1. Kelly Thomas 05.20.2013 Bus 550 Case Study
Zappos.com
Kelly Thomas
Bus 550 Case Study

2. ZAPPOS: The Beginning Founded in 1999 by Nick Swinmurn
Frustrated with not being able to find shoes and tired of going store to store
Frustration = Friction (business opportunity)
Internet allows customer to comfortably sort by shoe style, color, size

3. ZAPPOS: Filtering Data

4. ZAPPOS: The Beginning
A year later, Harvard graduate, Tony Hsieh joined Zappos
Tony left Link Exchange after it was sold to Microsoft. The company grew and it wasn’t fun to go to work anymore
Wanted to build next retail powerhouse
Focus on culture and employee happiness

5. ZaPPOS: FAMILY 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.
Be humble.
These create a framework for all of the companies actions.
Values are the heart of their business model and culture.
These core values were released back in February 2006
*Zappos: Delivering Happiness M-333, Stanford Graduate School of Business

6. ZaPPOS: Seven Ways to Achieve Exceptional Customer Service*
Make customer service a priority for the whole company. Its not just a department.
- Free Shipping and 365 day return policy
2. Empower your customer service reps. Rarely should they have to escalate a customer’s issue to a supervisor.
Minder Chen 2009
The
Inverted
Organizational
Pyramid
3. Fire customers who abuse your employees.
4. Don’t measure call times, don’t up sell, and don’t use scripts.
- 6 hour phone conversations
*Zappos’s CEO on Going to Extremes for Customers, HBR

7. ZaPPOS: Seven Ways to Achieve Exceptional Customer Service*
Don’t hide your phone number. You want to talk to customers.
View the cost of handling customer’s calls as an investment in marketing, not an expense.
Minder 2009
THE SERVICE TRIANGLE
WOM: WORD OF MOUTH
*Zappos’s CEO on Going to Extremes for Customers, HBR

8. ZaPPOS: Seven Ways to Achieve Exceptional Customer Service*
7. Celebrate great service by telling exceptional stories to the entire company.
A customer called in to return shoes and it had been over the return time (365 days). The customer explained that one of her family members recently passed away and she had meant to return the shoes but lost track of time. The Zappos employee took the shoes back and sent her flowers with a sympathy card.
A man called in to reorder a pair of shoes, since his shoes were lost with his luggage while traveling to his wedding destination. The groom was desperate to get shoes as soon as possible. A Zappos employee hand delivered the shoes to the groom to make sure he got them in time for his wedding.
PEC (Personal Emotional Connection) with each customer
If done right, the customer will remember the phone conversation for a long time and will refer friends
*Zappos’s CEO on Going to Extremes for Customers, HBR

9. CUSTOMER Customer Loyalty RETENTION
Repeat customers drive Zappos success
Don’t spend a ton of money of marketing
Repeat customers order 2.5 more than new customers
75% of sales is from repeat customers
From why satisfied customers defect. By Jones, T. D. & Sasser Jr., W. E.
Harvard business Review, (November–December), 1995 p. 91.
Minder Chen, 2009

10. Happy Employees = Happy Customers
Service Profit Chain*
*Source: Putting the Service-Profit Chain to Work (HBR Classic)
Minder Chen 2009

11. ZaPPOS: Unique Work Environment
Relaxed and wacky atmosphere
Nerf ball wars, donut eating contests, ugly sweater day.
Employee nap room, wellness center, free lunches and snacks.
According to Zappos, “When you combine a little weirdness with making sure everyone is also having fun at work, it ends up being a win-win for everyone: Employees are more engaged in the work that they do, and the company as a whole becomes more innovative.”*
*Zappos: Delivering Happiness to Stakeholders

12. ZaPPOS: Benefits Extensive health plan-100% coverage
Dental, vision, and life insurance
Flexible spending account, pre-paid legal services, 40% employee discount, car pool program, life coaching
Compensation model for call reps
Pay starts at $11 / hr, then after 90 days increases to $13 / hr.
For additional pay increases, employees must show growth and complete additional courses
Encourages employee development
Empowers employees
Zappos is able to underpay employees because of the relaxed environment and other perks

13. ZaPPOS: Hiring and Training
Only hire people they like; not always the smartest and most talented
Sense of humor, weird, happy, go lucky
Happy Hour
Odd Interview process
Screened for happiness (cant have happy customers without happy employees)
“On a scale of 1 to 10, how lucky are you?” (people who perceive themselves as lucky are more likely to pick up on clues and solve a task)
Training Classes
All new employees, spend 2 weeks on customer service calls
“Science of Happiness 101” & “Delivering Happiness”
After training is completed, they offer $2000 to leave company
Less than 1% take deal
Want employees to be committed

14. ZaPPOS: RELOCATION Relocation
Moved from San Francisco to Las Vegas in 2004
Relocated to build a call center “Customer Loyalty Team”
Did not want temps; wanted to find people who would be happy making a career out of customer service
City’s economy is focused on hospitality
All night city and overnight shifts needed in call center
Employees there are used to treating customers as guest

15. ZaPPOS: Logistics Initially used drop shipments
Carried no inventory and depended on manufacturers to ship products to customers.
Inefficient due to inaccurate records of manufactures inventory and unpredictable delivery times because of several manufacturer locations.
Now they have their own warehouse operation
Allows them to deliver faster and with fewer defects; providing better service to their customers.

16. ZaPPOS: Logistics Live inventory system on web
Zappos’ website only shows in stock merchandise online
Reduces customer frustration
Central database is constantly updated with inventory and shipping activity
IT system was developed in house to ensure customization for Zappos

17. ZaPPOS: Leveraging Twitter to Strengthen Company Culture
Hsich originally joined Twitter to stay connected with friends
Transparency
Consistent with Zappos core value #6
“Build open and honest relationships with communication”
Connected with customers and employees
Tweeting the good and the bad

18. ZaPPOS: Leveraging Twitter to Strengthen Company Culture
Encouraged Employees to tweet daily, to bring the employee closer to the customer.
Tweeting helped promote culture and encouraged employee socializing outside of work
Customers tweeting about products too

19. ZaPPOS: Challenges
Recession and credit crisis of 2008 put Zappos and their investors in a bad position
Banks required them to hit projected revenue and profitability every month. If these targets were not met, the bank could walk away from the loan, which could cause bankruptcy.
Relied on line of credit, which was “asset backed”. Meaning, they could only borrow around 50% of their current inventories value. The bad economy was pushing the value down. This was making it difficult to be approved to borrow funds to buy more inventory
Disagreements between board of directors
Start focusing on making money and less on employee happiness

20. ZaPPOS: Increasing Revenue, yet Small Profits

21. ZaPPOS: Merger with Amazon
Acquired by Amazon in 2009
Similarities between companies
Both want to do what is best for customers, but had different philosophies
Amazon provides low prices and tries to reduce customer calls. Assuming a call means confusion or a problem for the customer
Zappos encourages phone calls yet charges higher prices.
Formal document promising Zappos unique culture will be protected
Agreed to let Zappos operate independently
Zappos will be able to do new things quicker with Amazon’s financial and technical support

22. ZaPPOS: Today #1 Online shoe retailer Business grew because of WOM
Expected to make1 Billion is gross sales this year
Core focus is still happy employees lead to happy customers, which leads to good business.
Advice to other companies is to not focus on separating work from personal life. Socialization between employees and managers increase trust and communication which leads to increased efficiency from 20% to 100%
Success Magazine Interview, June 2013

23. ZaPPOS: Questions
1. Why did the CEO, Heisch promote using Twitter for Zappos?
A. Transparency
B. Cost
C. Amazon used it
D. Privacy
2. At Zappos, customer service phone calls are viewed as
An expense
Marketing
Wasted time
Unnecessary
3. What qualities does Zappos look for in a new hire?
Happy
Go Lucky
Sense of humor
All of the above
1. a, 2. b, 3. d

25. ZaPPOS: References
“Zappos: Happiness in a Box”. Stanford Graduate School of Business. August , Case: M-333
Hsieh, Tony. “Zappos’s CEO on Going to Extremes for Customers”. Harvard Business Review. July-August
“Why I sold Zappos.” Inc. Magazine. June /why-i-sold-zappos.html
“Zappos: Delivering Happiness to Stakeholders”. Daniel Fund Ethics Initiative, University of New Mexico. 2012
Fisher, Brenna. “How I Do It, The Customer Service King.” Success Magazine, What Achievers Read. June hsieh-zappos-com
Heskett, James. “Putting the Service Profit Chain to Work”. Harvard Business Review. March – April Chain.pdf