case study zappos

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Zappos case: the best customer service

We have insisted countless times that customer service is a key element that determines the degree of satisfaction of our customers and their loyalty to the brand. Poor customer service generates dissatisfaction and discourages buyers from continuing to consume a product or contract a service because they consider that it is not worth going through an unhappy or directly unsatisfactory experience with the company.

<<< Lays Case: towards the conquest of the Asian market >>>

Well, it is precisely to inspire other companies that we decided to tell today's case study: the story of Zappos , a shoe company that is not like other companies since it stands out for the best customer service known in the business world (and we think that is not an exaggeration).

In this article, we tell you how this company emerged; it continues to grow and its main philosophy is to satisfy the needs of its customers . In addition, we will talk about what is the secret of its success by making minimal investments in marketing and advertising campaigns.

Zappos history

The beginnings of this prestigious company date back to the need to buy shoes from its founder when he was not yet thinking of being an entrepreneur. It turns out that one day Nick Swinmurn was walking around a San Francisco shopping center looking to buy some shoes that he liked and couldn't find.

In the search for the dream model, he checked every internet catalog he found without results. That got him thinking: if the shoes he wanted didn't exist, why not create them himself?

Driven by necessity, it was then that Nick became the founder of a shoe company and began to take his first steps in the world of business, creating the shoe retailer shoesite.com , which would later become Zappos .

The name change responds to the idea of a derivative of the word shoes that was conceived in conjunction with CEO Tony Hsieh to expand the original concept of the first name and raise the possibility of selling more products in the future.

A philosophy focused on making the customer happy

Getting customers to have a happy experience would not be possible if the company's workers were not happy too. The equation is simple: happy employees provide better customer service , and the result is happier customers .

The Zappos philosophy consists of maintaining, above all, a very pleasant , fun, camaraderie and, above all, collaborative work environment . At Zappos, employees help each other and there is no need for internal skills because everyone's skills are equally important for the growth of the company.

In addition to this, it should be noted that Zappos' corporate culture promotes a horizontal organizational structure , where all collaborators work by objectives instead of by managers . In this way, the hierarchies in this business model are dissolved and the employees reduce stress when they feel that their actions are recognized and have the same value as those of the managers.

Being motivated, Zappos employees answer more than 5,000 calls a month and more than 1,000 emails a week. Customer service does not stick to a script to always answer the same thing to its customers when they call to answer their questions. They can have 5-minute phone calls, as well as 10-hour calls, as their record became.

With this feedback, Zappos employees earn the trust of their customers because they show that they care about them and that they will do everything possible to provide effective solutions to their problems and, above all, they will make them not afraid to ask their concerns because they are to solve them 24/7.

<<< Xerox: When bureaucracy works against you >>>

Product distribution and return policy

One of the main differences between Zappos and the rest of its competitors is that they offer free shipping and product returns to make transactions easier. For example, customers can try on several pairs of shoes free of charge until they find the one they like.

In the meantime, you have up to 365 days to make the appropriate returns on the pairs of shoes you won't buy.

Another surprising aspect that places Zappos as the best customer service is that it is so unusually honest that, if it cannot satisfy its customers with a shoe model that meets their needs, it sends these customers to the competition. Imagine the surprise of your customers with an action that is considered suicidal in the business world.

But that outpouring of honesty, in the long run, benefits them by bringing customers back. As you will see, they invest much more in offering better customer service than in their marketing campaigns. In a nutshell, their goal is to invest in increasing the human connection with customers.

Personalized customer service: Telephone calls

While many companies invest large sums of money in chatbots and artificial intelligence, Zappos promotes interaction with customers in a personalized way , to make them feel heard and understood. For the company, phone calls are the key to building lasting relationships with customers.

Also, unlike many companies that seek to reduce the number of daily phone calls, Zappos does the opposite, activating mechanisms to facilitate telephone contact. Hence, people have internalized the treatment they receive from the company as if it were a friend or family member.

The culture of "wow"

We had anticipated that, in addition to focusing on improving customer service , Zappos is concerned with keeping its employees happy within the company, breaking down hierarchical structures to bring people closer together. In this sense, the internal culture promotes such personalized and efficient attention that it motivates the client to say “wow”, and it is very likely that they will achieve it.

Tony Hsieh, in his book Delivering Happiness, states the following about the goal of his company culture:

“What set us apart from our competitors was that we put company culture above all else. We bet that by being good to our employees we would be able to offer a better service than our competitors. Better service results in many recurring customers and this means low marketing expenses, long-term profits, and rapid growth.”

Robert Richman, co-creator of Zappos Insights, says that culture is everything at Zappos. "Culture is made up of values, values determine behavior, behavior determines actions, and actions produce results."

<<< The Blackberry case: 2 business mistakes >>>

A business model to imitate

To conclude, our thoughts lead us to ask ourselves how many times we have worked for passion and how many times we did it just to make money. We believe that the main difference with other companies concerned with selling is that Zappos cares about better customer service and also about the satisfaction of its employees, an infallible combo to captivate the market.

Drew's editorial team

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TEACHING MATERIALS

Blue ocean pedagogical materials, used in nearly 3,000 universities  and in almost every country in the world, go beyond the standard case-based method. Our multimedia cases and interactive exercises are designed to help you build a deeper​ understanding of key blue ocean strategy concepts, developed by world-renowned professors  Chan Kim and Renée Mauborgne .

CASES BY TOPIC

TEACHING GUIDE

Bring the Shoe Store to Your Home (Part A)

Author(s):  KIM, W. Chan, MAUBORGNE, Renée, KOO, Oh Young

Case study trailer

This is the first part of two case series of Zappos’s  blue ocean strategic move  as an innovative online shoe retailer. Part A focuses on how Zappos reconstructed the existing boundaries of the online footwear retail industry. It describes Zappos’s distinctive value proposition that is neither an offline nor online shoe store in the conventional sense. The case also introduces how Zappos broke the value-cost trade-off of the conventional online shoe store. The case comes with a theory-based video case, which can be requested below.

Strategy Powered by Culture and People (Part B)

Author(s):   KIM, W. Chan, MAUBORGNE, Renée, KOO, Oh Young

The second part of Zappos case focuses on Zappos’s people proposition, which led to high performance and raised barriers to imitation. It demonstrates the importance of   Fair Process   that builds deep trust and commitment in the company, making it difficult for competitors to imitate Zappos.

Case Study: A

HBSP   |   Case Centre   |   INSEAD

Case Study: B

HBSP  |  Case Centre  |  INSEAD

Teaching Note: A

Teaching Note: B

English: Available to download for free in the Educators’ Space

Lecture Slides

Zappos case study

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• 1. KELOMPOK 7 – MM EKSEKUTIF B 27C DIAN ATIKA – RAFIKA - RERY INDRA KUSUMA Zappos
• 2. CASE SUMMARY MAIN ISSUE PROBLEM STATEMENT ANALYSIS RECOMMENDATION
• 3. CASE SUMMARY
• 6. YEAR Milestones 1999 - Found by Nick Swinmurn - A variation of the Spanish word Zapotas which means “shoes.” 2000 - Zappos records $1.6 million in gross sales (exhibit 6) - Zappos had 150 brands and 400.000 pairs of shoes 2001 - Nick Swinmurn and Tony Hsieh as Co-Ceo of Zappos - Sustained effort produces $8.6 million in gross sales 2002 - The brand elevate gross sales to $32 million 2003 - Gross sales Zappos rise to $70 million 2004 - Gross sales Zappos more than double to $184 million 2005 - Sequoia increases its investment in Zappos to a total of $35million - Alfred Lin, cofounder of venture frogs, join Zappos as CFO - Gross Zappos sales increase to $370 million - Zappos moved its headquarters to Las Vegas
• 7. YEAR Milestones 2006 - Nick Swinmurn leaves Zappos - Gross sales at Zappos climb to $597 million 2007 - 6pm.com is acquired by Zappos - Zappos expand its product categories to include eyewear, handbags,clothing, watches and kid’s merchandise - Gross sales at Zappos hit $840 million 2008 - Gross sales at Zappos hit $1 billion - Zappos net Revenue of $635million and net income of $10.8 million - Buy Kiva Mobile Fulfillment System (Kiva MFS) 2009 - Sold to Amazon.com for $1.2Bil
• 8. Zappos Gross Sales by Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Gross Sales 1.6 8.6 32 70 184 370 597 841 1014 $0 $200 $400 $600 $800 $1,000 GrossSales$M's
• 9. Owning the 3 C’s: Clothing, Customer Service, Culture Customer Service Clothing Culture
• 10. - Differentiator that gave the company competitive advantage - 2005 Zappos core values - 2008 created culture book - Started a pipeline : - 225 hours of core training - 160 hours initial/new hire training - Additional courses: effective communication, coaching, overcoming conflict & managing stress - Additonal 39 hours: Inspiring Great Teams, Leadership Zappos Style & Cultivating Culture COMPANY CULTURE
• 11. 1. Deliver WOW Through Service 2. Embrace and Drive Change 3. Create Fun and a Little Weirdness 4. Be Adventurous, Creative, and Open-Minded 5. Pursue Growth and Learning 6. Build Open and Honest Relationships With Communication 7. Build a Positive Team and Family Spirit 8. Do More with Less 9. Be Passionate and Determined 10. Be Humble Zappos Core Value COMPANY CULTURE
• 12. Customer Service – Believe rapid growth was due to customers loyalty – CLT team receives an average of 5,100 call per 24 hours – Goal is to “wow” customers & establish personal connection – Call times is not measured – Call center turnover in 2009 was only 7% whereas industry average was 150% – Do not implement a pay-per-performance or reward system – Fulfillment Center outside Louisville, kentucky, consist 3 storage area : – Static Racks – freestanding shelving units – Carousels – ferris wheel type shelving units – Kiva – Automated storage & retrieval system using inventory pods
• 13. Customer Service
• 14. Customer Service What customers first see – 24/7 customer service representative – Free shipping – Free return shipping – 365-day return policy
• 15. Customer Service: What customers experience – Fast, accurate fulfillment – Most customers are “surprise”-upgraded to overnight shipping • Create WOW – Friendly, helpful “above and beyond” customer service – Refer customers to competitors’ web sites
• 16. Clothing – 2006 – pursued additional lines of bussines – U.S clothing market was four times larger than footwear market – Within 1 year Zappos had 300 different apparel brands – 2007 clothing reached 5% of Zappos sales – 2008 Zappos sold $31 million in apparel
• 17. MAIN ISSUE
• 18. Main Issue Zappos Strategic: Clothing, Customer Service, and Company Culture Acquisition Zappos by Amazon on 2009 Continuing to Grow Zappos after 2009
• 19. PROBLEM STATEMENT
• 20. Zappos Growth Hsieh and Lin knew that much of Zappos’ growth, and hence its value, had been due to the company’s strong culture and obsessive emphasis on customer service.
• 21. Company Culture • What’s the meaning with Zappos philosophy in their culture? “you can’t have happy customers without having happy employees, and you can’t have happy employees without having a conmpany where people are inspired by the culture”
• 23. Customer Service • How could Zappos customer become loyalty customer? “75% of Zappos orders were from repeat customers”.
• 25. How overcome their financial management? Zappos Financial Management
• 26. Zappos Acquisition Why Amazon was choose to acquisition Zappos? What are the effects of Amazon acquistion?
• 27. ANALYSIS
• 28. Real Power of Service : 2003 = 70K USD 2008 = 1000K USD RAPID GROW!! 100X SALES INCREASE WITHIN 6 YEARS
• 29. Visionary Concept of Service Visionary Internal Marketing Concept :  Unique corporate culture  Unique requiretment method  Different KPI measurement to ensure service  Holocrary Visionary Interactive Marketing Concept  excellence customer service  interface of excellence order Excellence of External Marketing Concept  book, webpage, holocracy
• 30. Service Beyond Expectation 5 hours customer service support on call Delivery in two way Easiness to Return the good
• 31. Acquisition by Amazon What Next??
• 32. After Acquisition The acquisition closed on November 1, at a valuation of $1.2 billion (based on Amazon's stock price on the day of closing). Our investors at Sequoia made $248 million. Our board was replaced by a management committee that includes me, Jeff, two Amazon executives, and two Zappos executives. As CEO, I report to the committee every quarter, and Zappos is responsible for hitting revenue and profitability numbers. But unlike our former board of directors, our new management committee seems to understand the importance of our culture -- the "social experiments" -- to our long-term success. In fact, one Amazon distribution center recently began experimenting with its own version of Zappos's policy of paying new employees $2,000 to quit if they're unhappy with their jobs. Otherwise, Zappos continues to operate independently. Our relationship is governed by a document that formally recognizes the uniqueness of Zappos's culture and Amazon's duty to protect it. We think of Amazon as a giant consulting company that we can hire if we want -- for instance, if we need help redesigning our warehouse systems. In the first quarter of 2010, net sales at Zappos were up almost 50 percent, and we've added several hundred new employees. The growth has made Amazon very happy, but it's also creating new challenges. I've noticed that at company happy hours, you don't see as many employees from different departments hanging out with one another.
• 33. Why don’t all companies try to build strong cultures? I believe we accomplish more through inspiration Inspire employees with vision that’s bigger than themselves, that goes beyond money, profits, and the size of market share. It is about raising the bar for everyone We’ve been young and scrappy, managing business very tighly. With more people as well as capital we can grow much faster We are not selling shoe. We are SERVICE Company
• 34. RECOMMENDATION

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9.41 zappos.com, company development.

Zappos is often seen as the model online business: a novel concept, a fulfillment center built from scratch, a US online business that focused foremost on customers, giving them quality, choice and free shipping, and then expansion of the business through the latest in manufacturing and supply management.

From a quiet start, Zappos grew rapidly.

1999 . The company was founded by Nick Swinmurn. Tony Hsieh and Alfred Lin then put in $500,000 from their investment firm Venture Frogs. The company launched in June 1999 as ShoeSite.com, changed a few months later to Zappos so that other goods could be sold. The result was minimal sales, however.

2000 . More investment from Venture Frogs, who also provided office space. Sales were US$ 1.6 million.

2001 . Zappos opened their own fulfillment center in Kentucky. Hsieh and Zappos executives set long-term goals for 2010: $1 billion in sales and inclusion on Fortune's list of The Best Companies to Work For . Sales quadrupled to US$ 8.6 million.

2003. Zappos abandoned drop shipping (accounting for 25% of revenues) to have more control over the customer's experience. Sales were US$ 70 million.

2004 . Zappos received $35 million dollar investment from Sequoia Capital, and a $40 million credit line from Wells Fargo Bank. Sales were US$185 million.

2007 . Merchandise was expanded to include handbags, eyewear, clothing, watches, and kids' items. Sales in 2007 were US$ 840 million.

2008. Zappos sales were US$ 1 billion.

2009 . Zappos was listed at No. 23 on Fortune's Top 100 Companies to Work For . By mutual consent, Zappos was acquired by Amazon. Zappos share-holders received 10 million Amazon.com shares and $ 940 million for their Zappos shares; the employees a separate $40 million in cash: a deal of around $1.2 billion in all. Amazon acquired a company with better (though still slim) operating margins {13}; Zappos got funds and technology for expansion while retaining full control of its brand. {11}

Business Model

Zappos have been successful by:

1. Knowing their customers and fulfilling their needs. 75% are repeat buyers. 2. Providing value for money: not necessarily the cheapest, but quality brands backed by excellent service. 3. Concentrating on high-ticket items with good margins. Average order on Zappos is around $100 and gross margins on shoes are about 50%. {2} 4. Offering free shipping, even for returns (return rate may be 30%) {7} 5. Developing a strong online brand. 6. Maintaining a friendly, caring appearance, through training at all levels and a presence on Twitter, Facebook and YouTube. {9} Usual advertising spend was invested in stellar customer service.

Employees are chosen carefully, for aptitude and personality. Zappos publishes an annual 480-page Culture Book , comprising unedited 2-3 paragraph entries from employees describing their understanding of the Zappos culture. All undergo call-center and loyalty training courses, and are later tested by being offered $2,000 to quit: only 3% accept the offer. {5}

Employees enjoy free lunches, no-charge vending machines, a company library, a nap room, and free health care. They are encouraged to personally decorate their offices and to take part in office get-togethers. Managers must spend 10-20% of their hours 'goofing off' with employees outside the office.

Zappos has grown by search engine marketing {1} and word-of-mouth recommendation. It has spent little on advertising otherwise, but did acquire 6pm.com, a company selling bargain shoes, clothing, and accessories in 2007.

Points to Note

Sources and further reading.

1. Why shoes are great for e-commerce . . . yes, really —a Zappos case study by Nisan Gabbay. Startup Review . September 2006. 2. How I Did It by Tony Hsieh. Inc . 2006. 3. Zappos New Business Model: Have Insight, will Respond by Gord. OutOfMyGord . December 2008. 4. Zappos wants you to return those shoes by Seth Godin. Seth Godin . April 2008. 5. Why Zappos Pays New Employees to Quit—And You Should Too by Bill Taylor. HBR . May 2008. 6. Zappos Core Values . Zappos . 2009. 7. Kevin Hillstrom's Comments on Zappos P&L Statement . MinethatData. 2009. 8. When you buy Zappos, what do you buy? Seth Godin . July 2009. 9. The new social engagement by Soren Gordhamer. Mashable . April 2009. 10. Zappos CEO Tony Hsieh: Customer Focus Key to Record Sales During Retail Slump. W P Carey . January 2009. 11. Zappos CEO's Letter to Staff. WSJ . July 2009. Tony Hsieh's letter after the shoe retailer agreed to be acquired by Amazon.com. 12. Why Zappos Shouldn't Be Your Business Model by Ari Ozick SEO Contrarian . November 2009. 13. The Details behind Amazon's valuation of Zappos. Development Corporate . July 2009. 14. Zappos to Hire 2,000 People in 2011 by Ben Parr. Mashable . November 2010. 15. Zappos. TopTenReview . 2011. 16. Why Is This Man Smiling? by Motoko Rich. NYT . April 2011. 17. Case study: Zappos by Winter Nie and Beverley Lennox. FT . February 2011. 18. A New Sales Model: Employees by Sarah Nassauer. WSJ . March 2011. Zappos' use of videos. 19. Zappos. Wikipedia . 20. Zappos . Company home site 21. Zappos to Hire 2,000 People in 2011 by Ben Parr. Mashable Business . November 2010. 22. The Zappos CEO is trading shoes for urban planning — and spending big bucks to rebuild downtown Las Vegas by Leigh Gallagher. CNNMoney . January 2012. 23. Zappos CEO buys motel, strikes deal to bring young talent downtown by Joe Schoenmann. Las Vegas Sun . March 2012. 24. Zappos.com makes Fortune�s list of best places to work by Richard N. Velotta. Vegas Inc . January 2013.

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Zappos.com Harvard Case Solution & Analysis

Home >> Harvard Case Study Analysis Solutions >> Zappos.com

This case introduces Zappos.com, an online shopping store, engaged in providing shoes and clothing items for both men and women available in the market. The company was established in 1999 based in Las Vegas, Nevadaby Nick Swinmurn, who found the inspiration for the idea, when he failed to find a particular pair of shoe in the mall. Therefore, he collaborated with Tony Hsieh and Alfred Lin to sell different variety of shoes online, which helped the companyto target a vast range of customers present in the online market.Furthermore, the company was acquired by Amazon.com in 2009, as the all-stock deal was worth $1.2 billion, as announced by the senior management of the company in the same year. Whereas, it was evaluated that the users available online were not all potential shoppers, as most were casual viewers logging on to adifferent site just to pass time. However, it wasidentifiedthat the company had grown since its establishment towards selling a huge variety of shoe available from a vast variety of brand available in the market. Moreover, the company increased its product range, which included clothing items for both men and women, as well as accessories such as hand bags and wallets.

Additionally, they also sold athletic equipment and kids’ necessity items, such as diaper bags, clothing, etc. It can be further stated that the company had significantly increased its product range and its ability to attract the customers. Moreover, it had also developed a strong brand image in the market through the implementation of effective marketing strategies , which, in turn, allowed the company to increase its revenues streams, which had a substantial favorable impact on its profitability in the market.

Zappos.com Harvard Case Solution & Analysis

Additionally, in an attempt to better manage its operations, the company had divided its customers into different segments, which consisted of premium customers, who were the most profitable and loyal towards the site and were considered as recurring customerswho were highly costly to acquire with the potential to purchase higher value items for the store. Secondly, young professionals, who had trouble managing their work life were not that costly to acquire in the market and they were considered the least loyal customers for the company. Thirdly, the off-price customers were frequent users of the internet and they compared the price of the product offered by them and others available in the market, which allowedthese users to establish their purchasing patterns using the comparative analysis. It was assessedthat these users’ buying patterns were motivated by any discount offers given by various sites available online. Lastly, the family customers, who were busy with their families spent the least amount of time on the site and were considered least profitable for the company, attributed to their higher return rates.

However, it was determined that the management of the company faced a major challenge in developing effective and efficient pricing policies, which allowed the managementto target the customers present in different consumer segments developed by the senior management of the company.....................

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