Transcript Zappos Case Study Minder Chen Professor of MIS

Zappos Case Study
Minder Chen
Professor of MIS
Martin V. Smith School of Business and Economics
CSU Channel Islands
[email protected] or [email protected]
Web site: http://faculty.csuci.edu/minder.chen/
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http://images.businessweek.com/ss/09/02/0219_customer_service/20.htm
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A failed trip to the mall
• It all started with a failed trip to the mall.
• In 1998, film-school grad Nick Swinmurn was
scouring the Bay Area for a pair of Airwalks,
but couldn't seem to find the right size and
style. Swinmurn, who was working at the
Internet consumer site Autoweb.com at the
time, used the model behind that site for
selling shoes online. This idea would
eventually become Zappos.com.
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Shoesite.com
• It was the fact that 5 percent of a $40 billion (i.e.,
$2B ) shoe business was already being done
through mail order (i.e., Total Addressable Market
size). That was my big statistic. People were already
buying shoes without trying them on.
• So they [Venture Frogs ] invested $500,000 - which
at the time felt like I had just raised $100 million.
• The company was a little more stable at that point,
so Fred Mossler (a agreed to leave Nordstrom and
come on board as our “Senior VP of Merchandising”
http://about.zappos.com/press-center/media-coverage/zappos-milestone-qa-nick-swinmurn
http://www.tedxsincity.com/speakers/fred-mossler/
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Zappos
• Founded in 1999.
• “A service company that just happens to sell
shoes.” - Tony Hsieh, CEO of Zappos
• Zappos can cultivate a reputation for
outstanding customer service to the point
where it, too, can become a springboard into
several markets.
• It rang up a record $1 billion in sales in 2008.
• Employees are referred to as “Zapponians”.
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Meet Zappos CEO Tony Hsieh
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Source: http://www.triballeadership.net/happiness
https://shopping.zappos.com/tribal/ for the Free Audio Book of Tribal Leadership
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• 謝家華（左）與林君叡的辦公室根本連門都不設，頂上裝
飾成熱帶雨林，還有猴子。 記者馮鳴台／攝影
• Read more: 世界新聞網
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http://kmol.online.pt/en/2009/07/31/zappos-en
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Logo Design
Zappos (a variation of "zapatos," the Spanish word for "shoes") so as
not to limit itself to selling only footwear.
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Are you Tony Hsieh’ing it?
• Tony Hsieh is the founder and CEO of Zappos.com. Hsieh inspired me
to get into social media. He was one of the first people I followed on
Twitter and I was completely blown away by the amount of time he
spent tweeting.
• He was so passionate about his customers that I consider him a social
media pioneer: He used it to grow his business. And, he was
reachable to everyone. I actually received a message from him when I
responded to one of his tweets. What CEO does that?
• How could an online shoe business have nearly 1.7 million followers?
Hsieh worked hard at growing his community. You’ve got to Hsieh it
to stay in it.
http://flipthemedia.com/index.php/2010/07/what-is-social-media-its-more-than-just-twitter-and-facebook/
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What is the story behind a Pizza?
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Graphic Facilitation
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"We believe that customer service shouldn't be
just a department; it should be the entire
company."
- Tony Hsieh, Zappos CEO
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The things you have heard already
• Culture is the #1 priority (customer is not first)
• Core value of “Deliver WOW through service”
• 2 weeks of call center training for ALL
employees
• $4000 to quit at the end of training
• Legendary calls and stories
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Customer Service:
What Customers First See
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24/7 1‐800 number on every page
Free shipping
Free return shipping
365‐day return policy
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Customer Service Is Everything
• At Zappos.com, Customer Service Is Everything.
In Fact, It's The Entire Company.
• We've been asked by a lot of people how we've
grown so quickly, and the answer is actually
really simple... We've aligned the entire
organization around one mission: to provide
the best customer service possible. Internally,
we call this our WOW philosophy.
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Power of Repeat Customers & Word of Mouth
$1,000
$900
Gross Sales ($ in Ms)
$800
$700
$600
$500
$400
$300
$200
$100
$0
Gross Sales
2000A
2001A
2002A
2003A
2004A
2005A
2006A
2007A
2008F
1.6
8.6
32
70
184
370
597
840
1,000
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Repeat Customers
• “Great product, Great service, or Low Prices”
• (Choose and focus on 2 of the 3)
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Repeat Customer Data for Zappos.com
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Customer service value proposition in action…
Zappos is committed to WOWing each and every customer.
• Customers come…
– 8.0M total purchasing customers (2.7% of US population)
– 3.5M 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
– $111.98 –first time customers in Q406
– $143.22 – returning customer in Q406
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Customers Reward Zappos by Coming Back
Zappos Insight, April 25, 2014.
Plus (link)
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Three Key Areas: BCP
• Branding through customer service (build our
brand and drive word of mouth through
customer serice),
• Culture (which would lead to the formation of
our core values), and
• Employee training and development (which
would eventually lead to the creation of our
Pipeline Team – HR?).
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• Inc., June 2010 Why I Sold Zappos?
• Sequoia made $248 million out of $20 million
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Case Study Questions
• Why selling shoes online is not considered a good e-commerce idea?
• What policies Zappos have to make it easier for you to buy shoes
online?
• Why changed Tony’s mind to invest in Zappos (shoesite.com)?
• Why were the challenges in the early stages of Zappos company
history?
• Why Amazon acquired Zappos?
• Why Zappos moved its headquarter to Las Vegas?
• Why did Zappos locate its logistic center at Kentucky?
• Explain the meaning of Zappos’s culture and how it foster its culture
• What are the major differences between Amazon and Zappos?
• What are the unique approaches that Zappos have taken that are
against traditional wisdom?
• “Carry less and sale more” (drop-ship) vs. “Carry all”
• Outsource call center vs. in-house call center
• How is the performance measured for call center employees?
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Assignment Questions
1. What are Zappos’ core competencies and sources of competitive
advantage? How sustainable are they? What role does corporate
culture contribute to its success?
2. How important is next-day air shipment to the customer experience?
Is it worth the cost? How might you change it in the cost-conscious
environment facing the company in late 2008?
3. How would you expand the business? Would you add more products,
more geographies, or by selling private labels? As you expand the
business, how can the company become more profitable, particularly
in light of the costs associated with the focus on service?
4. How would you expect the environment of a more cost-conscious
consumer to affect Zappos’ business? What can Zappos do in such an
environment to maintain sales growth?
Source: Stanford Graduate School of Business, Case GS-65, Teaching Notes
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Zappos Core Values
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Deliver WOW Through Service
Embrace and Drive Change
Create Fun and A Little Weirdness
Be Adventurous, Creative, and Open-Minded
Pursue Growth and Learning
Build Open and Honest Relationships with
Communication
Build a Positive Team and Family Spirit
Do More with Less
Be Passionate and Determined
Be Humble
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Be Humble
• Be Humble is probably the core value that ends up
affecting our hiring decisions the most. There are a
lot of experienced, smart, and talented people we
interview that we know can make an immediate
impact on our top or bottom line. But a lot of them
are also really egotistical, so we end up not hiring
them. At most companies, the hiring manager
would probably argue that we should hire such a
candidate because he or she will add a lot of value
to the company, which is probably why most large
corporations don’t have great cultures.
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Be Humble
• While we have grown quickly in the past, we recognize that
there are always challenges ahead to tackle.
• We believe that no matter what happens, we should always be
respectful of everyone.
• While we celebrate our individual and team successes, we are
not arrogant nor do we treat others differently from how we
would want to be treated. Instead, we carry ourselves with a
quiet confidence, because we believe that in the long run our
character will speak for itself.
• Ask yourself: Are you humble when talking about your
accomplishments? Are you humble when talking about the
company’s accomplishments? Do you treat both large and
small vendors with the same amount of respect that they treat
you?
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Company Culture Alignment
“We wanted a list of committable core values
that we were willing to hire and fire on. If we
weren’t willing to do that, Then they weren’t
really ‘values’.”
- Tony Hsieh
Source: Delivering Happiness, Pp. 157-158
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10 rules for creating a customer-centric culture
1. Make customer service a priority for the whole company.
2. Make "wow" a part of your company' vocabulary.
3. Don't measure call times, and don't force agents to
upsell.
4. Empower your customer service team.
5. Don't hide your toll-free number.
6. Have the entire company celebrate great service.
7. Create a culture book.
8. Find people who are passionate about customer service.
9. Give great service to everyone: customers, employees,
and vendors.
10. Make customer service part of everyone's performance
reviews.
Source: http://decker.typepad.com/welcome/2006/12/zappos_10_rules.html
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Zappos Culture
• Video
Jon Wolske, Zappos - "The Importance of Being Intentional with Your Culture"
(link)
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Business Strategy:
Invest in Company Culture
• “Our Business Strategy since 2005 has been
to invest in company culture, with the belief
that the culture will ultimately drive
employee productivity, customer service
quality and brand strength.”
‐ Tony Hsieh
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Tony Hsieh’s Core Values that Deliver Happiness
1. Participate creatively in something that requires more
than just you alone to succeed; the whole is always
greater than the sum of its parts.
2. Seek out tribal (level) connectedness; this is where the
spiritual resides.
3. Live with passion.
4. Have vision.
5. Only when you are totally free can you be the best of
yourself.
6. Fight inertia—seek meaning in every activity.
7. Meet and treat people with the philosophy of PLUR
(Peace, Love, Unity, Respect)
8. Experience matters more than things.
http://www.triballeadership.net/happiness
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Customer Service: What We Do Internally
• No call times, no sales-based performance goals for
reps
• Run warehouse 24/7
• Inventory all product (no drop-ship)
• 5 weeks of culture, core values, customer service, and
warehouse training for everyone in Las Vegas
• We’ll pay you $2000 to quit
• Culture book
• Interviews and performance reviews are 50% based on
core values and culture fit
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CLT: Customer Loyalty Team
(Call Center)
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ZAPPOS CUSTOMER LOYALTY TEAM
Service is who we are
Call center is not a cost center.
It is the best possible marketing that we
could have.
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Guidelines
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First impression
Customer is heard
Needs are met
WOW the customer
Make PEC (Personal Emotional Connection)
Offer assistance for future needs
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Check this out (link)
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Creating Great Customer Experiences
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Average NPS Scores
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Applying Metrics to 'Wow' Moments
Zappos utilizes a 100-point scale called the
“Happiness Experience Form.” This measure evaluates
each call against the following factors:
1. Did the agent try twice to make a personal
emotional connection (PEC)?
2. Did they keep the rapport going after the customer
responded to their attempt?
3. Did they address unstated needs?
4. Did they provide a “wow experience?”
(link)
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Zappos: 5 Out-of-the-Box Ideas for
Keeping Employees Engaged
1. Let employees be themselves.
2. Let employees explore their passions and express
creativity. (recruit for culture)
3. Empower employees with tools to
succeed. (employee engagement)
4. Provide opportunities for continuous learning and
inspire.
5. Allow employees to fulfill their higher purpose.
(Link)
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Supporting Team Members
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Zollars and Zollars Store
• Zappos Zollar program is a fun
way that Zappos managers use to
recognize employees around the
office for doing a good job.
Zollars are made up money that
Zappos uses to allow employees
to purchase things from the
Zollar store.
• (link)
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Logistics
• From drop-ship model to controlling
all aspects of order fulfillment
• Order fulfillment could only be
controlled and quality maintained if
Zappos had its own warehouse and
merchandise.
• Zappos has warehouse space of over
100,000 square feet was secured in
Shepherdsville, Kentucky and Zappos
took over all aspects of order
fulfillment.
• http://about.zappos.com/zappos-story/fulfillment-facility
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Social Media for Building Brands and Relationships
• There’s a lot of buzz these days about “social
media” and “integration marketing.” As unsexy and
low-tech as it may sound, our belief is that the
telephone is one of the best branding devices out
there. You have the customer’s undivided attention
for five to ten minutes, and if you get the
interaction right, what we’ve found is that the
customer remembers the experience for a very long
time and tells his or her friends about it.
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SMM: Social Media Marketing
Don’t be afraid…TALK with your customers
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Zappos Blogs: http://blogs.zappos.com
Zappos.TV: http://Zappos.tv (VIDEO)
Twitter: http://Twitter.zappos.com
Facebook: http://www.facebook.com/zappos
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Marketing
• Zappos.com did a fair amount of offline advertising in its early days to
help establish its brand with shoe manufacturers. Shoe
manufacturers were apprehensive to work with a young company like
Zappos.com and were concerned about how their brand would be
perceived via the online channel. Thus, Zappos.com’s initial
marketing investment was only partially aimed at consumers; it was
more to impress suppliers. Once Zappos.com had secured some
shoes to sell, they could use cost effective online marketing (SEM,
affiliates) to attract consumers.
• Philosophically, Zappos.com chose to invest in superior customer
service rather than marketing. Something like 15% of their revenue is
spent on customer service and another 15% spent on marketing. For
most e-commerce companies, this ratio is skewed significantly
towards marketing.
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Why Amazon acquired Zappos?
• A big part of the reason why Amazon is
interested in us is because they recognize the
value of our culture, our people, and our
brand. Their desire is for us to continue to
grow and develop our culture (and perhaps
even a little bit of our culture may rub off on
them).
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Zappos/Amazon
• Zappos is wholly owned by Amazon,
• but it is independently operated.
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Tweets to Live By
• For individuals, character is destiny. – Heraclitus
• For organizations, culture is destiny. – Tony Hsieh
• “In the pursuit of knowledge, something is added
every day. In the pursuit of enlightenment,
something is dropped every day.” —Lao-tzu.
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Sold to Amazon
• It was announced on July 22, 2009 that
Amazon.com would buy Zappos for $940 million in
a stock and cash deal.
• Owners of shares of Zappos were set to receive
approximately 10 million Amazon.com shares, and
employees would receive a separate $40 million in
cash and restricted stock units. The deal was
eventually closed in November 2009 for a reported
$1.2 billion.
• Softline vs. hardline goods
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Zappos vs. Amazon
• Both Zappos and Amazon cared deeply about
being customer-centric.
• They each just had different approaches to it.
• Zappos as being more high-touch, and
Amazon as being more high-tech.
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Amazon vs. Zappos
• One of the ways that Amazon tries to deliver a great
customer experience is by offering low prices, whereas at
Zappos we don't try to compete on price.
• If Amazon gets a lot of customer service calls, it will try to
figure out why -- maybe there's something confusing about
the product description -- and then it will try to fix the
problem so that it can reduce the number of phone calls,
which keeps prices low.
• But at Zappos, we want people to call us. We believe that
forming personal, emotional connections with our
customers is the best way to provide great service.
http://www.inc.com/magazine/20100601/why-i-sold-zappos_pagen_2.html
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Business Week Customer Service Champ
• Consider No. 7, Zappos.com, the online shoe retailer whose devoted
fans rave about its free shipping on both orders and returns. The
retailer had typically upgraded both first-time and repeat customers
to overnight shipping even though it wasn't advertising that perk.
• But starting in 2009, Zappos will no longer offer overnight upgrades
to first-time visitors. Instead, CEO Tony Hsieh is moving those dollars
into a new VIP service for Zappos' most loyal shoppers. Launched in
December, the site, which for now can only be accessed by loyal
customers who receive an invitation, promises overnight shipping
and plans to offer earlier access to sales and new merchandise than
the plain-vanilla site. (Repeat customers who aren't yet asked to join
the VIP service will continue getting the overnight upgrade for now.) “
• We decided we wanted to invest more in repeat customers," says
Hsieh. "We're shifting some of the costs that would have gone into
new customers."
http://www.businessweek.com/print/magazine/content/09_09/b4121026559235.htm
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The service is the product/brand.
• Shoes are commodities. Any the same shoes
you buy at Zappos can be bought at ten other
online shoe stores.
• The reason Zappos succeeds is that they are
adding value to otherwise indiscernible
products. The service is the product.
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A Package from Zappos
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Happiness
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Packages as a Branding and
Marketing Opportunity
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Evolution of Zappos Brand Promise
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1999 - Largest selection of shoes
2003 - Customer service
2005 - Culture and core values as our platform
2007 – Personal emotional connection
2009 – Delivering happiness
Zappos is about
delivering happiness to the world. (2009)
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Components of the
Service-Oriented Enterprise Architecture
Motivation
Visions,
Missions, &
Business
Strategy
Business Goals
• Motivation Dimension
Performance
Measure
Source: Minder Chen
– Motivation dimension includes
business strategy at the
highest level,
– service goals at the tactic level,
– and service quality (service
performance measure) at the
operational level.
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Calling
Career
Job
Chip Conley, Peak: How Great Companies Get Their Mojo from Maslow, Jossey-Bass, 2007
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For many years, new employees were given a copy of the famous
Nordstrom's Employee Handbook – a single 5-by-8-inch (130 ×
200 mm) gray card containing 75 words:
Nordstrom
started as a
shoe store that
opened in 1901
in Seattle.
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The Face Game: Knowing Each Others
• In most companies, logging in to the computer
systems requires a login and password. At Zappos, an
additional step is required: a photo of a randomly
selected employee is displayed, and the user is given
a multiple-choice test to name that employee.
Afterward, the profile and bio of that employee are
shown, so that everyone can learn more about each
other. Although there is no penalty for giving the
wrong answer, we do keep a record of everyone’s
score. Internally, we refer to this as “The Face Game.”
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Extranet: VMI (Vendor Management Inventory)
• It allows the vendors complete visibility into our
business. They’re able to see inventory levels,
sales, and profitability.
• They can write suggested orders for our buyers
to approve. They can communicate with our
creative team and make changes to their brand
boutiques on the site. In effect, they’re given the
keys to the shop.
• The average buyer at Zappos has a portfolio of
fifty brands, but because of transparency,
there’s an additional fifty pairs of eyes helping
run the business too.
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Continued…
• Not only that, vendors are the experts at what they
do. No one buyer knows a brand better than the
brand’s own representative.
• So why not leverage their knowledge to help us run
a better business? As a result, when they feel
empowered to manage their own business using
the tools and accessibility we provide, they’ll spend
more hours helping us than their typical account.
• The success of our team can be attributed to our
buyers and vendor partners, together.
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http://money.cnn.com/galleries/2011/news/companies/1104/gallery.best_companies_happy_campers.fortune/2.html
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Additional Employee Perks
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Financial Benefits
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Medical Program
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Wellness Program
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Life Coach
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Kitchen
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Kitchen
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Walls of the Creative Team
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Monkey Row
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CEO Desk, Not Office
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Replacement Words
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Problem  Challenge
Unfortunately  Regretfully
Not a problem  Absolutely
I’ll try  Handled
Abnormal  Irregular
Cheap  Bargain
Depend  Rely
Impossible  Challenging
Early  Punctual
End  Conclusion
Error  Oversight
Failure  Unsuccessful
Fanatic  Enthusiast
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CSR
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New Hires’ Graduation Parade
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New Hires’ Graduation Parade
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CLT Office
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Employee License Plate
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Graffiti and Art
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Holacracy
http://www.zapposinsights.com/training/holacracy
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http://www.downtheavenue.com/2010/05/be-passionate-about-what-you-do-dont-chase-the-paper.html
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Zappos Headquarter
• Moved from SF to Las
Vegas (Henderson) 2004.
70 out of 96 move to Las
Vegas.
• Moved to downtown Las
Vegas, 2013
– $48 million effort to
renovate and make major
improvements to the
building
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Downtown Campus
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Downtown Project
• CEO Tony Hsieh, who also leads the
Downtown Project, an effort to revitalize
downtown Las Vegas as a vibrant cultural and
economic hotspot, has said he wants "to be in
an area where everyone feels like they can
hang out all the time and where there’s not a
huge distinction between working and
playing."
http://downtownproject.com/
http://www.slideshare.net/downtownproject/downtown-project-slide-deck-feb-2014
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Zappos Insight
• Zappos Insights is the Zappos Family company that offers
tools and community around culture, customer service,
and leadership. Here is your chance to gain access to those
tools. Who said there is no free lunch? Feast on this one
month free membership in Zappos Insights’ constantly
changing vault of resources.
• Just go here: http://www.zapposinsights.com/membership
• And copy and paste this code when you check
out: TZE01INSIGHTS
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All Hands Meeting
5/5/2011
• http://www.ustream.tv/recorded/14503065
• Time: 26 Findability
• http://en.wikipedia.org/wiki/Findability
• Time: 54 Q&A
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Additional References
• http://blogs.forbes.com/work-in-progress/2010/09/02/deliveringhappiness-a-billion-dollar-business-lesson-fromzappos/?boxes=Homepagechannels
• http://www.referenceforbusiness.com/history2/90/Zappos-comInc.html
• Zappos: Designing an Organizational Culture (free case),
http://www.ibscdc.org/Free%20Cases/OB0026.pdf Comparison to
http://www.letao.com/ (乐淘) and http://www.Amazon.com
• Tony Hsieh, Zappos’s CEO on Going to Extremes for Customers (HBR
article, July–August 2010)
• Zappos: Happiness in a Box, (Free Case)
https://gsbapps.stanford.edu/cases/detail1.asp?Document_ID=3404
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