Institute of Management Technology, Dubai

Zappos.com: Case Study

Group no: 3

Setu Sharma
Tharun Thomas Abhimanyu Jitnai Prithvi Chauhan

Setu Sharma

The Case of Zappos.com 2009: Clothing, Consumer Service and Company Culture Zappos.com, a privately-held online retailer of shoes, clothing and other soft line retail categories, learned that Amazon.com, a $19 billion multinational online retailer, was about to acquire it. Zappos started as a humble beginning in 1999, when less than even 1% of shoes were sold online. How did Zappos climbed the success ladder and become a company which Amazon would look to acquire allowing it to be independent subsidiary in Amazon is the case.The case evolves about the 3Cs that Zappos set for itself and that changes the story of Zappos in a span less than a decade. Inspired by the low service level and variety of a shoe mall at San Francisco, Nick Swinmurn, a 26-year-old marketing manager for an online car-buying service, started Zapos.com as shoesite.com. Zappos initially secured inventory through independent shoe stores, but by October 1999, the company had begun creating direct relationships with footwear manufacturers. By the end of 2000, Zappos offered more than 100 brands and manufacturers agreed to ship orders directly to Zappos customers so the company could avoid carrying inventory. In 1999, there were more than 1,500 retailing sites on the Internet with footwear offerings, but online shoe sales were just under $48 millionless than one tenth of 1% of the $37 billion U.S. footwear market. By contrast, mail-order catalog sales were 6.4% of U.S. footwear sales. In contrast to this starting point Zappos were able to manage a sales growth to 1187 million dollars by the time in 2009. By 2000, Zappos was billing itself as the worlds largest shoe store with 150 brands and 400,000 pairs of shoes in stock. Zappos had begun to switch from having manufacturers ship directly to its customers to carrying inventory. This pile up of inventory seems to be an issue, where Inventory as a percentage of totals asserts is approx. 65%. Hsieh and Lin, founders of venture capital funding firm Venture Frogs invested in zappos.com in January 2000. They started up with selling pizzas and later at the ages of 24 and 25, respectively, founded an advertising network Link Exchange, that they sold to Microsoft for $265 million in November 1998. Hsieh joined Zappos as co-CEO (with Swinmurn) in May 2001, as Zappos was the most fun and the most promising of all companies he had encountered as a venture capitalist. By years end, Zappos had grown to $8.6 million in gross merchandise sales.

In 2002, he announced a financial goal for Zappos: to grow to $1 billion in gross sales by 2010.In 2003, Hsieh became sole CEO and Swinmurn became chairman.

Q1. Why was Zappos so successful in its first 10 years from 1999-2009? What evidence is presented in the case of the companys success? What general, high -level strategies can you identify that lead to their success?

A.1 In 1998, Nick Swinmurn had seen a opportunity to fulfil a market need, he saw that there were no online sites where a customer could conveniently shop for footwear. He made sure that the site which he would start would be providing a large selection of footwear so that the customer would not have to visit other stores or websites. Zappos was growing at a substantial rate mainly because they were focused on three main things which were: Company culture, Customer Service and Clothing. Company Culture: The company culture which was created at Zappos was unique, they instilled a sense of fun and weirdness to the environment, and they wanted this to be reflected through their staff to the customers. They hired individuals to match the companys culture and made sure that they maintained certain soft standards which were mentioned in their core Value set. Customer Service: Zappos heavily relied on high quality customer service and made sure that the employees provided the same. They had special CLT members whose job was to provide answers to any doubt that a customer may have. They went to extraordinary lengths to satisfy the customer which included interacting with them for hours on unrelated topics. The back office job was equally important. They carousel and Kiva systems ensured that they were able to provide what was promised on time. Clothes: Another major success factor was how Zappos was able to pull in close to 300 brands which offered shoes and clothes. This enabled them to provide whatever the customer was looking for. The employees at Zappos gave detailed explanation of the products on the site with photos from different angles. Zappos has a mission to provide all types of apparels to clothe a person from head to toe.

The 3 factors contributed to Zappos success, in-fact in 2000, it was named as the highest ranking Pure- Play online footwear retailer. It had surpassed retailers such as Lands End and Abercrombie. We could also see the success of Zappos by how swiftly it had achieved all its goals. For example, in 2002, Hsiesh had set a goal of reaching $1 Billion in sales by 2010 but

they had achieved this figure by 2008. The main strategy which we felt Zappos adopted was Delivering Customer Oriented Service Delivery Strategies for Delivering Service Quality Through People: Zappos adopted a complex set of strategies to achieve superior service quality which are stated below:

Hire The Right People: They made sure that people were hired on the basis of both interpersonal and technical skills. They had criterias which made hiring a bit more complex than other companies.

Hire for Service Competencies: At Zappos they concentrated on thing more than technical skills, they wanted people who would enjoy their work. They made happiness criteria for hiring, they required the applicant to be a person who is creative, happy and a little weird other than being technically sound. Be the Preferred Employer: Zappos had created an environment in which the employees felt comfortable. They did not have any particular hard standard in place which made the working freer. To promote their work culture, they conducted work place tour for outsiders who included academics and business personnels. This helped spreading the work culture of Zappos. Develop People To Deliver Service Quality: Train People: The people working the Las Vegas office were provided with 225 hour training session on the core values of the company in which learnt and taught others. The workers from the warehouse were trained different functions to increase cross-functioning. Empower Employee: The employees were allowed o interact with the customer in whichever way they wanted to but keeping service quality in mind. The company was non-hierarchical, even the CEO used to sit in cubicles near to his workers. Provide Needed Support Systems: Measure Internal Service Quality: The Company never measured service quality in terms of time taken for a representative to finish a call or in terms of number of calls. They measured the performance through customer feedbacks.

Provide Supportive Technology: The workers at the warehouse were supported by state of the art technology such as KIVA to help them sort and pack products. This type of systems made the process of packing and shipping easier. Retain the Best Service: Include People in the company vision: The higher management made sure that the employees were always aware of what is supposed to be provided. The Core Values indicated the service which was expected to be provided to the customers. The goals of the company were also communicated to the employees as well. Measure and Reward: The employees were measured in terms of feedback from the customers. They were given opportunities to grow within the organization through programs such as Leadership Zappos Style

Q.2 Use the Service Triangle to illustrate and analyses Zappos success from a service strategy perspective. What specific things did the company do to achieve its success in external marketing, interactive marketing, and internal marketing? Is the Triangle well-aligned and where do you see potential threats going forward?

A.2 In this we are going to use the Service Triangle to analyse the success of Zappos. The service triangle consists of three parts which are: Internal marketing, External Marketing and Interactive Marketing.

External Marketing: Zappos has mainly communicated its service excellence through word of mouth. 70% of its customers are repeat customer who has experienced exceptional service and they feel that at-least one customer would spread the word. They highly depend in their CLT members to communicate high service quality. Through the phone they engage in service quality attributes such as empathy and assurance. They make sure they the customer is served in a exceptional manner so that he would remain a loyal customer. Internal Marketing: The employees in the company have to adhere to the core values which are set by the company. They are very stringent about the core value even though they are soft standards. They have created the company culture to encourage fun and weirdness; they want

this culture to be reflected through their employees to the customer. Zappos has made sure that they hire people who are happy and could fit into the companys culture. They have kept the emphasis on happiness equal to that of technical skills. The employees are trained about the core values for 225 hours and asked to train other as well. Employees who want to grow are provided with opportunities such as the Zappos Leadership Program and so on. Interactive Marketing: Zappos was able to deliver the promise through a highly efficient team of workers in their warehouse. The workers were supported by high tech carousel and KIVA systems. They used two separate racks for received goods and placed them in the racks according to the tag number. They Carousel, which were a bit unreliable was the main supporting part, It helped moving the units from one place of the factory to another. The KIVA system was the automated sorting system which made the process of stacking the items in the racks and trucks faster. They delivered their products through UPS and paid a premium for better service. This ensured that they were able to provide whatever was promised by their website. The triangle is well aligned and all the components of the triangle are in accordance of the companys culture. The company heavily relied on quality checks in the form of feedb acks and could find out any problems in the system through this. But there are a few major issues which may arise in adopting this system. The company is providing very high standards of quality which could be difficult to maintain with growth. People would start to expect more from the company and a small mistake may prove fatal. The warehouse has been developed to accommodate shoes and the storage has been specially designed for it. Zappos has now moved into clothing, the storage and shipping in this case would be different which could mean that it would take a lot of time and investment

Answer 3: The service blue print of Zappos.com would be like this

4. What challenges or changes in strategy would you anticipate for Zappos following its acquisition by Amazon? Can the company continue with the same strategy why or why not? Answer: Amazon is very successful in the strategy of delivering quality products at low prices to its consumers and thus hold a larger market share in the industry. On the other hand, Zappos primary focus is to deliver a WOW experience to the customer even if it costs the customer more because they know how to make their customers satisfied and delighted. They know customers will have no problems in paying something extra as Zappos provide the value to them. With the acquisition by Amazon Zappos biggest strategic challenge will be to maintain their customer base at lower prices as they are known to keep the customers delighted. Another challenge for Zappos and their employees would be to cope up with the working culture of Amazon as Amazon follows strictly formal and hierarchical organization structure

while Zappos are known for their friendly work environment with focus on keeping the employees happy and satisfied. We believe that the company should continue with the same strategy of focusing on its customers and employees happiness in order to deliver the WOW experience for which they are known and recognized. The main reason for Zappos success is not its features, prices or policies but the unique work culture which inspires the employees to perform at their best level and make them feel a part of the family and organization. Their culture revolves around delivering happiness. They hire happy people as they believe that happy employees will make customers happy and delighted. If they are not able to continue this strategy, their reputation can get hampered and can lose the brand value which they have developed in the eyes of their customers of making them happy and delighted.

5. Go to the Zappos website and check it out. What is one cool thing on the website that you think reinforces a concept or strategy connected directly with service marketing and management fundamentals? Answer: On visiting the Zappos website we find that the website is full of colors and shades which signify the companys core values of having a friendly work environment for the employees and also keeping the customers delighted with the services. This strategy of designing a colorful website focuses on letting the consumers know that Zappos is for all people irrespective of their cultures, personality, traits. With different colors and designs Zappos want to convey that they have all kinds of shoes with different colors and pattern so that the customer can purchase according to the need and remain delighted with the options available for consideration to them.