Running head: ZAPPOS “MORE THAN SHOES” 1

Zappos “More than shoes”

An Assignment Submitted by

Luis Mendoza

Jesus Lopez

James “Al” Gonzalez

University of La Verne

2

Table of Contents

1. Introduction…………………………………………………………………………3

2. Industry Environment…………..………………………………………………..….4

3. Organizational Mission/Vision and Goals………………………………………….6

4. Organizational Strategy……………………………………………………………..6

5. Zappos Structure………………………..………………………………….……….8

6. Control Features………………………………………………………...…………..9

7. Organizational Culture………………………………………………………...…..10

8. SWOT Analysis …………………………………………………………………...11

9. Conclusion and Recommendations………………………………………………..12

References………………………………………………………………………...13

3

1. Introduction.

The term “E-commerce” has roots in the 1970’s with the development of Electronics

Funds Transfer (EFT) and the introduction of the Automatic Teller Machines (ATM) in the

1980’s. With the development of the Secure Socket Layer (SSL) standard in Mosaic web

browser and the explosion of the Internet in 1990’s the term has been universally accepted as

the ability to buy and sell via the Internet (Graham, 2008; p. 776). Zappos.com is an online

shoe and apparel shop that was found in 1999 by Nick Swinmurn and developed into the

largest online shoe store. Today this online retailer “offers 500 brand names and 90,000 styles

and stocks over 2 million pair of shoes” (Lamb; 2011; p. 97).

Currently, the headquarters of the company is based in Henderson, Nevada. Its

products include shoes, apparels, handbags, accessories and eyewear. In 2009 the company

announced that it will be acquired by Amazon.com. At the very beginning the company’s

name was ShoeSite.com that was changed a few months after the sites’ launch. The word

“zappos”, according to the company’s leaders, should be a variation of the Spanish word

“zapatos”, which means shoes.

Since that time the company enlarged its target products from shoes only to apparel,

accessories and dresses inclusively. Today the company operates primary in the USA,

concentrating on more or less known brands like Nike and Ugg boot. The target audience of

the company is quite large, stating from children and teenagers and ending with the middle

age people of different social, economic and educational backgrounds. The company tried to

cover as many niche as possible, including the issues like hard-to-find size, wide and narrow

widths and vegan shoes. Through its quite short history the company showed more or less

speedy development and understanding of the market it operates in. Today its customer

oriented services include phone line and e-mails, although for some period of time phone line

4

has been closed for the customers after the information that the company’s site was attacked

and many customers’ information stolen.

Thesis Statement: The purpose of this paper is to make a research of the specifics of

Zappos.com Company in order to understand what makes it different from the similar e-

commerce projects. Organizational culture, industry environment and SWOT analysis will be

used to identify those specifics.

2. Industry Environment.

First and foremost, e-commerce is an industry, whether it concerns selling shoes,

clothes or books, has its specifics in comparison to traditional businesses. For instance, it is

clear that the companies like Zappos rely heavily upon the newly developed technologies and

the use of technological know-how. At the same time, such companies are governed by the

same business rules as traditional businesses are and there is a need to find the balance

between technological and business demands.

One of the important specifics of the industry environment in case with e-commerce

is customers as the target audience for e-commerce projects stands out from the large number

of usual customers. For instance, Swinmurn could not find investors for his project for quite a

long time because no one believed that people would buy shoes without trying them on first.

Another important specifics of the industry is the fact that “people search shoes by brands”

(Orlov; 2007; p. 34) and while today Zappos is one of the largest companies where the

number of brands reaches 500, the use of “as much as possible” strategy became one of the

reasons for Zappos’s success. Moreover, it should be remembered that among the most

important specifics of the industry’s environment is making customers interact with the

5

company. There are various online services where Zappos’s customers may get help and just

express their opinion. With the development of different social networks, like the Facebook

and Twitter, the company started using them as one of the important means of organization-

customers interaction.

In spite of the fact that Zappos is a purely e-commerce business, this does not mean

that its competitors are also pure e-commerce businesses only. Today many well known

brands and companies have web sites through which the one may find what he or she is

interested in. Among the best known competitors of Zappos are Bluefly, Inc., Coldwater

Creek and Collective Brands, Inc.

Originally, “Zappos started with drop ship model, but the manufactures of many

desirable shoe brands would not support drop shipping. Drop shipping is a supply chain

management technique in which the retailer does not keep goods in stock, but instead

transfers customer orders and shipment details to either the manufacturer or a wholesaler,

who then ships the goods directly to the customer. Accessing these brands forced Zappos to

have a fulfillment center so it could buy in bulk and ship individual order from its own

inventory” (Rabinovich, Laseter; 2011’ p. 93). The drop ship model is good as a means for an

organization that would not work on expensive inventories, on the other hand, this system

increases the number of customer services challenges. This is because the company does not

have complete control of inventory, thereby unable to guarantee on time shipments. Today

Zappos has a mixed supply chain system in order to reach as many brands as possible and to

increase customer satisfaction.

Among the serious problems that Zappos faced since the very beginning was the fact

that people did not really believe in the opportunity of Internet sales or of the honesty of

online retailers. There were also problems with political and economic guidelines that

6

regulated e-commerce. During the early years of Zappos operations there were almost no

laws regarding ecommerce. However, the situation changed quickly for better, when

customers attitude of ecommerce became more favorable with the acceptance of the security

of the transactions online.

3. Organizational Mission/Vision and Goals.

While Zappos.com is an online retailer, not just a website that describes the company

and the spheres of its work, it does not have sections like mission or vision statement. These

important characteristics of the company can be understood from different indirect indicators.

For instance, each profit business is oriented on customers’ satisfaction and this idea has long

become one of the basics of mission and vision statements, irrespective of the industry the

business is in. Zappos is an exception that is seen from the fact that the company launched the

mixed supply chain system.

One of the goals of Zappos as an online service leader is to maintain a high level of

customers’ satisfaction through providing them with the high quality services and products.

Another goal of Zappos is to make its customers associate brands with absolute quality

services in order to become more than just a retailer. The values of the company are also

easily observed from the way it operates. First and foremost, Zappos is oriented on treating

each customer as an individual and providing each of them with high quality services to get

their loyalty. Sustainable growth and profitability should be mentioned as the key factors in

the value statement of Zappos. Another important value of Zappos is their customers’ data

protection. This was seen from the actions that were taken after the January 16, 2012

revelation that the company’s website had been hacked. On the whole, such mission, values

and goals are among the most appropriate for the type of business Zappos is in. Online

7

retailing has a short-term history in which the role of customers’ satisfaction is the most

vivid.

4. Organizational Strategy.

Organizational strategy is one of the major key points for any organization that serves

as a mean of reaching success or failure. “The Zappos strategy is to provide customers with

the very best service, what they call “Wow” service, and to ensure the items get delivered to

customers as soon as possible” (Smith, Milligan; 2011; p. 167). This strategy resulted in the

expensive investment into the company’s inventories and constant improvement of the online

services. It is possible to state that this is the very strategy that led the company to success,

although it resulted in additional expenditures many online businesses try to avoid.

One of the core values, “Embrace and Drive Change” the company emphasizes that

change is good for Zappos, there is no need to be afraid of it. Surely, such statement is true

only when it comes to the planned and controlled changes or simple changes in the

organizational environment and working process that do not require any planning.

On the whole, organizational strategy of the company is directly connected to its

mission and can be even called the result of such mission statement and the way the company

stated its major goals. This type of relationships, direct proportionality, is quite often

observed in modern business world and implies a number of important limits on the work of

organizations that use it.

For instance, it is almost impossible to integrate serious strategic changes in such

company as Zappos is as it may result in the change of the way the company views itself and

its customers in the industry. However, such strategy is quite obscure and is based on a great

number of different sub strategies that describe how and why many processes of customers’

8

satisfaction are applied. Thus, only those sub strategies can be changed, while the change of

the major strategy of the company may result in its ruining.

Moreover, there is observed a direct relationship of the company’s organizational

strategy and the environment it operates in. Zappos ecommerce will continue to flourish as

long as people like the convenience and trust the security. While all customers seek high level

of services as possible, especially, when they get this very level of services for quite a low

price, all e-commerce businesses are oriented on customers satisfaction and the service

quality increase.

5. Zappos Structure.

While the basic selling process is done through the company’s site, Zappos still has an

outlet store that is located along with its warehouse in Shepherdsville, Kentucky. Such simple

structure of the company is heavily influenced by the type of business it is in. Moreover,

comparing to many other online shops the structure of Zappos is even quite difficult. Zappos

does not produce any type of products it sells, thus there is no need in the large and expensive

inventory for the company.

Moreover, the structure of the company implements the high level of communication

between the company’s employees and customers, which is supported by the company’s

leaders. Zappos.com “has fully integrated Twitter to it corporate structure… Of nearly 1,600

Zappos.com employees more than 400 are on Twitter, actively tweeting to one another about

their own lives and work, and, in the process, Zappos.com” (Fitton, Gruen, Poston; 2010; p.

94).

9

This means that the company’s customers may get the first hand information about

the inner processes and culture of Zappo.com quite easily. This strategy is now being

successfully implemented by many traditional businesses. It became clear that the problem

of communication between the companies and their customers has deepened seriously and

without the changes in the existing communication strategies many present day and future

customers may be lost.

This seriously influenced the type of human resource strategy that Zappos.com uses

when looking for new employees. On the whole, Zappos structure corresponds to the type of

business the company is in, while such strategies as integration of Twitter and The Facebook

into the corporate structure make it structurally corresponding to the stated mission and goals.

6. Control Features.

As well as in any other online business, the most important means of control over the

services and products’ quality, as well as the control over the employees’ attention to the

customers, are online. There are phone lines and e-mail services; there are means of

describing the impression from the work with the company and many different mean of direct

and indirect communication between the customers and the company’s managers and leaders.

For instance, the integration of Twitter into the work of the company gave another

direct method of control over the quality of services and employee work. However, the

question of product quality is more difficult than the question of control over the employee

work and services quality since Zappos does not produce any of the products it sells.

As a result, it can control neither the process of production or materials used; there is

no way to control the process of storage and transportation until the company gets the

10

products to its warehouse. Moreover, while the drop ship model of product delivery is still

used by the company, the quality of products delivered with the help of this model is

absolutely impossible to control. Thus, in addition to the online control services that Zappos

has, it had to launch other important control services like the control over the storage of the

products in the warehouse and the outlet store and control services over the process of

transportation of individual orders.

Control features over the way products are storage in the warehouse includes not just

control over the temperature and the level of dust, but also control over the way the products

are located through the warehouse. It is important to find quickly what is needed, that is why

classification of products according to the brands, size and other features is really important.

Lack of control over such simple things may lead to the poor level of work among the

warehouse employees and deliverance problems.

7. Organizational Culture.

The issue of organizational culture is one of the most difficult for the type of the

company Zappos is. According to the Zappos site, the culture of the company is based on its

core values that have already been mentioned above. Firstly, the company promotes the

importance of “wow services” and, secondly, it promotes the importance of fun as the core

and one of the most unique cultural values of the company.

Positive attitude inside and outside the team resulted in a specific recruitment process

that the company developed. There are two levels of recruitment process: during the first one

a person is interviewed as to the potential technical and knowledge skills, required by the

11

company. The second level is a purely human resources’ department interview, during which

a person is interviewed to investigate whether he or she fits into the company’s culture.

Zappos cultural belief that “customer service should not be just a department; it

should be the entire company” (Keyton; 2010; p. 101), promoted the importance of customer

satisfaction services. While some companies, like Southwest Airlines, for instance, promote

the importance of employees first as the mean of customers’ satisfaction, Zappos belongs to

the larger part of companies, where the importance of customers is promoted to be higher

than the importance of employees. For instance, “Zappos employees are allowed to go the

extra mile for their customers through actions such as sending customers flowers if they had a

bad day or bending company policy by accepting returns on worn shoes and sending a new

pair (and thank-you note) in its place” (Ainsberg; 2010; p. 41). Still, it is possible to suggest

that the leaders of Zappos understand that only happy employees may provide fun and high

level of customers’ satisfaction.

8. SWOT Analysis.

SWOT analysis as a method of strategic planning, is an abbreviation that stands for

Strengths, Weaknesses, Opportunities and Threats. Zappos strengths are: customer oriented

culture and services, untraditional means of customers’ satisfaction and high level of internal

communication. Moreover, the fact that Zappos.com is already the leader of the market is

also an important strength that helps to attract more attention to the company without

spending a lot of money on advertising and many other promotion strategies. Another

strength is that the company has large number of brands for a customer to choose from.

Online customers often search something they need by brands and the larger number of

brands they can reach, the better. Another obvious strength of Zappos is that the company

12

works not just with shoes, but also with accessories and apparels for different target layers,

including kids.

Weaknesses of Zappos concern mostly the type of industry the company is in. Firstly,

online retailers depend greatly on the type of technologies used and the problems with phone

lines or website access may result in the high level of customer dissatisfaction. “The decision

to focus on customer service rather than on marketing enabled Zappos to grow to a billion-

dollar company” (Boone, Kurtz; 2011; p. 359). Still, this factor also means that the company

often underestimates the influence and importance of the marketing issues on the everyday

business decisions.

Opportunities that Zappos face are numerous: enlargement of the target layers and

improvement of the customers’ services satisfaction through improvements of transportation

and return issues, enlargement of the inventory to improve the speed of the delivery to the

customers and many others. There are a lot of opportunities that are based on the unique

culture Zappos developed. At the same time, the unique culture of Zappos is one of its serious

threats. Today many customers of Zappos like it thanks to its unique culture and

communication opportunities it suggests. The change of the culture is one of the greatest

threats that Zappos faced and still faces. After the acquisition of the company by

Amazon.com many customers feared that this process will change the existing culture and

customers’ attitude of Zappos. Fortunately for Zappos, the type of acquisition the company

faced did not touch its culture; however, while the company is a part of larger one today this

threat still exists. Among the other serious threats are the decrease of technical support and

high level of customers’ dissatisfaction as a result. Problems with technology are common

with online business. As such, to prevent dissatisfaction, customers need to be notified and

be given explanations to why they were deprived from some or all services.

13

9. Conclusion and Recommendation.

Zappos, as a leader of the industry, should pay attention to all internal and external

threats that may influence the process of the company’s work. While the biggest threat the

company faces is the change of the corporate culture, it is important to communicate to

customers that the “weird” organizational culture, accepted in Zappos from the very

beginning, is still promoted and maintained. Moreover, it is important to protect the issue of

cultural independence of Zappos. In keeping with their final core value of “Be Humble”

Zappos needs to maintain a open policy regarding any technical problems that may affect

customer account security. Security problems will most likely be the first to influence

Zappos’ clients as to whether they like its culture or not, they are not likely to accept security

troubles, especially when the later result in steeling the clients’ personal information.

14

References

Ainsberg, A. (2010). Shackleton: Leadership Lessons from Antarctica. iUniverse, 120 pp.

Boone, L. E., Kurtz, D. L. (2011). Contemporary Marketing. Cengage Learning, 800 pp.

CEO Letter. Retrieved April 16, 2012, from:

http://blogs.zappos.com/ceoletter

Fitton, L., Gruen, M., Poston, L. (2010). Twitter for Dummies, John Wiley & Sons, 312 pp.

Graham, M., (2008). Warped Geographies of Development: The Internet and Theories of

Economic Development, Blackwell Publishing 776 pp.

Keyton, J. (2010). Communication and Organizational Culture: A Key to Understanding

Work Experiences. SAGE, 232 pp.

Lamb, Ch. W. (2011). “Marketing”, Cengage Learning, 648 pp.

Orlov, Z. (2007). How you can reach wealth by using proven millionaires ideas, Zoran Orlov,

365 pp.

Part of the Zappos Family. Retrieved April 14, 2012, from:

http://about.zappos.com/

Rabinovich, E., Laseter, T. M. (2011). Internet Retail Operations: Integrating Theory and

Practice for Managers. CRC Press, 268 pp.

Smith, Sh., Milligan, A. (2011). Bold: How to Be Brave in Business and Win. Kogan Page

Publishers, 320 pp.