The Success Of Zappos

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Contents

Introduction to Zappos

The Zappos Logo

Company Profile

Zappos is an online retailer of shoes, clothing and other products that is headquartered in Las Vegas, Nevada and is led by current CEO, Tony Hsieh. Due to the company’s focus on the 3 C’s and 10 core values, it has received numerous awards like Fortune’s top 100 companies to work for, “Best Use of Social Media" by Abrams Research in 2009 [1], and Top Ten Recipients for the 2011 Customers’ Choice Awards for superior customer service [2]. After an acquisition in 2009, Zappos became a subsidiary of Amazon.

History of Zappos

Zappos was created out of Nick Swinmurn's frustration while shopping for shoes [3]. In 1999, Swinmurn was looking for a pair of brown Vans shoes [3]. In some stores they had the colour he wanted, but not the right size [3]. In other stores they had the right size, but not the right colour [3]. It was clear this type of shopping disaster needed to be changed.

Tony Hsieh

Swinmurn spoke to some people from Venture Frogs, an incubator and investment firm, about his idea to start an online shoe store [4]. He was able to obtain $500,000 USD in seed funding to get the company started [5]. In June 1999, the company began operating as shoesite.com and later renamed to Zappos.com, which is a modification of the Spanish word for “shoes” [6].

In their first year of operations, Zappos brought in $1.6 million USD in revenue. And, Tony Hsieh, one of the co-founders of Venture Frogs, joined Swinmurn as co-CEO [7].

By 2002, Zappos opened its first fulfillment center in Kentucky, where products were held until shipped to fulfill customer orders [7]. During the same year, some hefty goals were set for Zappos, such as to achieve $1 billion USD in revenue within the next 10 years, and to make it on Fortune Magazine’s list of Top 100 Companies To Work For [8].

The following year, Zappos decided to refrain from drop shipping [9]. Drop shipping is when a company receives an order from a customer and forwards the order to the manufacturer, who would then send the product to the customer. Zappos aims to provide the very best customer service, so discontinuing drop shipping ensured the entire purchasing experience for the customer was under their direct control.

In 2007, Zappos decided to expand its product line and sell other fashion accessories, like handbags, watches and eyewear[7].

2008 was an important year for Zappos, as they managed to exceed $1 billion USD in revenue [7]. Following this, in 2009, they were listed as number 23 on Fortune Magazine’s Top 100 Companies To Work For [7]. These goals were accomplished significantly ahead of schedule, as they were originally hoping to meet these objectives by 2012.

The 3 C's & 10 Core Values

Clothing: Zappos offers access to a variety of unisex clothing, shoes and accessories from 1164 different brands to its shoppers. Their supply chain continues to expand, offering more brands each year. Overall, they carry the “widest range of shoes available on the planet[10].” According to the management team at Zappos, only brands that inspire their customers are chosen to be carried in their online store [11].


A few of the brands they carry are:


Although many of the brands listed above have their own company websites to which consumers can buy directly from, consumers are still purchasing the products from Zappos.com. A main reason that this is possible is that consumers love Zappos’ flexible 365 day return policy, as well as the excellent customer service they deliver [12].


Culture: The greatest thing about Zappos is its distinctive culture, which consists of 10 core values that are listed below [13]:

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

The core values are used by Zappos employees to make decisions daily. They use the symbol of a frog in each core value and ask themselves “what would the Core Values Frog do[13]?”


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Since Zappos accredits its success to their culture, they began to offer cultural training to other companies. Employees from various corporations are taught the most effective and efficient tools to build a strong culture like Zappos. Organizations can choose from many seminars for their employees to attend. For instance, there are two day training boot camps, as well as, series of half or full day training packages that are held onsite at the headquarter office. Zappos also put together its Culture Book every year in hopes of inspiring others “to create a workplace where everyone loves to be” [14]. As well, free public tours of the headquarter office are given on a daily basis and The Zappos Virtual Tour is free for all to enjoy.


Customer Service: Zappos employees deliver exemplary customer service, as they strive to surpass customer expectations. To ensure the right people are hired, all employees receive four weeks of customer service training, and are offered $2,000USD to resign at the end of the training[15]. Zappos’ 24 hour call center receives 5,000+ calls per day, and there are no scripts for the representatives to follow – they can refer shoppers to competitor sites if Zappos does not carry that desired product, no quotas to meet and no time limits - the longest call to date is roughly 5 hours [16]. As well, customers are encouraged to order as many products as they want to try them on, and are able to return the unwanted items for a full 365 days with free shipping - a policy that no one else offers[17].

Zappos in Recent News

Acquisition by Amazon

In November 2009, Amazon acquired Zappos for $1.2 billion USD, which was based on 10 million shares[16]. Amazon saw this as an opportunity to acquire a company with large growth potential and a uniquely successful team with great vision, and the customer focus of Zappos fits well with Amazon’s drive for customer service [18]. Zappos had worked very hard to create a specific culture within the company and gain recognition for top of the line customer service experience. In a typical acquisition, Zappos would end up conforming to Amazon’s corporate culture; however, part of the deal was that Zappos can continue operating the way it currently was.


Hacking Incident

In January 2012, Zappos fell victim to a large hacking incident involving 24 million customers’ information[16]. Following the attack, Zappos sent an email telling its customers what information had been accessed, such as clients’ names, email addresses, billing and shipping addresses and phone numbers[19]. Luckily for customers, no critical credit card information was obtained leaving the hackers unable to conduct transactions on the credit cards[19]. As a safety precaution, every clients’ passwords were reset, and they were advised to change the same password used on any other sites[19].

As an online retailer, Zappos is exposed to the threat of internet hacking. So, they need to ensure that good safety measures are in place to limit hacking incidents that can compromise customers’ information and their reputation.

Zappos & Social Media

Zappos has used multiple social media tools to increase brand awareness and attract more customers. They currently use Twitter, Facebook, YouTube and blogs to their advantage by actively engaging online shoppers in each medium.

Facebook

Zappos has created a fun, friendly and engaging environment on Facebook, which is reflective of their culture. They have used Facebook to identify their customers’ preferences and build personal connections, which online businesses usually lack. They actively post pictures and YouTube videos of their products, involve customers in contests and respond to each customer’s wall post.

One of the examples could be seen from the following interaction of Zappos with one of their customers:

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They have also created transparency by sharing videos about employees at work and their culture, so customers can better relate to Zappos. They only have about 260,000 fans of their Facebook page, but all wall posts have at least a few “likes” and comments. For one of their wall posts more than eleven thousand people liked it and 607comments were made on it. This indicates their ability to engage with customers successfully. Furthermore, they actively try to understand their customers’ preferences by sharing merchandise pictures on their page.

Twitter

There are multiple Zappos accounts on Twitter to address different target audiences. @Zappos is the main account and has more than two million followers; this is where the CEO post links to interesting articles or videos. @ZapposStyle has 8,870 followers and promotes Facebook contests, introduces new products and asks customers about their style preferences. @ZapposInsights has 8579 followers; this account is used to inform the public about the office tours and training opportunities for companies to create stronger cultures. @Zappos_api has 1,147 followers. They use this account to promote their API (Application Program Interface) events and connect with their followers. @Zappos_Service has 13,341 followers, and this account is used to respond to customer issues and allows customers to post about their wonderful experience at Zappos. Each of these accounts has helped Zappos build a strong brand image.



YouTube

Zappos main channel on YouTube currently has 2,660 subscribers and 3,489,902 channel views. There are multiple playlists created for this channel to target different audiences, similar to the way their Twitter accounts are organized. Their most successful channel Zappos Style showcases models wearing products they offer. This channel has more than 25 million views and over 4,000 subscribers.

Zappos has used YouTube successfully to achieve three goals: 1. Showcase products to help with customers’ purchase decisions, 2. Showcase various how-to videos to help customers enjoy their products even more, and 3. Showcase Zappos culture to display more transparency, build customer loyalty and attract top talent

Even with a variety of videos, there is still a lack of interaction with their audience in terms of comments on their videos. Zappos needs to direct traffic from Twitter and Facebook to YouTube and encourage comments either in their videos or with contests.

Take a look at Online Video in E-commerce - A Look at Zappos for the company's online video strategy in sales, marketing and company culture.

Corporate Blogs

Zappos has several blogs targeting different goals. Zappos CEO and COO Blog notifies customers and employees of any new developments. A unique approach to organizational transparency is done through the Zappos’ family blog and Inside Zappos blog. The pictures and interviews of the employees on these blog help personify Zappos. Viewers were somewhat engaged judging by the number of comments and likes on their blogs, majority of the blogs had about 20 comment and 10 likes.





Social Media Blunders For Comparison

McDonald's

McDonald’s launched a Twitter campaign where customers can share their happy meals stories using #McDStories. However, customers started sharing “either horror stories about the food, the employees, or the conditions of local restaurants” instead. WebProNews covered the campaign failure first on January 21, 2012, followed by various other news medias. This led to a 3% decrease in McDonald’s stocks, and Twitter sentiment found that 68% of the tweets with the #McDStories hashtag were negative [20].

Lesson Learned: Organizations should anticipate all the different types of customer responses and strategically adjust conditions so that they receive their expected outcome. They can also have a contingency plan in place if the results do not go accordingly [21].


L'Oreal

L’Oreal created a fake blog under the name of Bartlett Bragg as a marketing campaign, where she shared her experience of using different anti-aging products. Whenever she compared different products from different brands, L’Oreal was always rated the best. Soon after, French media revealed that the blog is fake and L’Oreal’s social media presence took a lot of heat. In order to authenticate their blog, L’Oreal employed some of the top French female bloggers to share their experience with L’Oreal’s products [22].

Lesson Learned: Organizations should not make fake testimonials ever, as it will backfire [23].


United Airlines

David Carroll’s guitar was broken because of the mishandling by the staff of United Airlines. He tried to receive compensation for nine months but his efforts were fruitless. Out of his frustration, he composed a song called “United Breaks Guitars” and posted it on YouTube. This song was well received on YouTube with 150,000 views on the first day and 10 million views six months later [24]. After four days of the video release, stock price of United Airlines dropped by 10%.

"United Breaks Guitars" by Dave Carroll

Lesson Learned: Organizations should quickly respond to and resolve any customer concerns [1].

Zappos & Digital Shopping Trends

Overall, the digital shopping market has sustained steady growth and predictions for future growth look positive as well. Zappos will certainly benefit from this growth and many other trends towards digital shopping.


Online Shopping

In 2007, Canada had $12.8 billion in sales [2]. Online sales in Canada grew 18% over the next two years, bringing 2009 sales up to $15.1 billion [2] and 39% of Canadians over the age of 16 had made online purchases. The US market is much larger with sales hitting $155 billion in 2009 [3]. This industry has a very positive outlook and is expected to continue its growth rate with estimates at 60% growth in the next four years [4]. One major trend driving growth is repeat customer purchases [4]. New customers make up a smaller portion of sales than repeat customers because shoppers who have bought online previously are more likely to increase their spending [4]. Online sales is not a new fad but only 6-8% of the retail market is captured online [3]. A look at some influencing factors of online sales and the trends in the industry will help provide focus for online retailers.


Trustworthiness - Receiving a personal recommendation of a place or product will play an important role in their purchase [5]. A recommendation will increase the person’s confidence in the retailer increasing their odds of buying, since customers are concerned with the quality and timely delivery [5]. Another thing that affects businesses’ trustworthiness and impacts their sales is online customer reviews of their product or services because roughly 89% of customers believe in the reviews and 80% will change their purchase decisions when they come across negative reviews [6].

This shows the importance of treating every customer well and is a factor that Zappos has done exceptionally. Not only does Zappos have great reviews (as shown below) but they also build that trust into their policies. Their 365 day return policy and promise of overnight express shipping help customers feel more comfortable purchasing on their website. This is extremely important as Zappos does not have physical stores; therefore, their entire reputation is built on their online presence.

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Ease of Access and Simplicity of Use - if customers have a difficult time finding or using a site they will unlikely make a purchase from it [7]. Zappos has a very simple system on their website to help customers narrow down the product selection. Their checkout process is also easy to find and navigate through.


Competitive Prices - Compared to physical stores, online purchases take time to be shipped and customers do not see or feel the products before they buy it. This puts online retailers at a disadvantage, which is why it is important to stay competitively priced[7]. Zappos is not well known for its bargain basement prices, but it does have a good selection. The lack of product availability in physical locations has helped offset the pricing factor and is one of the main reasons Zappos was created.


Customer Confidence with Online Security - If a customer is concerned about their private personal information and financial data being compromised in a transaction, they are not likely to proceed to payment. The marketing strategies of Canadian banks has gone a long way toward increasing knowledge and comfort around online purchases [8]. Small online purchases, such as movie tickets, have helped customers get used to performing transactions through the internet and will lead to greater comfort with larger online purchases [8]. The consistent increase in comfort with online purchases should provide Zappos with a continually increasing market size.


24-Hour Access and Support - Without the proper support, customers may be hesitant to make the purchase [7]. The 24-hour service is especially important for online stores because they may be selling to shoppers in different time zones, which will make it difficult for all customers to call during the company’s business hours. Fortunately, Zappos advertises its support available 24 hours a day, 365 days a year right on the main page of the corporate website.


Implementation of US Sales Tax on Online Purchases - Currently, most US online retailers are not required to charge sales tax on online purchases, which has given them a major advantage. However, recently there has been a heavy push for all online retailers to start collecting this tax nationally [9].. This further increases the importance of good customer service, free shipping and longer return policies. Zappos already offers these convenient features to its shoppers, but a Zappos customer loyalty program, like coupons and other incentives, may help retain business if the sales tax does get implemented

Mobile Shopping

ComScore Incorporate, a leader in measuring the digital world, released a Mobile Retail Advisor report about U.S. mobile retail usage in 2011. ComScore measured that 47% of 90 million smartphone buyer users make digital purchases like music and ringtones, and 37% buy clothing via their handheld devices - that is 33.3 million users, which is a large market for mobile shopping. Please see table below for full percentage breakdown[10].

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According to an Oracle report released in April 2011, the mobile commerce market is growing dramatically. For the 18-24 age group, Cross-Channel Consumer Survey stated that 29% made at least one mobile purchase in November 2009. Mobile Trends: Consumer Views of Mobile Shopping and Mobile Provider Survey revealed that that percentage jumped to 40% in December 2010. As well, below are graphs compiled from three surveys that showcase how women and men are increasingly likely to make at least one purchase via mobile [11].

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The latest Zappos mobile free app was released on June 12, 2012 on the App Store for Iphones and Ipads. Their current version 2.4.7 was rated an average of 5/5 stars by 1370 users, while overall all their versions were rated an average of 4.5/5 stars by 22010 users [12]. And, version 2.1.2 on Google Play was released on July 26, 2012, it was rated an average of 4.5/5 stars by 4604 users[13]. These are perfect or near-perfect average ratings from thousands of users.

Overall, Zappos can benefit from the trend of more and more shoppers using their mobiles to make online purchases.

Suggestions for Zappos

International Expansion

Zappos can maintain their competitive advantage and enlarge their market share by expanding into other Western countries, especially Canada, as there are less cultural differences. In fact, Zappos did expand into Canada, but they shut down canada.zappos.com on April 1, 2010 [14]. Zappos stated on their company website that they were not living up to their standard service level of a wide range of products at competitive prices, free shipping and lenient return policies due to limited distribution agreements with the brands, and customs and other logistics constraints. Fortunately, they still accept orders from Canada that are shipped to a US address. To combat these issues, Zappos can open a fulfillment center in Canada and sign distribution agreements with more local brands to provide the same high quality service to its Canadian customers.

Furthermore, as a subsidiary of Amazon, Zappos can apply this strategy to and expand into other countries that Amazon are already operating in, such as United Kingdom, Italy, and Japan [15].

Avoid Further Expansion into Luxury Brands

Although Zappos currently carries some luxury brand names, such as Burberry and Bvlgari, further expansion into luxury brands that is only sold in flagship stores and directly through their own company website, like Louis Vutton, is not recommended. Customers can abuse their 365 day return with free shipping policy with expensive products, such as a $5000 Chanel dress, which can result in large financial losses to Zappos. As well, customers may be more hesitant to spend such a large amount on something that they have not actually tried on.


Start Zappos Airline

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The top three trending products and services sold online according to the table above from the Nielsen Global Consumer Report that Zappos may want to expand into are books, airline tickets and reservations and electronics equipments[16].

The rate of consumers purchasing airline tickets online is growing tremendously and consumers want excellent customer service when they call the travel company to address their questions and concerns. Since Zappos is known for providing superior customer service, expanding into the airline tickets and vacation packages reservations business would be an ideal addition to their current success [16].

According to Hsieh, it is not rare for the company to receive emails from “highly satisfied customers asking him to establish an airline or run the IRS”[17]. Zappos has a highly customer-centric corporate culture that can give them the edge they need to be successful in the airline industry. If Zappos is able to maintain the same level of customer service in their airline subsidiary, they could revolutionize the industry.

Here is what consumers might expect based on some of the core values [18]:

Deliver WOW through Service: Most often airline passengers have stories of how they were disappointed with the service they received from the airline they chose to travel with. If Zappos was an airline, they would “deliver an unexpected and innovative experience” to their passengers, just like they do to their online shoppers[18].

Embrace and Drive Change: Nowadays, airlines are making negative changes, such as increasing fees, no longer providing meals and charging for luggage, while Zappos is driving positive changes for customers and employees[18]. So, it can be expected that Zappos would continue to make changes within their airline subsidiary that will actually make passengers happy[18].

Do More with Less: As customer complaints of airlines increase each year, Zappos continues to improve their customer experience and increase their number of positive reviews[18]. Hence, Zappos could be the first airline to have more positive comments about their experience from customers.

Implement Augmented Reality

Augmented Reality (AR) is a technology that enhances the user’s experience by blurring the lines of reality and virtual reality that is generated by the computer[19]. In the past few years, AR has been introduced to the retail industry and the bigger corporations have taken a liking to it. See below for the following AR examples: Raybans have a virtual mirror for customers to try on different sunglasses [20] and Tissot is implementing a feature that allows their clients to wear their Swiss watches before purchasing.

Tissot Augmented Reality Application Demo

Raybans - Virtual Mirror

Currently, Zappos only has pictures of a model wearing the merchandise in different angles, a brief video of the model turning 360 degree while wearing the merchandise, a display of the measurements of the model (Eg. height, shoe size, weight..etc), and customers have the ability to comment and rate the merchandise. Zappos has done a good job in providing many features that allow consumers to see the merchandise, but the models hired are mostly Caucasian with a few other ethnicities. The average consumer does not look like a model, especially if they are also marketing to plus size, big and tall, petite and pregnant people. The general public do not have the same height, body type, skin tone or bone structure as the models. Also, there is still a portion of shoppers that prefer the traditional, physical way of shopping.

If Zappos were to implement AR, then their customers would be able to better gauge how the item fits on themselves, as opposed to just seeing how the item fits on the model. In turn, AR can save Zappos from their large shipping expenses incurred when customers return items that don’t fit them properly. One of the few disadvantages of buying clothing online is that customers cannot physically try on the item and see how they look in or with the item before purchasing. Although implementing AR will not replace physically wearing the clothing, it is a viable solution to this problem. Please see below for example of how Zappos customers can shop using AR technology.

Miss Selfridge Magic Mirror

The cost of implementing AR is varied based on factors such as: the scope and size of the project, the number of people on the project, time constraints, financial limitations and the quality of the work. Costs can range from anywhere between $10,000 to $250,000 or more [1]; however, the more organizations begin to use it, the more likely that the cost of using AR will decrease, as with any new technology. As well, there are many open source and free closed course AR software programs that Zappos can take advantage of.

Final Thoughts

All in all, Zappos is doing many great things with Web 2.0 tools in attracting and retaining their customers. If they take into account some of our suggestions for improvement, then they may reach new heights.

References

  1. http://www.cctadvertising.com/augmented-reality-separating-fact-from-fiction/
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