Zappos, The Nike of Customer Service
Can customer service fuel a company’s growth? Zappos says a BIG YES! Profiting from customer happiness has been a consistent milestone for Zappos.
The headline: Delivering WOW service, is embedded in the company’s culture, assets and evangelists.
Zappos represents one of the successful post-dotcom bubble internet companies that bills its growth on creating a positive workplace culture and fulfilling customer needs via excellent customer experience and customer service.
From a struggling shoe site to a formidable customer service powerhouse that operates an efficient 24/7 customer support inspiring some customers to call the number requesting help in ordering Pizza.
The brilliant strategy powering the online shoe retailer’s success: offering free shipping and free returns as a form of marketing and customer acquisition strategy. Marketing costs were substituted with shipping costs.
Zappos Case Study
Great decisions build a legacy of a company. Business expert Jim Collins (author of Great to Good) emphasizes the importance of having the right people in your team:
Decisions are about the future and your place in the future when that future is uncertain. So what is the key thing you can do to prepare for that uncertainty? You can have the right people with you.
Decisions made by a company’s executive influence the direction of the company. Wrong decisions lead to hitting unseen icebergs that sink even the greatest companies (Nokia, Kodak Blockbuster, and others buried by changes in technology and customer preferences).
The layout of the Zappos case study entails:
- Company Profile(Business model & History)
- Challenges that Inspired Monumental Decisions
- Pivotal Business Decisions
- Impact of Decisions( Milestones achieved)
- Urban Legends Cementing Zappos’ Customer Service Crown (Pricing error that cost them $1.6M)
- Key Takeaways
1. Company Profile
Zappos is an American e-commerce retailer that primarily sells shoes. It also sells other range of product-lines such as eyewear, clothes, accessories and jewellery.
The business model is anchored on direct-to-consumer (DTC) where customers shop for products on the Zappos e-commerce store. Ordered products are delivered to consumers once they place their orders.
The company was born in 1999. It was named shoesite.com. The parent of the company was Nick Swinmurn. What gave birth to an online store for shoes? Nick’s shopping experience for his favourite boots.
He either found the colour he wanted or not the right size. Or found the right size that fits but not the colour he wanted.
His frustrations of looking for the right size and colour in brick-and-mortar stores conceptualized the idea of starting his own shoe store. The value proposition of his store:
- Offer a variety of shoes for customers to select
- Offer free delivery
- The convenience of accessing an online footwear catalogue at the comfort of your home
- Money-back guarantee policy for shoes that did not fit
The company had entered into strategic deals with shoe manufacturers who would ship orders to customers. It also sponsored the Golden State Warriors NBA basketball team for the 1999–2000 season.
Shoessite.com was later rebranded to Zappos. Nick needed funding to keep the company afloat. He approached the late Tony Hsien, a VC who previously sold his internet start-up, LinkExchange to Microsoft for $265 million.
The pitch that secured a deal of $500 million from Tony’s venture firm, Venture Frogs, was delivered in three sentences:
“Footwear is a $40 billion industry in the United States, of which catalogue sales make up $2 billion. It is likely that e-commerce will continue to grow. And it is likely that people will continue to wear shoes in the foreseeable future.”
Tony bought Nick’s vision of selling shoes via the internet and invested in the company. He also became part of the management as CO-CEO. Fred Mossler, a former employee(shoe salesperson) of Nordstrom would later join the company.
The trio would propel the company’s growth by executing transformative business decisions.
2. Challenges that Inspired Monumental Decisions
There were several challenges that accelerated the adoption of pivotal business decisions. Zappos realized it needed to tweak its current business model at that particular time (2000–2003).
Some of the challenges the company faced included:
- Lack of control on order fulfilment and customer purchase journey. Zappos operated as a middleman connecting customers with different shoe manufacturing brands that delivered shoes to customers. Zappos’ drop shipping model made it difficult for the company to control delivery times of manufacturers and visibility of inventory levels.
- Cash flow hurdles. The company was short of cash. The graveyards for internet companies were dug daily during the dot com bubble.
- Personalizing customer service. Outsourcing shipping and call centre services denied the company an opportunity to personalize the customer’s experiences.
3. Pivotal Business Decisions
The trio decided to shift the position of the company by adopting new models. Key decisions executed by the company’s management:
- Free shipping and returns for all orders (365 days return policy). Delighting customers by giving them an option to order a different variety of shoes was part of the company’s strategy of optimizing the customer experience.
- Switching from drop shipping model to in-house inventory and warehousing. Taking control of the value chain by storing and distributing their own merchandise meant that the company could own the entire customer purchase experience.
- Productize customer service. The company prioritized customer service by integrating it as a core product. Excellent customer service was the cornerstone that differentiated Zappos from other companies with similar offerings.
Hiring the right personnel who were aligned with the company’s purpose of customer service was integral in monitoring and improving customer interaction.
A call centre located in Nevada led to access to diverse staff who are willing to work at odd hours and hold hospitality in high esteem thus guaranteeing quality customer service.
Quality training and freedom of personnel staff during engagement with customers provide fodder for successful customer service.
4. Impact of Monumental Decisions
- Creation of customer service competitive advantage. Zappos is recognized globally for its excellent customer service. Repeat customers purchase products based on referrals attributed to excellent customer service and experience.
- Free shipping trend in apparel and footwear industry. The majority of apparel retail companies offer free shipping to their customers. Zappos pioneered the free shipping concept for consumer internet companies.
- Increase in revenue margins. Revenue margins increased exponentially, enabling the country to gross $1 Billion dollars pre-acquisition. About 80% of their orders are generated by repeat clients who adore the company’s free shipping and return policy.
- Acquisition by Apple. The E-commerce giant’s customer-centric model aligned with Zappos’ customer service culture incentivized Bezos to purchase the online shoe company for approximately $1.2 Billion. During the acquisition, Jeff Bezos described Zappos:
“Zappos has a customer obsession which is so easy for me to admire. It is the starting point for Zappos. It is the place where Zappos begins and ends. And that is a very key factor for me. I get all weak-kneed when I see a customer-obsessed company, and Zappos certainly is that.”
5. Urban Legends Cementing Zappos’ Customer Service Crown
Zappos customer service crown has been tested several times. Each of those tests has resulted in exemplary customer service worthy of being recorded in the Guinness World Records.
A positive company culture anchored on core values that empower employees and creates a sense of community has steered Zappos via financial and social storms. Some of the policies and decisions executed by Zappos geared towards customer service sound like urban legends for anyone who hasn’t interacted with the brand. They include:
- Paying Newly Hired Customer Service Representatives $2,000 to Quit. The offer is used as a scale for measuring employee commitment toward the company’s vision and retaining employees who are passionate about Zappos’ core values.
- The 10-Hour Long Customer Service Call. A customer service employee who just helped a customer complete his purchase journey in a new record of 10 hours. A sales rep can borrow a page from the Zappos customer service playbook.
- Honouring all Sales Attributed to a $1.6 Million Pricing Error. A pricing mistake in one of Zappos’ sister e-commerce sites, 6pm.com, capped every product on the site at $49.95. Customers bought products worth $1.6 million using the capped price. Zappos apologized for the confusion and honoured all sales.
Key Takeaway:
There are so many valuable lessons that can be derived from Zappos’ company culture, customer-centric strategy and decision-making framework.
Pivoting the business model via refining the value proposition can lead to developing a sustainable competitive advantage that can change the trajectory of an industry. Free shipping and returns for 365 days and personalized customer service were the magical wands that prevented the Zappos ship from hitting an iceberg.
Find your magical wand, either from within or outside that will steer your ship to new fruitful voyages.
