December 26, 2000, 9:55 AM

Losses at the speed of thought

Everything happens so fast on the Internet, even costly mistakes-and consumers’ willingness to exploit those mistakes-as Buy.com found out this summer.

In July, consumers placed about 4,500 orders at Buy.com using an electronic beta coupon that mistakenly gave $50 off any purchase, rather than the intended $50 off purchases of $500 or more. The error allowed hordes of bargain hunters to overrun the web site and make off with arm loads of free merchandise-including some who used the coupon multiple times. That was followed a month later by a similar glitch at Staples.com.

In addition to coupon glitches, several Internet retailers are encountering similar problems with pricing errors. Amazon.com inadvertently discounted some toys 50% or more. One customer reportedly ordered $640 worth of merchandise for $67. Amazon, which declines comment, canceled most of the orders and sent those customers a $5 coupon toward their next purchase.

While Aliso Viejo, Calif.-based Buy.com’s isn’t saying what its losses were, the incident spotlights how fast the connectivity of the web can compound mistakes. “Mistakes are not secret for long on the web,” declares Barry Parr, analyst with Framingham, Mass.-based IDC. “In the physical world coupon mistakes are harder to circulate.”

The problem with controlling web-based coupons is that they are lines of code that consumers enter when making a purchase. Internet retailers that post coupons elsewhere on the web to drive traffic to their site do not always have the tools to track each coupon they distribute. That creates the potential for the coding, and subsequently the coupon’s value, to be altered as it moves between databases.

“If you can’t accurately track all your coupons in circulation, it becomes a question of whether you can verify that what you distributed is what is being redeemed,” says Henrik Bodenstab, co-CEO of OneClip.com, a New York-based Web promotional clearinghouse. “That is a serious problem when coupons are moved across several sites.” One solution is to embed within the coupon’s redemption code an identification code stored in a single database and that is authenticated upon redemption. “If the redemption code is altered, it will alter the identification code,” says Bodenstab. OneClip is experimenting with such an application.

Another solution is to attach a disclaimer to each coupon limiting its value, although all the disclaimers in the world won’t stop someone who has detected a weakness in the coupon from exploiting it. “Disclaimers are done in the physical world,” adds Parr. “But these types of problems do occur and they will happen again.”

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