* Struktura, Inc. (SI) is a corporation owned by ALCO Group of Companies. * SI is practically a machine shop that manufactures car air-conditioners for Karkon & others, steel frames….
In 1999, Nick Swinmurn found himself walking through the mall, unable to find the right pair of shoes after visiting a variety of stores. Empty-handed, he went home to search online and found that there was no major online shoe retailer. A few months later, Swinmurn quit his job and started Zappos.com, an online store that carried the latest shoe styles, brands and colors. Over the past decade, Zappos has evolved to become one of the leading online clothing retailers centered on providing superior customer service.
1. Why was Zappos so successful in its first 10 years from 1999-2009? What evidence is presented in the case of the company’s success? What general, highlevel strategies can you identify that lead to their success?
Since it’s inception, Zappos has grown from a shoe-only retailer to grossing over $1 billion in sales from a variety of clothing items (Zeithaml, 2013, Exhibit 6). Initially called ShoeSite.com in 1999, Swinmurn later changed the name to Zappos, a play on the Spanish word for shoe, zapatos.
The company initially purchased its inventory from independent retailers, but soon after, created lasting relationships with footwear manufacturers. This allowed Zappos to refrain from carrying inventory by having the manufactures ship directly to the customers (Zeithaml, 2013). By the end of 1999, Zappos instituted a free shipping policy that fostered immediate growth, which fueled the company towards a very prosperous decade. At the start of the millennium, Zappos consisted of 150 brands and nearly 400,000 pairs of shoes. One of the main causes of Zappos early success was a $1.1 million investment of venture capital funding from Venture Frogs, “an investment and incubation firm that specialized in early-stage Internet, e-commerce, information and telecommunications technology” (Zeithaml, 2013, p. 500).
This introduced Tony Hsieh to Zappos, where he later became the co-CEO in 2001. Over the next four years, Swinmurn and Hsieh set their goals towards growth opportunities rather than profits. They understood that Zappos’ growth, and in turn, value, had to be built upon strong core cultures and values that infiltrated all levels of the business. These values included delivering ‘WOW’ through service, embracing and driving change, building a positive team and family spirit, and various others (Zeithaml, 2013, Exhibit 7). By 2005, Zappos had outgrown its San Francisco headquarters and was forced to relocate to Las Vegas after receiving a $35 million investment from Sequoia Capital. Three years later, the company reached their goal of $1 billion in sales (2 years ahead of schedule) and employed roughly 700 “team members” (Zeithaml, 2013). In addition to Zappos’ core values, the company focused on the three C’s: company culture, customer service, and clothing.
These fundamental aspects of the Zappos’ business model gave the company the ability to build a strong corporate personality and gain consumer backing quickly. Zappos management considered the company culture as the differentiating factor that ultimately advanced its competitive advantage. Hsieh explained, “Our belief is that if you get the culture right, then most of the other stuff – like great customer service or building a long-lasting, enduring brand – will happen naturally” (Zeithaml, 2013, p. 501). The basis of Zappos’ success stemmed from managements capacity to treat their employees with mutual respect and trust. When designing the company’s core values, Hsieh gathered feedback from the employees on what those values should be and, from their feedback, created a list that was distributed to all levels of the company. This not only strengthened Zappos team-oriented culture, but also established guidelines for employee behavior. Job applicants were screened and assessed based on their ‘fit’ within the Zappos culture. All candidates went through two levels of interviews: a skill based interview from hiring managers and a ‘culture’ interview from the HR department (Zeithaml, 2013).
This duel level process ensured that only the right employees were selected, which is especially important for a company that differentiates themselves by providing superior customer service from friendly, reliable employees. Additionally, the training and orientation processes, coupled with the implementation of an employee development pipeline, furthered Zappos superior treatment of its employees, leading to satisfied/loyal customers and sustained profits. Customer service, the arguably most important ‘C’, separated Zappos from most other online retailers. The company’s obsession with providing customers with the best possible experience differentiated itself from the competition. The call center employees were not limited by call time, nor solely measured using traditional metrics (Zeithaml, 2013). Employees were urged to become ‘friends’ with the customer and provide an experience that was “as easy and as close to a visit to a retail store as possible” (Zeithaml, 2013, p. 500). In some instances, employees sent bouquets of flowers or candy to customers in sympathy or in celebration.
These small gestures allowed Zappos to quickly further their customers along from customers as strangers to customers as partners. Among consumers, Zappos quickly became known as one of the best customer support providers in the retail industry, both on and offline. This increased customer expectations of the service, leading Zappos to establish a multifaceted and rigorous training program. After opening a fulfillment center in Kentucky in 2002, Zappos increased their shipment speeds by establishing a variety of filling processes (static racks, carousel and Kiva) (Zeithaml, 2013). This only increased Zappos’ customer service because consumers were able to have their products delivered faster and more efficiently. By tapping into the clothing market in 2006 (the third ‘C’), Zappos gained an entirely new source of sales. The U.S. clothing market was four times the size of the shoe market at the time, and Zappos took full advantage of the new market segment (Zeithaml, 2013).
Zappos partnered with many clothing brands that they had previously done business with, including North Face and Asics. In addition to clothing, Zappos acquired multiple new lines of business: Powered by Zappos, 6pm.com, Private Labels, and Zappos Insight. After the economic recession in 2009, Zappos was forced to lay off 8 percent of its workforce, while relying on a $100 million line of credit. In light of Zappos’ need for new opportunities, on July 22, 2009 Amazon announced that it would buy Zappos for slightly over $900 million including stock options for Zappos employees (Maestri, 2009). Ultimately, Zappos attention to customer service and the superior treatment/training of its employees fueled their growth and success over the past decade, leading to the merger.
2. Analyze Zappos’ success from a Services Marketing Mix Perspective. What specific things did the company do to achieve its success in external marketing, interactive marketing, and internal marketing? Where do you see potential threats going forward?
One of the fundamental concepts in service marketing is the marketing mix, which is “the elements an organization controls that can be used to satisfy or communicate with customers” (Zeithaml, 2013, p.25). Rather than consisting of simply product, price, place and promotion, the marketing mix includes people, physical evidence and process, suggesting that marketing a service entails more considerations than marketing a good. With regards to Zappos, their product consists of shoes, clothing, handbags, and accessories that are conveniently split up between men’s, women’s, and kid’s. Zappos’ multiple product lines give the company the ability to target multiple markets and remain competitive against the competition. Since Zappos’ is an online-only retailer, the place of its business is through their website and call center. Zappos does not have any outlet locations, other than their headquarters in Las Vegas and ships the majority of their inventory from warehouses in Kentucky.
Zappos prides itself on promotion, mostly through extremely friendly and helpful staff. Zappos sales people are rigorously trained, focusing largely on call center skills and are given incentives of up to $2,000 to leave the company if he/she does not ‘fit’ the corporate values (Zeithaml, 2013). Zappos does engage in paid advertising, however most of the brand awareness comes from word-of-mouth. “We actually take a lot of the money that we would have normally spent on paid advertising and put it back into customer experience,” says Tony Hsieh, Zappos’ CEO. “We’ve always stuck with customer service, even when it was not a sexy thing to do” (Zumda, 2008). Additionally, Zappos pricing has become less flexible over recent years as the company no longer price matches. This allows the company to afford free shipping both ways, 24/7 support and many other features. Many customers have reacted to this policy, resulting in a loss of a portion of its customer base. This pricing strategy may threaten future profits if consumers are not willing to pay more for customer service.
People are arguable one of the most important corporate elements for Zappos. The company has an extensive interview process, where candidates are questioned both on skill and personality/fit within the company. In 2008, Zappos instituted a pipeline program “to develop employees from entry level to ‘the highest level of management” (Zeithaml, 2013, p.504). Zappos employees are the foundation of the company’s competitive advantage and thus, are treated equally and honorably. The acquisition with Amazon may threaten the employee base and company culture as the company continues to operate as a subsidiary. Zappos’ physical evidence comes in the form of a state of the art corporate headquarters in Las Vegas as well as a user-friendly website. Zappos relaxed dress code emphasizes the company’s desire for a relaxed work environment where employees feel comfortable and happy. This translates into satisfied employees that will deliver the high-quality customer service that the company promises.
Untimely, Zappos’ process of service, which refers to the procedures and flow of activities that contribute to the delivery of a service, separates the company from the competition. From Zappos order fulfillment methods to its call center processes, the company acts as a well-oiled machine that delivers on its promise to customers. Zappos chooses to involve the customer as much as possible and encourages them to give feedback to the company in order to better serve their needs. Grouped together, these seven marketing mix factors highlight Zappos’ desire to put the customer first and use its employees as the differentiating factor that sustains customer loyalty.
3. 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?
After the acquisition by Amazon in 2009, Zappos may face many challenges that can alter its business strategy and corporate culture. Both companies pride itself on providing high quality customer service while fostering innovative and lasting ideas. The most pressing concern for Zappos is whether or not it can maintain its unique company culture. For visitors, Zappos resembles a three-ring circus ambience, including popcorn machines, jungle themed executive offices and even parades epitomizing their value of “creating fun and a little weirdness” (Zeithaml, 2013). For employees, Zappos feels like a corporate family, where each employee has a voice that can contribute to the greater good. It is extremely important for Zappos to maintain this culture and continue treating customers like friends rather than dollars and cents.
Zappos prides itself on being a part of Fortune’s Best Places to Work, while Amazon has never appeared on the list. This incongruity in employee satisfaction may cause issues between the two companies. With most publicly traded companies, the disclosure of financial information to employees becomes very limited. Up to the merger, Zappos has been rather open regarding financial topics. The company is extremely transparent, updating employees about operating profits and other performance factors. On the other hand, Amazon has continuously preferred protecting their financials from competitors (Frauenheim, 2009). This may present a conflict between the relationship of Zappos’ employees with Amazon management. Another major conflict that may appear from the acquisition is regarding the transfer of warehouse operations to Amazon (Lacey, 2012). Up to the point of the acquisition, Zappos has operated using two warehouses in Kentucky, both of which were working at capacity.
When faced with the decision to open a third, management ultimately decided that the smartest decision was to transfer the operations to Amazon, one of the best warehousing distribution companies in the world. This could present issues regarding speed of delivery, communication between various departments and management levels, and further Amazon infiltration into Zappos’ corporate structure. Ultimately, Zappos can continue with their corporate strategy, however various aspects of their operations will undoubtedly change. The values that Zappos prides itself on have not been altered and thus, the employees are still working in the same environment with the same fun, upbeat, and quirky employee base. However, since Amazon has a much larger infrastructure, many factors of the company’s everyday operations could change (warehouses, financial transparency). Only time will tell if the Zappos company culture is strong enough to withstand Amazon’s corporate power.
4. Go the Zappos website and check it out. What are some “cool things” on the website that you think reinforce a concept or strategy connected directly with service marketing and management fundamentals (name at least three)?
One interesting aspect that I found on the Zappos website was the section where consumers are able to write to Zappos if they do not carry a product they are looking for. For instance, if a consumer is in search of a specific color/style of shoe that the company does not have in their catalog, he/she can write/call in to Zappos to either find a similar product within their stock or search through competitors. This closes the listening gap, where employees and management can fully understand what the consumer needs and fully deliver on their promise of superior customer service.
Another service marketing fundamental that is apparent on the Zappos website is the importance of the service encounter. This interaction between Zappos employees and the consumer is critical in determining the customer’s future loyalty. On the website, consumers can contact Zappos in a variety of ways (phone, email, live online chat). This encounter is in essence “the moment of truth” between the company and the consumer. Zappos does an excellent job making the customer feel comfortable asking for assistance in a friendly, welcoming way. The company understands the importance of first impressions which is apparent in their simple to use interface as well as comedic phrases scattered through out the website.
The Service Performance Gap deals with the difference in the “development of customer-driven service standards and actual service performance by company employees” (Zeithaml, 2013, p. 40). Zappos understands that in order to provide customers with the best possible service, they have to hire employees that are compatible with the company’s values. Under the ‘Jobs’ section of their website, Zappos invites candidates to learn more about life at the company through various learning tools. This attracts only the individuals who display superior social abilities as well as a team-oriented attitude. Thus, Zappos can weed out those individuals who are not comfortable “creating fun and a little weirdness” in the office.
Frauenheim, E. (2009, September 25). Can Zappos’ Corporate Culture Survive the Amazon Jungle. Retrieved February 18, 2015, from http://www.workforce.com/articles/can-zappos-corporate-culture-survive-the-amazon-jungle
Lacey, S. (2012, June 6). Zappos Hands Over Warehousing to Amazon, Focusing All Attention on the Great Downtown Vegas Experiment. Retrieved February 18, 2015, from http://pando.com/2012/06/06/zappos-hands-over-warehousing-to-amazon-focusing-all-attention-on-the-great-downtown-vegas-experiment/
Maestri, N., & Sage, A. (2009, July 22). Amazon.com buying shoe seller Zappos for $928 million. Retrieved February 19, 2015, from http://www.reuters.com/article/2009/07/23/us-amazon-zappos-idUSTRE56L6TQ20090723
Zeithaml, V., Bitner, M., & Gremler, D. (2013). Services Marketing: Integrating Customer Focus Across the Firm (6th ed.). Boston: Irwin/McGraw-Hill.
Zumda, N. (2008, October 17). Zappos: Customer Service First — and a Daily Obsession. Retrieved February 18, 2015, from http://adage.com/article/moy-2008/zappos/131759/