ZAPPOS.

COM

Focus on Customer Service

 SUMANTRA GHOSHAL
• Companies that
succeed are driven by
cultural ambition.
Stock Price doesn’t
drive them. Ambition
1 9 4 8 -2 0 0 4
and Values drive
them
ZAPPOS.COM Current
Position


– 1500 employees (half in Las Vegas

headquarters, half in Kentucky)
•
– Zappos is “Powered by Service”
• Providing the best online shopping
experience possible.
• Fast, Free Shipping: Free return
shipping. 365-day return policy.
• Fast fulfillment. Expedited delivery.
Fast, friendly & expert customer
service.
•
 ZAPPOS.COM Current
Position
– Best selection
• Over 1,000 brands
• Millions of items in warehouse
• 100% of products inventoried (no drop
ship).
•
– Zapposis a service company that happens
to sell clothing, shoes, handbags,
eyewear, watches (and eventually a
bunch of other stuff).

 Recent Recognition
• Fortune “100 Best Companies to Work
For”
– #23 (2009) – Highest ranking
newcomer to list
– #15 (2010) – Second year in a row to
make the list
–
• Fast Company “50 Most Innovative
Companies”
– #20 (2009)
–
• Business Week Top 25 “Customer Service
Champs”
– #7 (2009)

Power of Repeat Customer and
word of mouth
 Nick Swinmurn
• The year was 1999, and the founder
Nick Swinmurn was walking around
a mall in San Francisco, looking for
a pair of shoes.
• Size but not colour
• Colour but not size
Birth of Zappos.com
 Tony Hsieh
 1994-1995: Pizza business in
college


 1996-1998: LinkExchange
(online advertising)
 Sold to Microsoft
for $265 million


 1999: Venture Frogs

(investment fund) - Invested
in Zappos.com, Inc.

 1999: Zappos.com, Inc.

 Nov 2009: Amazon acquires
Zapops.com, shares valued
at $1.2 billion at closing.

 June 2010:Publish date for my
book “Delivering Happiness”
 VISION
• One day, 30% of all retail
transactions in the US will be
online.
• People will buy from the company
with the best service and the best
selection.
• Zappos.com will be that online store.
•
Challenges
Business Strategy
 What is business strategy?
Johnson & Scholes (Exploring
corporate strategy) defined strategy
as follows:
“Strategy is the direction and scope of

an organisation over the long term,

which achieves advantage in a
changing environment through its
configuration of resources and
competences with the aim of fulfilling
stakeholder’s expectations.”
Levels of strategy
• Corporate Strategy - is concerned
with the overall purpose and scope
of the business to meet stakeholder
expectations. This is a crucial level
since it is heavily influenced by
investors in the business and acts
to guide strategic decision-making
throughout the business. Corporate
strategy is often stated explicitly in
a "mission statement".
• Business Unit Strategy - is
concerned more with how a
business competes successfully in a
particular market. It concerns
strategic decisions about choice of
products, meeting needs of
customers, gaining advantage over
competitors, exploiting or creating
new opportunities etc.
•
• Operational Strategy - is
concerned with how each part of
the business is organized to deliver
the corporate and business-unit
level strategic direction.
Operational strategy therefore
focuses on issues of resources,
processes, people etc.
•
 Vocabulary of Strategy
• Mission
• Vision or Strategic intent
• Goal
• Objective
• Strategic Capability
• Strategies
• Business Model
• Control
Components of Strategic
Management Process
 Strategic Analysis


Analyzing the strength of businesses'



position and understanding the

important external factors that may
influence that position
 Tools of Strategic Analysis
• PEST Analysis
• Scenario Planning
• Five Forces Analysis
• Market Segmentation
• Directional Policy Matrix
• Competitor Analysis
• SWOT Analysis
•
•
•
• STRATEGIC CHOICE
• STRATEGIC IMPLEMENTATION
Customer Service

24
What is Customer Service?

 "Customer service is the ability to provide a

service or product in the way that it has been
promised.“


 "Customer service is about treating others as

you would like to be treated yourself and how
they want to be treated."

 "Customer service is a process for providing

competitive advantage and adding benefits in
order to maximize the total value to the
customer." Source : Customer Service Manager 25
 2009 Businessweek Customer
Service Champs
14.
1. AMAZON.COM  14.NORDSTROM 
2. USAA  15.CADILLAC 
3. JAGUAR  16.AMICA 
4. LEXUS  17.ENTERPRISE RENT-A-
5. THE RITZ-CARLTON  CAR 
6. PUBLIX SUPER 18.AMERICAN EXPRESS 
MARKETS  19.TRADER JOE'S 
7. ZAPPOS.COM  20.JETBLUE AIRWAYS 
8. HEWLETT-PACKARD  21.APPLE 
9. T. ROWE PRICE  22.CHARLES SCHWAB 
10.ACE HARDWARE  23.BMW 
11.KEYBANK  24.TRUE VALUE 
12.FOUR SEASONS 25.L.L. BEAN 
HOTELS &
RESORTS  26.JW MARRIOTT 


13. •

Source : BusinessWeek Online

26
Zappos Customer Service
Strategy
 Customer service value proposition in
action…
Zappos is committed to WOWing every customer.
 Customers come…
 Over 10 million total purchasing customers
 Over 4 million have purchased in the last 12 months
 Customers come back…
 On any given day, about 75% of purchases from
returning customers
 Repeat customers order >2.5x in the next 12 months
 Customers come back, order more and
order more often…
 Repeat customers have higher average order size
 $123.86 – first time customers in Q407
 $156.27 – returning customer in Q407

28
Source : TheLetterTwo . com
 Customer Service:
What customers first see

29
Source : TheLetterTwo . com
 Customer Service:
What customers experience
– Fast, accurate fulfillment
–
– Most repeat customers are “surprise”-
upgraded to overnight shipping
–
– Friendly, helpful “above and beyond”
customer service
–
– Occasionally direct customers to
competitors’ web sites

Culture
 Zappos Core Values
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

PORTER’S GENERIC MODEL
 REQUIREMENTS OF GENERIC STARTEGIC MODEL
GENERIC STARTEGY INTERNAL STRENGTHS REQUIRED
OVERALL COST LEADERSHIP


§C a p ita l re q u ire m e n t fo r
 in ve stm e n t in a sse t
 p ro d u ctio n
 §S kill in d e sig n in g p ro d u cts
 §H ig h le ve l o f p ro d u ct

e n g in e e rin g
§E fficie n t d istrib u tio n ch a n n e l
 DIFFRENTIATION STARATEGY

§A cce ss to scie n tific re se a rch

§H ig h ly skille d a n d cre a tive

p ro d u ct d e ve lo p m e n t te a m

§C o rp o ra te re p u ta tio n fo r q u a lity
 a n d in n o va tio n
 §A b le to co m m u n ica te th e
 FOCUS p e rce ive d stre n g th s o f th e m
RISKS OF GENERIC STARTEGIES
STRATEGIES ADOPTED BY ZAPPOS
 COST LEADERSHIP

§ Methods of attaining Cost leadership – Gaining process efficiency,

Making optimal outsourcing and vertical integration
§ Zappos methods of cost leadership :
§
§
§
§
§
§
§
§
§
§
§
§



 COST LEADERSHIP CONTD..

§ Process efficiency was raised when Zappos realized that it was

competing with conventional shoe sellers rather than its
contemporary so it increased its efficiency by providing for
shipping overnight rather than waiting for a couple of days
§ Drop Shipping was the procedure wherein the company
maintained only 80-90% of its shoes so displayed on the
website as stock and remaining orders were transferred to the
manufacturers
§ Drop shipping resulted in 25% of its revenue but was against their
policies and was not standing for its brand
§ Drop- shipping procedure resulted in delay in the delivery time
causing inconvenience to the customers so 100% stock was
maintained and warehouse were kept open 24*7
 DIFFRENTIATION STRATEGY

§ Its cost strategies were inconsistent with its aim of making

Zappos customer services focused as opposed to price
focused…It also realized their cost strategies would only
attract Price-minded, one time customers instead of
brand loyalists
§ Strategies implemented to add to the uniqueness of the
Zappos products:
ü 24*7 toll free customer service
ü Search Engine Marketing (SEM)
ü Usage of social media extensively
ü Company Culture besides fanatically
emphazing on customer services
§ 75% of sales came from repeat customers wherein their
expenditure for the repeat purchase was higher
 DIFFRENTIATION STARTEGY CONTD..
CUSTOMER SERVICES:
§ As per their WOW policy they believed in having a toll free
customer service 1-800-927-7671
§ Emphasis on customer services made them change their
headquarter from San Francisco to Las Vegas-
 ” We were having a hard time finding good customer service
people in San Fransisco. Las Vegas has a lot of call centers and
lots of people who want to do customer service as a career.”
§ Directing customer towards its competitors websites was also one
of its differentiating attributes
§ Scoring of every customer call made it easy to follow the
performance of each customer service representatives
§ It also had its warehouse location Kentucky worked round the
clock for convenience of their customers

 DIFFRENTIATION STARTEGY CONTD..
CUSTOMER SERVICES:
KEY VARIABLES

§ Services as marketing


§ Toll-free number


§ Invitation to interact


§ Toll-free number hours



§ Outsourcing


§ Employees as advocate


§ Traditional Media spend

§
§
 TYPICAL BRAND
 Low

SEARCH ENGINE MARKETING
 SEARCH ENGINE MARKETING CONTD…


 CRITICAL ANALYSIS OF AFFILIATE ROGRAMS



 PROS
o Open Invitation
o Huge membership~17000
o Associates given USD 15/order against average sales of USD100
o Referral rate was 15%
o Associates could add a Zappos search box to their website
o Associates could choose to recommend specific shoe or product
line


 CONS
o Zappos did not accept International affiliates even if they had a
 DIFFRENTIATION STRATEGY CONTD..
SOCIAL MEDIA USAGE: PROMOTING TRANSPERANCY AND REACHING


OUT TO CUSTOMERS IN A FRIENDLY WAY


 DIFFRENTIATION STRATEGY CONTD..

COMPANY CULTURE CENTERED AROUND CUSTOMER



SERVICES:
§ Believed contemporaries could imitate their services but its
culture would give them competitive advantage
§ To give maximum services to customers it was important to have
committed set of employees on the payroll
§ Their strategy of having committed employees meant recruiting
the right people on the payrolls
§ 5 week training period recruits had to work in company call center
for some time and then at warehouse
§ This Strategy had been in limelight for quite sometime with “If you
quit, we will pay you USD 1000+bonus USD 2000 “
§ Managers were asked to build relations by spending time with
employees and to improve communication and build trust
between them
§ Doing this Zappos was growing by Word of Mouth unlike other
competitors
§
Competition Analysis:
•
•
•
•

• V/S
 v/s
Zappos.com endless.com
Zappos.com was founded by Endless.com is offered by
Nick Swinmurn Amazon.com
Inception: 1999 Inception: 2007
Features: Features:
Huge Collection (1000 brands in Wide Selection

over 150,000 styles) 24/7 Customer Service

24/7 Customer Service Free Overnight Shipping

Free Overnight Shipping Free Return Shipping

Free Return Shipping 110% Price Guarantee

110% Price Guarantee 365 days- return opportunity

365 days- return opportunity

Affiliate Programs


 v/s
Zappos.com shoebuy.com
Zappos.com was founded by Shoebuy.com was founded by
Nick Swinmurn
Inception: 1999 CEO, Scott1999.
Inception: Savitz
Went live:
Features: 2000
Features:
Huge Collection (1000 brands in Wide Selection

over 150,000 styles) Free Shipping

24/7 Customer Service Free Return Shipping

Free Overnight Shipping 110% Price Guarantee

Free Return Shipping No Sales Tax

110% Price Guarantee

365 days- return opportunity

Affiliate Programs
 v/s
Zappos.com Piperlime.com
Zappos.com was founded by Piperlime.com is offered by
Nick Swinmurn
Inception: 1999 GAP Inc. 2006
Inception:
Features: Features:
Huge Collection (1000 brands in Wide Selection

over 150,000 styles) Free Shipping

24/7 Customer Service Free Return Shipping

Free Overnight Shipping 100% Price Guarantee

Free Return Shipping 

110% Price Guarantee

365 days- return opportunity

Affiliate Programs
 Zappos’ Competitive
advantage
 “It would be easy for competitors to copy services like free
shipping and free returns, it would be difficult to imitate its
culture, and this could serve as a major competitive advantage.”
-Hsieh
•
• Superior Customer Service- Engraved with the Culture of the
company.
• Price Protection Policy
• Free Return Shipping- First in online Retail business
• 24/7 Toll free Customer Service Number- First in online Retail
business
• Aims to bridge the gap between the ‘Experiences’- Competing
with Brick & Mortar shoe retailers.
• Transparency
• Strong Public Image- PETA
• Unique Customer Connect- Use of Social Networking Sites.
• Unique Affiliate Program
 Why Zappos was sold to
Amazon?
• The first time Amazon.com tried to
buy Zappos was in the summer of
2005.
• By 2005, sales were $370 million, but
zappos was not profitable yet, but it
was close to breaking even, and
revenue was growing quickly.
• Zappos wanted to achieve sales of
$1 billion by 2010 and eventually
go public.
 Initial Offer
• Sales of zappos was $1 billion in 2008
ahead of their target.
• Zappos raised tens of millions of dollars
from outside investors, including $48
million from Sequoia Capital, a
Silicon Valley venture capital firm. As with
all VCs, Sequoia expected a substantial
return on its investment.
• Zappos relied on a revolving line of credit of
$100 million to buy inventory but was
incapable of financing it because of
lending agreements and unwillingness of
bank to invest because of recession.
 Difference of opinion
• Some board members had always viewed
company culture as a pet project -- "Tony's
social experiments," they called it. He
disagreed. The board wanted him, or
whoever was CEO, to spend less time on
worrying about employee happiness and
more time selling shoes.
• To tony, Zappos wasn't just a job -- it was a
calling. So he came up with a plan: He
and Alfred would buy out stake of board of
directors. They figured to do so would
cost about $200 million.
 Acquisition Proposal
• Alfred sensed that Amazon would be
more open than last time to the
idea of letting Zappos continue to
operate as an independent entity.
• Tony was concerned about the
similarities and dissimilarity
between Zappos and Amazon.
 Terms & Conditions
• Amazon initially offered to buy
Zappos in cash, but later an all-
stock transaction was proposed
.Zappos shareholders would simply
trade their stock for Amazon stock.
• Board voted to accept the proposal
on July 20.On July 22 the deal was
publicly announced.
 Amazon-Zappos Merged
• The acquisition closed on November 1,
at a valuation of $1.2 billion (based on
Amazon's stock price on the day of
closing). Sequoia made $248 million.
Board was replaced by a management
committee that includes tony , Jeff, two
Amazon executives, and two Zappos
executives.


• 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.
 The website.
• www.zappos.com

Ansoff’s “Strategic Readiness
Diagnosis”. He introduced “gap
analysis” (the gap between where
you are today and where you want to
be).
 Ansoff Matrix

Existing Product
New Product

Existin Market Penetration Product Development

g
Market

New
Market Market Development Diversification
 Market penetration
• Maintain or increase the market
share of current products by a
combination of competitive pricing
strategies, advertising, sales
promotion.
• Secure dominance of growth
markets.
• Increase usage by existing customers
– for example by introducing loyalty
schemes.
 Market development
• New geographical markets : First
North America and then other
countries.
• New product dimensions or
packaging.
• New distribution channels or
acquisition of local manufacturers
and using “Hub and Spoke model.”
• Different pricing policies to attract
different customers or create new
market segments.
 Product development
• Product development is the name
given to a growth strategy where a
business aims to introduce new
products into existing markets. This
strategy may require the
development of new competencies
and development of modified
products which can appeal to
existing markets, e.g.
complimentary products.

 Diversification
• New products in new markets.
• A clear idea about gain from the
strategy and an honest assessment
of the risks.
•
qRecommendation: Change/review
salary instead of layoffs.

 THANK YOU
• Presented By:
• Jimit Mehta 09BS0000963
• Mausam 09BS0001217
• Mukesh Sagar 09BS0001337
• Nisha 09BS0001400
• Mohsin Pathan 09BS0001571