they ship their products?
Almost every company that drop ships products will use a major nationwide delivery service like UPS or FedEx. Ask them to include tracking numbers with the order confirmations they send. Their supply chain and shipping process, becomes your supply chain, so you need to know their shipping details and order tracking. Also, find out what their policy is regarding returns. Most reputable companies will offer some kind of guarantee or warranty on their products and will deal with returns for you. You want to at least make sure that they allow returns when THEY ship the wrong product to your customer. When setting up an account with a distributor, ask lots of questions about shipping and order fulfillment, as these are the two areas that can potentially cause you the most problems. Make sure that they are able to confirm your orders quickly, and that they can provide you with tracking numbers. You need to be confident that you will be able to deliver your customers' orders promptly. Again, your wholesale drop ship supplier source will have their own supply chain process…and since this process will be yours…naturally this is something you will want to understand while you get started with your new company and online website. |
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Amazon Custom File Error Details |
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Below are some basic types of errors that can occur when you upload your wholesale dropship products to Amazon. You can use custom file services for Amazon Marketplace or Amazon Seller Central to help you save time in managing your products. Shortly after you have submitted your upload, you will receive an e-mail notification informing you that the upload has been accepted--or rejected due to a file error. When your inventory upload is processed, you may view the results in your Seller Account. There, under the Manage Your Inventory heading, choose "Check the success of your inventory uploads" to view batches of your uploads, including their status. 
The Error Log. The Error Log file is a tab-delimited report containing information regarding any errors and warnings in your batch upload. You can open it either with a text editor like Windows Notepad, or with a spreadsheet like Microsoft Excel. The Error Log will contain the row number of any applicable errors or warnings, the SKU, and the item name. It will also contain the message type (status message, data error, template error, etc.) and the message itself. You can use this information to fix any errors and reupload those rows. The Quick Fix. The Quick Fix file allows you to download a tab-delimited report of your failed listings. It contains only the error rows that did not get uploaded to the site due to missing required information or inappropriate information. From here, you can fix the applicable errors and upload the file directly to us. Successfully uploaded listings from the Quick Fix file will appear in a new batch. A Quick Fix file will not appear for UIEE sellers; they will see a Summary or Error Log. The Summary Log. The Summary Log appears if the file was uploaded with no errors or warnings, and gives a brief summary of the file. Warnings. Warnings refer to listings that are still uploaded to our system, but whose appearance may be altered (e.g., your title exceeded the maximum characters allowed and has been truncated). Errors. Errors refer to listings that contain inadequate or flawed information and are thus prevented from being uploaded to the site (e.g., they contain inappropriate language, are missing a required field, include no price, have an invalid product ID, etc.). Batch ID. Clicking on the Batch ID number gives a list of each item successfully loaded to the site, including title and listing ID number, program, SKU, quantity, and price. Complete List of Error Messages
Below is a complete list of warnings and error messages and their meanings. Warnings
If a warning appears, the listing will still be accepted. 1. Maximum number of characters allowed for title is 80, rest is truncated (Text File Specific). - The title is too long and will be truncated into the description.
2. This listing did not contain enough information to be assigned an ISBN. (Booksellers using the Book Loader only.) - The listing did not contain enough information to allow Amazon.com to find a successful match.
3. Maximum number of characters allowed for TI is 80, rest is truncated (UIEE File Specific). - The title is too long and will be truncated into the description.
4. File has excess image URLs, max allowed is = X. - The item has more than the allowed number of image URLs. Additional image URLs will be ignored. One URL per listing is allowed.
5. Cannot link to an Amazon.com item, the external ID to ASINmapping is ambiguous. - The product ID is trying to map to an ASIN that has more than one UPC attached to it. The first applicable UPC will be used.
6. The column X is unknown. - The column X is unknown and will therefore be ignored.
7. Column X is repeated in the file. - Duplicate columns were found.
Errors
If there is an error message, the listing will not be accepted. 1. The amount value in the column X is invalid. - The amount in column X is invalid (it is a negative amount, has too many decimals, etc.).
2. The ASIN provided is invalid. - The ASIN provided is incorrect or the file is set up improperly. Verify that the correct information is appearing under this heading.
3. Sorry, the price of X is too high for this Marketplace item. Please reenter a price that does not exceed X.XX dollars. - The price is too high and needs to be lowered.
4. The item(s) you were attempting to edit/cancel cannot be altered; it is either "sold" or a potential "pending" sale. - The item just purchased is going through the authorization process.
5. Listing of this item is restricted to authorized sellers only. - The manufacturer or Amazon.com has restricted certain sellers from selling against this item.
6. The value in the column X is empty. - Data is missing in column X.
7. The SKU X is marked for X, but it's already been closed. - An SKU was indicated for Add/Modify/Delete that is already closed.
8. The SKU X is marked for X, but it's not present in our system. - An SKU was marked as Delete or Modify, but the SKU doesn't currently exist in the seller's listings.
9. This is a bad UIEE file. Please verify if you have selected the right file type. - The file is either corrupted or not set up properly to be loaded as a UIEE file. The seller should verify that the settings are correct and retry the upload.
10. The item is invalid. - An internal error: the seller should try that SKU again with the same information.
11. The given image is invalid. Images should be of type .gif or .jpg. Only image paths starting with http:// are allowed. The error message "Invalid value for attribute image-url" also fits in this situation. - The image path doesn't fit the correct format.
12. The price of the item exceeds the Amazon.com easy pay limit. - The price is over $2,500--it cannot be listed at Amazon.com, as Amazon Payments transactions are limited to $2,500.
13. Internal error: The item has bad state. - An internal error: the seller should send the file to us again at a later time.
14. Couldn't find active exchange for this item! - This SKU is not active.
15. There is already a record with the same SKU. - The seller has two active listings with the same SKU and must change one of the affected entries, or the SKU is duplicated in the file.
16. Required column X is missing. - A required column is missing.
17. The value of the column X was not recognized. - The value in column X was not recognized.
18. The X cannot be modified, using the old value. - Indicates that the price or something similar cannot be modified and the old value will be used. For example, the new price is above the minimum required.
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Solutions For Price Issues When Listing Wholesale Dropship Products Online |
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Many of our wholesale dropship members might wonder how to respond if they list prices online at the wrong value. When you use InventorySource.com’s custom wholesale dropship data services we can help prevent these issues on your website and listings. We take great efforts to apply filters and checks on the data captures from a large network of wholesale dropship suppliers. We can help you list thousands of dropship products with the correct data, often helping you to have more accurate data then even your own wholesale dropship supplier sources might show in their feeds and on their websites. For those looking for additional information on price issues when selling wholesale dropship products online, you might be interested in the details presented below: Corporate & Commercial
Cite as: Benjamin Groebner, Oops! The Legal Consequences Of and Solutions To Online Pricing Errors, 1 Shidler J. L. Com. & Tech. 2 (May 26, 2004), at <http://www.lctjournal.washington.edu/vol1/a002Groebner.html>Oops! The Legal Consequences Of and Solutions To Online Pricing ErrorsBy Benjamin Groebner1 © 2004 Benjamin Groebner AbstractHow can businesses conducting sales over the Internet protect themselves from the inevitability of pricing errors? Unlike the brick and mortar retailers’ ability to catch a pricing error quickly, thousands of orders can be placed with online retailers before they detect the problem. When pricing errors do occur and contracts are formed, merchants are forced to choose between absorbing the resulting financial loss as an investment in goodwill or trying to invalidate the contracts under the doctrine of unilateral mistake. To avoid binding contracts with customers at erroneous prices, online retailers should employ protective methods of contract formation that help prevent loss. Table of ContentsIntroduction
The Risks and Costs of Pricing Errors
Using Protective Contract Formation Methods to Guard Against Pricing Errors
Using Terms and Conditions to Avoid Loss
Controlling Offer and Acceptance to Avoid Loss
Relying on the Equitable Doctrine of Unilateral Mistake
The Equitable Doctrine of Unilateral Mistake Defined
Applying Unilateral Mistake to Online Retailers
Conclusion
Practice Pointers Introduction<1> With an estimated $54.9 billion spent on U.S. retail e-commerce sales in 2003,2 pricing errors that expose online retailers to considerable loss are inevitable. In 2003, experienced online retailer Amazon.com lodged 6,000 orders for a $1,049 television incorrectly listed online for $99.99 before the company detected and corrected the pricing error. Amazon.com could have been bound to 6,000 enforceable contracts with each television purchaser for a loss totaling over $500,000 if its user interface designed for online contracting was not designed to minimize the company’s exposure to this kind of risk. Instead, Amazon.com avoided considerable loss by being able to cancel the orders.3 <2> This article discusses the financial impact caused by Internet pricing errors and examines the methods online retailers use to limit liability. Two specific methods include: (1) controlling the method of contracting by designing a system that conditions contact formation on verification of the contents of a customer’s order, and (2) resorting to the equitable doctrine of unilateral mistake. The Risks and Costs of Pricing Errors<3> All retailers experience pricing mistakes, but they can be more commonplace and much more harmful to online retailers. Many errors result from normal proofreading mistakes and software problems, but the probability of mistakes increases because many online retailers change their prices more often than brick-and-mortar stores.4 Also, unlike brick-and-mortar retailers, online merchants execute sales automatically and therefore lose the added safety of having a human eye confirm the price. <4> The Internet, with information spreading quickly, can compound the harm. Shopping “bots”5 like MySimon.com and Shopping.com, combined with chat rooms, emails, and bulletin boards, rapidly circulate news concerning good deals. This can result in a flood of orders and thousands of sales being processed before the retailer is able to recognize and correct the mistake. For example, in late 2001, Kodak offered a £329 digital camera for £100.6 At the time, legal experts argued that Kodak’s automatic confirmation email formed legally binding contracts,7 and in the end, the company decided to honor the sales. The incident caused Kodak to suffer a loss of more than £2 million.8 In another instance, Buy.com agreed to a $575,000 settlement after 7,000 customers sued the company after it refused to honor their orders for a $164 Hitachi monitor, mistakenly marked down from $588.9 Fortunately, companies can implement inexpensive measures to protect against this type of loss. Using Protective Contract Formation Methods to Guard Against Pricing Errors<5> Instead of relying on post-contractual strategies to mitigate loss, companies can implement simple proactive procedures to avoid the problems caused by pricing errors up front. As a first line of defense, creating special data monitoring systems or purchasing products that generate alerts when atypical shopping activities occur can help limit the frequency and effects of pricing errors.10 Since errors will inevitably slip through the cracks, less experienced online retailers could learn from the way Amazon.com has structured and conditioned its online purchasing process. It has saved the company millions by allowing Amazon.com to cancel orders on mistakenly priced products. In the spring of 2003, for example, the company’s UK site, Amazon.com.co.uk, erroneously listed an iPaq Pocket PC for £7.32 instead of the normal £287 and successfully cancelled all the orders placed at the lower price by ensuring that a contract was not formed.11 Using Terms and Conditions to Avoid Loss<6> As the first level of protection, Amazon.com and other online retailers have successfully employed protective terms and conditions which they invoke to avoid honoring pricing errors.12 Their websites include legal pages with disclaimers reserving the right to refuse to honor pricing errors. For example, Amazon.com’s site lists its pricing policy under its Conditions of Use. It states that despite Amazon.com’s best efforts, a small number of items may be mispriced and if an item's correct price is higher than their stated price, they will, at their discretion, either contact the purchaser for instructions before shipping or cancel their order with notification.13 <7> While ensuring customers assent to the terms and conditions, the online retailer must balance their legal and marketing objectives by managing the tradeoff between effective communication with the customer and a certain legal outcome. Terms and conditions merely posted somewhere within a company’s website are called “browse-wrap” agreements and some courts refuse to enforce them unless customers validly and reliably assent to their terms.14 To strengthen the enforceability, some retailers employ “click-through” agreements to ensure the customer manifests assent – making the terms visible during the purchase and requiring the customer to click “I agree” to the terms, before being allowed to complete the purchase.15 Amazon.com has prioritized and elected a middle ground. Before completing a purchase, the checkout page foregrounds the contract formation and returns policy by describing them in plane language directly on the page. The customer also submits to Amazon.com’s privacy notice and conditions of use by placing an order, but the information is only accessible by clicking on a link. Controlling Offer and Acceptance to Avoid Loss<8> The very best measure to avoid fulfilling erroneously priced orders, however, is to avoid the formation of unfavorable sales contracts. To use Amazon.com’s purchasing structure as a model, the principles of offer and acceptance can be employed to create a buffer of up to several days between order placement and contract formation. On the final webpage before completing a purchase, Amazon.com states that “[w]hen you click the ‘Place your order’ button, we'll send you an e-mail message acknowledging receipt of your order. Your contract to purchase an item will not be complete until we send you an e-mail notifying you that the item has been shipped.”16 This communicates that the buyer, by proceeding through the shopping cart system and placing an order, is making an offer that will form a contract only after vendor acceptance. <9> Because acceptance usually comes in the form of an email sent to the customer, retailers should be careful with to avoid inadvertently forming a contract with automated order confirmation emails. As indicated above, Amazon.com informs customers that no contract exists until they receive an email confirming that their order is being dispatched. Amazon.uk.co has received criticism because its order confirmation email contained information on how “to cancel this contract”17 making it unclear whether it acknowledged the order or confirmed the contract. Arguably, the email served as an acceptance of the consumer’s offer.18 Therefore, retailers should issue automatic order confirmation emails that explicitly state that the order is being processed and the offer will be accepted upon dispatch. This will ensure that retailers retain a safe harbor period during which they can detect pricing errors if orders suddenly and unexpectedly increase in volume. Relying on the Equitable Doctrine of Unilateral Mistake<10> In the event that online retailers fail to control the methods of contract formation and have formed contracts at the wrong price, companies can resort to the equitable doctrine of mistake instead of absorbing the loss. Unilateral mistake can be grounds for relief.19 The Equitable Doctrine of Unilateral Mistake Defined<11> When online retailers make honest, good-faith pricing mistakes that result in huge losses to the benefit of opportunistic online shoppers, their mistake could be grounds for rescinding the unfavorable contract under the doctrine of unilateral mistake. One party’s mistake can make the contract voidable when the mistake concerns a basic assumption on which the contract was formed and has a material effect on the agreement that is adverse to that party.20 In addition, the adversely affected party must establish that either: (1) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (2) the other party had reason to know of the mistake or his fault caused the mistake.21 Applying Unilateral Mistake to Online Retailers<12> A retailer’s mistake as to the price of an item might constitute a mistaken basic assumption and, depending on the degree, might materially affect the agreement., but there is no simple or mechanical way to predict the magnitude of pricing error needed to clearly establish material effect.22 A mistake as to the price by one party, however, is not enough. The adversely affected retailer must also show that enforcing the contract would be unconscionable or that the online shopper knew or should have known that the price was a mistake.23 <13> An unconscionable contract is one which “no man in his senses, not under delusion, would make…and which no fair and honest man would accept…”24 The contract, if enforced as formed, needs to cause hardship to the adversely affected party.25 Among other things, courts will consider whether the sale would cause the retailer a loss, rather than merely earn a diminished profit.26 Unconscionability, however, is not a set standard and therefore not a principle on which to rely. <14> Alternatively, the adversely affected retailer needs to demonstrate that the online shoppers knew or had reason to know of the mistake.27 The Restatement uses the language “reason to know” to communicate that the actor “has a duty to another” and “he would not be acting adequately in the protection of his own interests were he not acting with reference to the facts which he has reason to know.”28 This requirement narrows the applicability of this remedy because there is no inequitable conduct requiring estoppel unless the online shopper knows or at least suspects there is a mistake.29 <15> What is known or should be known creates unique problems for online retailers because what a customer would suspect was a pricing mistake at a brick-and-mortar store might appear reasonable on the Internet. Internet retailers regularly offer legitimate deals that could seem to be too good to be true. In fact, some sites like Half.com focus on that very type of sale.30 Super-deals, however, are not limited to liquidators. Regular retailers, like Amazon.com, often offer sales that are not typical for brick-and-mortar retailers. This makes it difficult to establish what exactly the customer had reason to know. To illustrate, in the Amazon.com and Kodak examples above, a £329 camera for £100 may not be so discounted as to give the customer reason to know while the £287 iPaq for £7.32 might be enough cause the customer to suspect a pricing mistake.<16> Rescinding the contract is the only available remedy under unilateral mistake; it is not a basis for reformation.31 This means that online retailers cannot require the customer to continue with the sale at the actual retail price. Instead, the retailer must cancel the customer’s order and re-offer the product at the actual price. Understandably, however, many customers might not elect to re-purchase at the full price after losing the bargain.<17> Importantly, for some particular circumstances, courts have suggested they might refuse to order rescission. Courts have noted in dicta that the following factors may be relevant in deciding whether to grant rescission: whether other party has so detrimentally relied on the contact it would be inequitable to order rescission,32 will be prejudiced by rescission,33 or cannot be returned to the status quo.34 In addition, courts have refused to rescind contracts when the mistake resulted from the affected parties’ negligence or lack of due care.35 One court even required that the mistake result from clerical, mechanical, or technical errors.36 Conclusion<18> To avoid significant losses caused by pricing errors, online retailers can employ a few inexpensive measures to protect their business. The retailer’s site should include in its terms and conditions a statement reserving the right to cancel orders and an explanation that the customer’s order only constitutes an offer, which the retailer can accept by either charging the customer’s credit card or by dispatching the product. For additional insurance, the customer should be required to assent to those terms by clicking “I Accept” during the checkout process. Finally, the retailer can condition contract formation on successful completion of certain steps by the retailer, such as confirming the availability of inventory or shipping the goods. Practice Pointers- Require customers to accept the terms and conditions before completing an order or highlight the terms and conditions during online purchase and again in email acknowledgment.
- Ensure that automated email response systems send acknowledgements that the order was processed, not confirmation emails stating that the order has been accepted.
- Create systems to automatically track sales trends and flag any unexpected increases in volume to allow verification of price before the sales are comple
- Consider honoring the price error as a gesture of goodwill to foster customer loyalty.
<< Top Footnotes1. Benjamin Groebner, University of Washington School of Law, Class of 2005. Thanks to Jonathan Franklin and David Zapolosky for feedback on a draft of this article. 2. U.S. Census Bureau, United States Department of Commerce News, at http://www.census.gov/mrts/www/current.html (last visited, May 7, 2004). 3. Candace Heckman, A 36-Inch TV Just $99? Judge Sees the Big Picture; Court Rules Customer A Victim Only of Price Error By Amazon, Seattle Post-Intelligencer, Jan. 29, 2003, at A1. 4. Bob Tedeschi, Mixed-up Prices Pose Dilemma: Lose Customers or Money, Chi. Trib., Dec. 27, 1999, § 4, at 2 (citing an Internet pricing study conducted by Professor Erik Brynjolfson at the Massachusetts Institute of Technology’s Sloan School of Management). 5. A shopping “bot” is a website that will search multiple online retailers for a given product and will return the best prices. See www.mysimon.com and www.shopping.com. 6. Mathew Broersma, Amazon Mis-priced iPaqs: No Sale, ZDNet UK (Mar. 19, 2003), at http://news.zdnet.co.uk/business/0,39020645,2132174,00.htm (last visited Apr. 4, 2003). 7. Id. 8. Lawrence H. Hertz, Don’t Get Trapped into Honoring Online Pricing Errors!, 4 No. 7 E-Com. L. Rep. 6 (2002). 9. Id. 10. Alexei Oreskovic, The Price Isn’t Right, unlimitedNet, June 7, 2001, at http://www.unlimited.co.nz/unlimited.nsf/0/B333D06B92AAF897CC256A630072620C?OpenDocument (last visted May, 9, 2004) (The author refers to TeaLeaf Technology for products that will help detect and eliminate pricing errors). 11. Broersma, supra note 5. 12. See, e.g., Daniel Thomas, Amazon Pricing Blunder a Warning to Business, Computer Wkly., Mar. 27, 2003, at http://www.computerweekly.com/articles/article.asp?liArticleID=120474&liArticleTypeID=1&liCategoryID=2&liChannelID=20&liFlavourID=1&sSearch=&nPage=1 (last visited Apr. 4, 2004); see also Hertz, supra note 7. 13. See http://www.amazon.com/exec/obidos/tg/browse/-/508088/qid=1076974207/sr=1-3/103-5417578-3987036 14. See, e.g., Specht v. Netscape Comm. Corp., 306 F.3d 17 (2d Cir. 2002); Christina L. Kunz, et al., Browse-Wrap Agreements: Validity of Implied Assent in Electronic Form Agreements, 59 Bus. Law. 279 (2003) (The authors of this article posit that vendors should ensure assent and the enforceability of their terms by using four elements: (1) The user is provided with adequate notice of the existence of the proposed terms; (2) The user has a meaningful opportunity to review the terms; (3) The user is provided with adequate notice that taking a specified action manifests assent to the terms, and; (4) The user takes the action specified in the latter notice. 15. Christian L. Kunz, et al., Click-Through Agreements: Strategies for Avoiding Disputes on Validity of Assent, 57 Bus. Law. 401 (2001). 16. This language is only available by ordering a product and proceeding through the check-out process. 17. See Thomas, supra note 10. 18. Id. 19. See Arthur Linton Corbin, Corbin On Contracts §§ 608 et seq. (1960). 20. Restatement (Second) of Contracts § 153 (1979). 21. Restatement (Second) of Contracts § 153(a)-(b) (1979). 22. See, e.g., Donovan v. RRL Corp., 27 P.3d 702, 716-17 (Cal. 2001) (held that although the parties had entered into a contract for the sale of a vehicle, it could be rescinded on the basis of unilateral mistake and because the error was in the price term of the contract it was significant and was a mistake as to a basic assumption and has a material effect adverse to the mistaken party. When the seller mistakenly contracted to sell the vehicle for $12,000 less than the intended retail price, and the court concluded that made the mistake material). 23. Restatement (Second) of Contracts § 153(a)-(b) (1979) (This article will not address the possibility that the customer’s fault caused the mistake. That would require an unusual set of circumstances – i.e. where a customer hacked into the company’s website and changed the price in an effort to defraud the company, and even then it would be limited to that single customer). 24. Gill v. Waggoner, 828 P.2d 55, 58 (Wash. Ct. App. Div. III 1992). 25. E. Allen Farnsworth, Farnsworth On Contracts § 9.4 (2d ed 1998). 26. See, e.g., Alaska Int’l Constr. v. Earth Movers, 697 P.2d 626, 629-31 (Alaska 1985) (enforcing the contract would not be unconscionable because the mistake was small compared to the size of the project and would not cause the bidder to lose money). 27. Restatement (Second) of Contracts § 153 (1979). 28. Restatement (Second) of Contracts § 153 (1979) (comment e). 29. See Ostman v. St. John’s Episcopal Hosp., 918 F. Supp. 635, 646 (E.D.N.Y. 1996). 30. See www.half.com. 31. See Matter of ENSTAR Corp., 604 A.2d 404, 413 (Del. 1992). 32. See Florida Ins. Guar. Ass’n, Inc. v. Love, 732 So.2d 456, 457 (Fla. Ct. App. 1999). 33. See A.A. Metcalf Moving & Storage Co., Inc. v. N. St. Paul-Maplewood Oakdale Sch., 587 N.W.2d 311, 318 (Minn. Ct. App. 1998). 34. See Cameron v. Bogusz, 711 N.E.2d 1194, 1198 (Ill. App. Ct. 1999); Fleming Co., Inc. v. Thriftway Medford Lakes, Inc., 913 F. Supp. 837, 843 (D.N.J. 1995). 35. See Fleming, 913 F. Supp. at 843. 36. See Nat’l Mut. Ins. Co. v. Voland, 653 A.2d 484, 489 n.9 (Md. Ct. Spec. App. 1995). |
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Solutions For Price Issues When Listing Wholesale Dropship Products Online |
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Many of our wholesale dropship members might wonder how to respond if they list prices online at the wrong value. When you use InventorySource.com’s custom wholesale dropship data services we can help prevent these issues on your website and listings. We take great efforts to apply filters and checks on the data captures from a large network of wholesale dropship suppliers. We can help you list thousands of dropship products with the correct data, often helping you to have more accurate data then even your own dropship supplier sources might show in their feeds and on their websites. For those looking for additional information on price issues when selling wholesale dropship products online, you might be interested in the details presented below: Corporate & Commercial
Cite as: Benjamin Groebner, Oops! The Legal Consequences Of and Solutions To Online Pricing Errors, 1 Shidler J. L. Com. & Tech. 2 (May 26, 2004), at <http://www.lctjournal.washington.edu/vol1/a002Groebner.html>Oops! The Legal Consequences Of and Solutions To Online Pricing ErrorsBy Benjamin Groebner1 © 2004 Benjamin Groebner AbstractHow can businesses conducting sales over the Internet protect themselves from the inevitability of pricing errors? Unlike the brick and mortar retailers’ ability to catch a pricing error quickly, thousands of orders can be placed with online retailers before they detect the problem. When pricing errors do occur and contracts are formed, merchants are forced to choose between absorbing the resulting financial loss as an investment in goodwill or trying to invalidate the contracts under the doctrine of unilateral mistake. To avoid binding contracts with customers at erroneous prices, online retailers should employ protective methods of contract formation that help prevent loss. Table of ContentsIntroduction
The Risks and Costs of Pricing Errors
Using Protective Contract Formation Methods to Guard Against Pricing Errors
Using Terms and Conditions to Avoid Loss
Controlling Offer and Acceptance to Avoid Loss
Relying on the Equitable Doctrine of Unilateral Mistake
The Equitable Doctrine of Unilateral Mistake Defined
Applying Unilateral Mistake to Online Retailers
Conclusion
Practice Pointers Introduction<1> With an estimated $54.9 billion spent on U.S. retail e-commerce sales in 2003,2 pricing errors that expose online retailers to considerable loss are inevitable. In 2003, experienced online retailer Amazon.com lodged 6,000 orders for a $1,049 television incorrectly listed online for $99.99 before the company detected and corrected the pricing error. Amazon.com could have been bound to 6,000 enforceable contracts with each television purchaser for a loss totaling over $500,000 if its user interface designed for online contracting was not designed to minimize the company’s exposure to this kind of risk. Instead, Amazon.com avoided considerable loss by being able to cancel the orders.3 <2> This article discusses the financial impact caused by Internet pricing errors and examines the methods online retailers use to limit liability. Two specific methods include: (1) controlling the method of contracting by designing a system that conditions contact formation on verification of the contents of a customer’s order, and (2) resorting to the equitable doctrine of unilateral mistake. The Risks and Costs of Pricing Errors<3> All retailers experience pricing mistakes, but they can be more commonplace and much more harmful to online retailers. Many errors result from normal proofreading mistakes and software problems, but the probability of mistakes increases because many online retailers change their prices more often than brick-and-mortar stores.4 Also, unlike brick-and-mortar retailers, online merchants execute sales automatically and therefore lose the added safety of having a human eye confirm the price. <4> The Internet, with information spreading quickly, can compound the harm. Shopping “bots”5 like MySimon.com and Shopping.com, combined with chat rooms, emails, and bulletin boards, rapidly circulate news concerning good deals. This can result in a flood of orders and thousands of sales being processed before the retailer is able to recognize and correct the mistake. For example, in late 2001, Kodak offered a £329 digital camera for £100.6 At the time, legal experts argued that Kodak’s automatic confirmation email formed legally binding contracts,7 and in the end, the company decided to honor the sales. The incident caused Kodak to suffer a loss of more than £2 million.8 In another instance, Buy.com agreed to a $575,000 settlement after 7,000 customers sued the company after it refused to honor their orders for a $164 Hitachi monitor, mistakenly marked down from $588.9 Fortunately, companies can implement inexpensive measures to protect against this type of loss. Using Protective Contract Formation Methods to Guard Against Pricing Errors<5> Instead of relying on post-contractual strategies to mitigate loss, companies can implement simple proactive procedures to avoid the problems caused by pricing errors up front. As a first line of defense, creating special data monitoring systems or purchasing products that generate alerts when atypical shopping activities occur can help limit the frequency and effects of pricing errors.10 Since errors will inevitably slip through the cracks, less experienced online retailers could learn from the way Amazon.com has structured and conditioned its online purchasing process. It has saved the company millions by allowing Amazon.com to cancel orders on mistakenly priced products. In the spring of 2003, for example, the company’s UK site, Amazon.com.co.uk, erroneously listed an iPaq Pocket PC for £7.32 instead of the normal £287 and successfully cancelled all the orders placed at the lower price by ensuring that a contract was not formed.11 Using Terms and Conditions to Avoid Loss<6> As the first level of protection, Amazon.com and other online retailers have successfully employed protective terms and conditions which they invoke to avoid honoring pricing errors.12 Their websites include legal pages with disclaimers reserving the right to refuse to honor pricing errors. For example, Amazon.com’s site lists its pricing policy under its Conditions of Use. It states that despite Amazon.com’s best efforts, a small number of items may be mispriced and if an item's correct price is higher than their stated price, they will, at their discretion, either contact the purchaser for instructions before shipping or cancel their order with notification.13 <7> While ensuring customers assent to the terms and conditions, the online retailer must balance their legal and marketing objectives by managing the tradeoff between effective communication with the customer and a certain legal outcome. Terms and conditions merely posted somewhere within a company’s website are called “browse-wrap” agreements and some courts refuse to enforce them unless customers validly and reliably assent to their terms.14 To strengthen the enforceability, some retailers employ “click-through” agreements to ensure the customer manifests assent – making the terms visible during the purchase and requiring the customer to click “I agree” to the terms, before being allowed to complete the purchase.15 Amazon.com has prioritized and elected a middle ground. Before completing a purchase, the checkout page foregrounds the contract formation and returns policy by describing them in plane language directly on the page. The customer also submits to Amazon.com’s privacy notice and conditions of use by placing an order, but the information is only accessible by clicking on a link. Controlling Offer and Acceptance to Avoid Loss<8> The very best measure to avoid fulfilling erroneously priced orders, however, is to avoid the formation of unfavorable sales contracts. To use Amazon.com’s purchasing structure as a model, the principles of offer and acceptance can be employed to create a buffer of up to several days between order placement and contract formation. On the final webpage before completing a purchase, Amazon.com states that “[w]hen you click the ‘Place your order’ button, we'll send you an e-mail message acknowledging receipt of your order. Your contract to purchase an item will not be complete until we send you an e-mail notifying you that the item has been shipped.”16 This communicates that the buyer, by proceeding through the shopping cart system and placing an order, is making an offer that will form a contract only after vendor acceptance. <9> Because acceptance usually comes in the form of an email sent to the customer, retailers should be careful with to avoid inadvertently forming a contract with automated order confirmation emails. As indicated above, Amazon.com informs customers that no contract exists until they receive an email confirming that their order is being dispatched. Amazon.uk.co has received criticism because its order confirmation email contained information on how “to cancel this contract”17 making it unclear whether it acknowledged the order or confirmed the contract. Arguably, the email served as an acceptance of the consumer’s offer.18 Therefore, retailers should issue automatic order confirmation emails that explicitly state that the order is being processed and the offer will be accepted upon dispatch. This will ensure that retailers retain a safe harbor period during which they can detect pricing errors if orders suddenly and unexpectedly increase in volume. Relying on the Equitable Doctrine of Unilateral Mistake<10> In the event that online retailers fail to control the methods of contract formation and have formed contracts at the wrong price, companies can resort to the equitable doctrine of mistake instead of absorbing the loss. Unilateral mistake can be grounds for relief.19 The Equitable Doctrine of Unilateral Mistake Defined<11> When online retailers make honest, good-faith pricing mistakes that result in huge losses to the benefit of opportunistic online shoppers, their mistake could be grounds for rescinding the unfavorable contract under the doctrine of unilateral mistake. One party’s mistake can make the contract voidable when the mistake concerns a basic assumption on which the contract was formed and has a material effect on the agreement that is adverse to that party.20 In addition, the adversely affected party must establish that either: (1) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (2) the other party had reason to know of the mistake or his fault caused the mistake.21 Applying Unilateral Mistake to Online Retailers<12> A retailer’s mistake as to the price of an item might constitute a mistaken basic assumption and, depending on the degree, might materially affect the agreement., but there is no simple or mechanical way to predict the magnitude of pricing error needed to clearly establish material effect.22 A mistake as to the price by one party, however, is not enough. The adversely affected retailer must also show that enforcing the contract would be unconscionable or that the online shopper knew or should have known that the price was a mistake.23 <13> An unconscionable contract is one which “no man in his senses, not under delusion, would make…and which no fair and honest man would accept…”24 The contract, if enforced as formed, needs to cause hardship to the adversely affected party.25 Among other things, courts will consider whether the sale would cause the retailer a loss, rather than merely earn a diminished profit.26 Unconscionability, however, is not a set standard and therefore not a principle on which to rely. <14> Alternatively, the adversely affected retailer needs to demonstrate that the online shoppers knew or had reason to know of the mistake.27 The Restatement uses the language “reason to know” to communicate that the actor “has a duty to another” and “he would not be acting adequately in the protection of his own interests were he not acting with reference to the facts which he has reason to know.”28 This requirement narrows the applicability of this remedy because there is no inequitable conduct requiring estoppel unless the online shopper knows or at least suspects there is a mistake.29 <15> What is known or should be known creates unique problems for online retailers because what a customer would suspect was a pricing mistake at a brick-and-mortar store might appear reasonable on the Internet. Internet retailers regularly offer legitimate deals that could seem to be too good to be true. In fact, some sites like Half.com focus on that very type of sale.30 Super-deals, however, are not limited to liquidators. Regular retailers, like Amazon.com, often offer sales that are not typical for brick-and-mortar retailers. This makes it difficult to establish what exactly the customer had reason to know. To illustrate, in the Amazon.com and Kodak examples above, a £329 camera for £100 may not be so discounted as to give the customer reason to know while the £287 iPaq for £7.32 might be enough cause the customer to suspect a pricing mistake.<16> Rescinding the contract is the only available remedy under unilateral mistake; it is not a basis for reformation.31 This means that online retailers cannot require the customer to continue with the sale at the actual retail price. Instead, the retailer must cancel the customer’s order and re-offer the product at the actual price. Understandably, however, many customers might not elect to re-purchase at the full price after losing the bargain.<17> Importantly, for some particular circumstances, courts have suggested they might refuse to order rescission. Courts have noted in dicta that the following factors may be relevant in deciding whether to grant rescission: whether other party has so detrimentally relied on the contact it would be inequitable to order rescission,32 will be prejudiced by rescission,33 or cannot be returned to the status quo.34 In addition, courts have refused to rescind contracts when the mistake resulted from the affected parties’ negligence or lack of due care.35 One court even required that the mistake result from clerical, mechanical, or technical errors.36 Conclusion<18> To avoid significant losses caused by pricing errors, online retailers can employ a few inexpensive measures to protect their business. The retailer’s site should include in its terms and conditions a statement reserving the right to cancel orders and an explanation that the customer’s order only constitutes an offer, which the retailer can accept by either charging the customer’s credit card or by dispatching the product. For additional insurance, the customer should be required to assent to those terms by clicking “I Accept” during the checkout process. Finally, the retailer can condition contract formation on successful completion of certain steps by the retailer, such as confirming the availability of inventory or shipping the goods. Practice Pointers- Require customers to accept the terms and conditions before completing an order or highlight the terms and conditions during online purchase and again in email acknowledgment.
- Ensure that automated email response systems send acknowledgements that the order was processed, not confirmation emails stating that the order has been accepted.
- Create systems to automatically track sales trends and flag any unexpected increases in volume to allow verification of price before the sales are comple
- Consider honoring the price error as a gesture of goodwill to foster customer loyalty.
<< Top Footnotes1. Benjamin Groebner, University of Washington School of Law, Class of 2005. Thanks to Jonathan Franklin and David Zapolosky for feedback on a draft of this article. 2. U.S. Census Bureau, United States Department of Commerce News, at http://www.census.gov/mrts/www/current.html (last visited, May 7, 2004). 3. Candace Heckman, A 36-Inch TV Just $99? Judge Sees the Big Picture; Court Rules Customer A Victim Only of Price Error By Amazon, Seattle Post-Intelligencer, Jan. 29, 2003, at A1. 4. Bob Tedeschi, Mixed-up Prices Pose Dilemma: Lose Customers or Money, Chi. Trib., Dec. 27, 1999, § 4, at 2 (citing an Internet pricing study conducted by Professor Erik Brynjolfson at the Massachusetts Institute of Technology’s Sloan School of Management). 5. A shopping “bot” is a website that will search multiple online retailers for a given product and will return the best prices. See www.mysimon.com and www.shopping.com. 6. Mathew Broersma, Amazon Mis-priced iPaqs: No Sale, ZDNet UK (Mar. 19, 2003), at http://news.zdnet.co.uk/business/0,39020645,2132174,00.htm (last visited Apr. 4, 2003). 7. Id. 8. Lawrence H. Hertz, Don’t Get Trapped into Honoring Online Pricing Errors!, 4 No. 7 E-Com. L. Rep. 6 (2002). 9. Id. 10. Alexei Oreskovic, The Price Isn’t Right, unlimitedNet, June 7, 2001, at http://www.unlimited.co.nz/unlimited.nsf/0/B333D06B92AAF897CC256A630072620C?OpenDocument (last visted May, 9, 2004) (The author refers to TeaLeaf Technology for products that will help detect and eliminate pricing errors). 11. Broersma, supra note 5. 12. See, e.g., Daniel Thomas, Amazon Pricing Blunder a Warning to Business, Computer Wkly., Mar. 27, 2003, at http://www.computerweekly.com/articles/article.asp?liArticleID=120474&liArticleTypeID=1&liCategoryID=2&liChannelID=20&liFlavourID=1&sSearch=&nPage=1 (last visited Apr. 4, 2004); see also Hertz, supra note 7. 13. See http://www.amazon.com/exec/obidos/tg/browse/-/508088/qid=1076974207/sr=1-3/103-5417578-3987036 14. See, e.g., Specht v. Netscape Comm. Corp., 306 F.3d 17 (2d Cir. 2002); Christina L. Kunz, et al., Browse-Wrap Agreements: Validity of Implied Assent in Electronic Form Agreements, 59 Bus. Law. 279 (2003) (The authors of this article posit that vendors should ensure assent and the enforceability of their terms by using four elements: (1) The user is provided with adequate notice of the existence of the proposed terms; (2) The user has a meaningful opportunity to review the terms; (3) The user is provided with adequate notice that taking a specified action manifests assent to the terms, and; (4) The user takes the action specified in the latter notice. 15. Christian L. Kunz, et al., Click-Through Agreements: Strategies for Avoiding Disputes on Validity of Assent, 57 Bus. Law. 401 (2001). 16. This language is only available by ordering a product and proceeding through the check-out process. 17. See Thomas, supra note 10. 18. Id. 19. See Arthur Linton Corbin, Corbin On Contracts §§ 608 et seq. (1960). 20. Restatement (Second) of Contracts § 153 (1979). 21. Restatement (Second) of Contracts § 153(a)-(b) (1979). 22. See, e.g., Donovan v. RRL Corp., 27 P.3d 702, 716-17 (Cal. 2001) (held that although the parties had entered into a contract for the sale of a vehicle, it could be rescinded on the basis of unilateral mistake and because the error was in the price term of the contract it was significant and was a mistake as to a basic assumption and has a material effect adverse to the mistaken party. When the seller mistakenly contracted to sell the vehicle for $12,000 less than the intended retail price, and the court concluded that made the mistake material). 23. Restatement (Second) of Contracts § 153(a)-(b) (1979) (This article will not address the possibility that the customer’s fault caused the mistake. That would require an unusual set of circumstances – i.e. where a customer hacked into the company’s website and changed the price in an effort to defraud the company, and even then it would be limited to that single customer). 24. Gill v. Waggoner, 828 P.2d 55, 58 (Wash. Ct. App. Div. III 1992). 25. E. Allen Farnsworth, Farnsworth On Contracts § 9.4 (2d ed 1998). 26. See, e.g., Alaska Int’l Constr. v. Earth Movers, 697 P.2d 626, 629-31 (Alaska 1985) (enforcing the contract would not be unconscionable because the mistake was small compared to the size of the project and would not cause the bidder to lose money). 27. Restatement (Second) of Contracts § 153 (1979). 28. Restatement (Second) of Contracts § 153 (1979) (comment e). 29. See Ostman v. St. John’s Episcopal Hosp., 918 F. Supp. 635, 646 (E.D.N.Y. 1996). 30. See www.half.com. 31. See Matter of ENSTAR Corp., 604 A.2d 404, 413 (Del. 1992). 32. See Florida Ins. Guar. Ass’n, Inc. v. Love, 732 So.2d 456, 457 (Fla. Ct. App. 1999). 33. See A.A. Metcalf Moving & Storage Co., Inc. v. N. St. Paul-Maplewood Oakdale Sch., 587 N.W.2d 311, 318 (Minn. Ct. App. 1998). 34. See Cameron v. Bogusz, 711 N.E.2d 1194, 1198 (Ill. App. Ct. 1999); Fleming Co., Inc. v. Thriftway Medford Lakes, Inc., 913 F. Supp. 837, 843 (D.N.J. 1995). 35. See Fleming, 913 F. Supp. at 843. 36. See Nat’l Mut. Ins. Co. v. Voland, 653 A.2d 484, 489 n.9 (Md. Ct. Spec. App. 1995). |
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