Over the weekend, stories appeared in multiple global media sites indicating that Dell experienced a second online pricing snafu involving customers within Taiwan, and Dell is now facing a series of challenges on multiple fronts.  The company apparently set local pricing errors on June 25, and again over this weekend.  The pricing errors involved laptop PC’s and a 19-inch monitor.  According to an article on CIO.com, a 19-inch LCD was listed for local Taiwan based customers for NT$500, or the U.S. equivalent of $15.26.  A similar price error occurred this weekend listing the Dell E4300 laptop for NT$18,500, or the U.S. equivalent of $563.40.  Normal pricing for this specific laptop is NT $69,000 according to news reports.

What struck me the most about this evolving incident was the overall speed and amplification of these errors. The first pricing errors appeared between 9:17pm on June 25, and 6:56am on June 26, roughly ten hours of online exposureAccording to an article in the Taipei Times, more than 26,000 people placed orders for the 19 inch monitors. The second error occurring this weekend, which involved the E4300 laptop, garnered roughly 14,000 orders involving close to 50,000 laptops.  Obviously, with an average of 3.6 laptops per order, some buyer intelligence was involved as Internet-driven chat groups and buying forums quickly spread the news of a bargain.

While Dell has admitted to and apologized relative to these pricing errors, it also chose to cancel the inputted orders.  Instead, the company has offered impacted customers options for discount certificates good for a future purchase on dell.com.tw.

Reaction has been swift.  Taiwan’s Fair Trade Commission has indicated that it will determine whether Dell has violated the Fair Trade Law by failing to deliver orders as advertised, and could possibly face stiff fines.  Dell’s reluctance to deliver the wrongly priced orders has also drawn criticism from Taiwanese Internet users and the media. The Taiwan Consumer Foundation has indicated that Dell had previously made similar pricing errors in China, and subsequently agreed to sell the items as priced.  The agency also cited other global corporations such as IBM, Whirlpool, and Murubeni as all acknowledging similar mistakes and honoring orders.

In my view Dell faces two significant challenges, each fueled by the current impact of the Internet.  The first is the building customer relations problem, as local governmental agencies, consumers, and impacted customers increase the “negative tone” relative to Dell.  To avoid more embarrassment and financial harm, Dell will need to find more creative means to appease consumers.

The second, and what I believe should be of the most concern to Dell’s Internet fulfillment and support professionals is how these pricing errors occurred on multiple occasions. Beyond an obvious internal control problem, the fact that Dell discovered its problem in 10 hours is no longer an acceptable response time.  Today’s buying reality is information rich and well informed consumers equipped with all forms of social media and instant information messaging devices that can alert buyers to bargains too good to refuse. With Internet sites open 24 hours a day and seven days a week, the clock never stops on a pricing error, until and unless it is quickly discovered and corrected.  Whether it is a lack of controls, inadequate staffing, or a system error, it doesn’t matter.  The error did occur, and the implications are a reality.

The fact that this also occurred at Dell, which AMR Research this year rated as number two in its Supply Chain Top Twenty Five for 2009 should not go unnoticed.  Late last year, Supply Chain Matters commented on Dell’s new decentralized supply chain operations model which was initiated to enable product groups to have more worldwide autonomy and flexibility in overcoming geographic boundaries.  This latest crisis will surely provide additional learning around the need for stronger internal controls in a decentralized model.

What do you think?  Should Dell bite the bullet and honor the pricing error, or find a compromise?  Do you suspect that this was a problem caused by decentralized controls? Would technology have helped discover this problem in a more timely fashion?

Bob Ferrari