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ZAPPOS.COM
Focus on Customer Service
SUMANTRA GHOSHAL
• Companies that succeed are driven by cultural ambition. Stock Price doesn’t drive them. Ambition and Values drive them
1948-2004
ZAPPOS.COM Current Position
– 1500 employees (half in Las Vegas headquarters, half in Kentucky)
– Zappos is “Powered by Service”• Providing the best online shopping
experience possible.• Fast, Free Shipping: Free return shipping.
365-day return policy.• Fast fulfillment. Expedited delivery. Fast,
friendly & expert customer service.
ZAPPOS.COM Current Position
– Best selection• Over 1,000 brands• Millions of items in warehouse• 100% of products inventoried (no drop ship).
– Zappos is a service company that happens to sell clothing, shoes, handbags, eyewear, watches (and eventually a bunch of other stuff).
Recent Recognition
• Fortune “100 Best Companies to Work For”– #23 (2009) – Highest ranking newcomer to
list– #15 (2010) – Second year in a row to make
the list
• Fast Company “50 Most Innovative Companies”– #20 (2009)
• Business Week Top 25 “Customer Service Champs”– #7 (2009)
Power of Repeat Customer and word of mouth
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Gross Sales 1.6 8.6 32 70 184 370 597 841 1014 1187
$100
$300
$500
$700
$900
$1,100
$1,300
Gro
ss S
ales
$M
's
Nick Swinmurn
• The year was 1999, and the founder Nick Swinmurn was walking around a mall in San Francisco, looking for a pair of shoes.
• Size but not colour• Colour but not size
Birth of Zappos.com
Tony Hsieh• 1994-1995: Pizza business in college
• 1996-1998: LinkExchange (online advertising)Sold to Microsoft for $265 million
• 1999: Venture Frogs (investment fund) - Invested in Zappos.com, Inc.
• 1999: Zappos.com, Inc.
• Nov 2009: Amazon acquires Zapops.com, shares valued at $1.2 billion at closing.
• June 2010:Publish date for my book “Delivering Happiness”
VISION
• One day, 30% of all retail transactions in the US will be online.
• People will buy from the company with the best service and the best selection.
• Zappos.com will be that online store.
Challenges
Finance for
expansion
Feel of Shoes
New Market
Inventory
Delay
Business Strategy
What is business strategy?
Johnson & Scholes (Exploring corporate strategy) defined strategy as follows:
“Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder’s expectations.”
Levels of strategyCorporate Level
Business Level
Operational Level
• Corporate Strategy - is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a "mission statement".
• Business Unit Strategy - is concerned more with how a business competes successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.
• Operational Strategy - is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc.
Vocabulary of Strategy
• Mission• Vision or Strategic intent• Goal• Objective• Strategic Capability• Strategies• Business Model• Control
Components of Strategic Management Process
Strategic Analysis
Analyzing the strength of businesses' position and understanding the important external factors that may influence that position
Tools of Strategic Analysis
• PEST Analysis• Scenario Planning• Five Forces Analysis• Market Segmentation• Directional Policy Matrix• Competitor Analysis• SWOT Analysis
• STRATEGIC CHOICE• STRATEGIC IMPLEMENTATION
Customer Service
24
25
What is Customer Service?
"Customer service is the ability to provide a service or product in the way that it has been promised.“
"Customer service is about treating others as you would like to be treated yourself and how they want to be treated."
"Customer service is a process for providing competitive advantage and adding benefits in order to maximize the total value to the customer." Source: Customer Service Manager
26
2009 Businessweek Customer Service Champs
1. AMAZON.COM 2. USAA 3. JAGUAR 4. LEXUS 5. THE RITZ-CARLTON 6. PUBLIX SUPER
MARKETS 7. ZAPPOS.COM 8. HEWLETT-PACKARD 9. T. ROWE PRICE 10. ACE HARDWARE 11. KEYBANK 12. FOUR SEASONS
HOTELS & RESORTS
13. NORDSTROM 14. CADILLAC 15. AMICA 16. ENTERPRISE RENT-A-
CAR 17. AMERICAN EXPRESS 18. TRADER JOE'S 19. JETBLUE AIRWAYS 20. APPLE 21. CHARLES SCHWAB 22. BMW 23. TRUE VALUE 24. L.L. BEAN 25. JW MARRIOTT
Source: BusinessWeek Online
Zappos Customer Service Strategy
28
Customer service value proposition in action…
Zappos is committed to WOWing every customer.– Customers come…
• Over 10 million total purchasing customers• Over 4 million 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• $123.86 – first time customers in Q407• $156.27 – returning customer in Q407
Source: TheLetterTwo.com
29
Customer Service:What customers first see
– 24/7 1-800 number on every page
– Free shipping
– Free return shipping
– 365-day return policy
Source: TheLetterTwo.com
Customer Service:What customers experience
– Fast, accurate fulfillment
– Most repeat customers are “surprise”-upgraded to overnight shipping
– Friendly, helpful “above and beyond” customer service
– Occasionally direct customers to competitors’ web sites
Culture
Zappos Core Values
1. Deliver WOW Through Service2. Embrace and Drive Change3. Create Fun and a Little Weirdness4. Be Adventurous, Creative, and Open-Minded5. Pursue Growth and Learning6. Build Open and Honest Relationships With
Communication7. Build a Positive Team and Family Spirit8. Do More with Less9. Be Passionate and Determined10. Be Humble
PORTER’S GENERIC MODEL
REQUIREMENTS OF GENERIC STARTEGIC MODEL
GENERIC STARTEGY INTERNAL STRENGTHS REQUIRED
OVERALL COST LEADERSHIP
DIFFRENTIATION STARATEGY
FOCUS
Capital requirement for investment in asset productionSkill in designing productsHigh level of product engineeringEfficient distribution channel
Access to scientific research Highly skilled and creative product development team Corporate reputation for quality and innovation Able to communicate the perceived strengths of them
RISKS OF GENERIC STARTEGIESRIS
K OF COST
LEADERS
HIP
• Cost of leadership is not sustained
• Competitors Imitate
• Proximity in differentiation is lost
• Cost focusers achieve even lower cost per segment
RISK
OF DIFFRENTIATION
• Differentiation is not sustained
• Bases of differentiation unattractive
• Cost proximity is lost
• Differentiation focusers achieve even greater than industry differentiation in segments
RISK
OF FOCU
S
• Focus strategy is initiated
• Target segments become structurally unattractive
• Competitors overwhelm the segment
• Demand disappears
• Even greater sub segments
STRATEGIES ADOPTED BY ZAPPOS
COST LEADERSHIP
DIFFRENTIATION
FOCUS
COST LEADERSHIP
Methods of attaining Cost leadership – Gaining process efficiency, Making optimal outsourcing and vertical integration
Zappos methods of cost leadership :365 DAYS RETURN POLICY
FREE RETURN POLICY
110% MONEY BACK FOR
LOWER PRICE
DISCOUNT, E-COUPONS
FREE SHIPPING
COST LEADERSHIP CONTD..
Process efficiency was raised when Zappos realized that it was competing with conventional shoe sellers rather than its contemporary so it increased its efficiency by providing for shipping overnight rather than waiting for a couple of days
Drop Shipping was the procedure wherein the company maintained only 80-90% of its shoes so displayed on the website as stock and remaining orders were transferred to the manufacturers
Drop shipping resulted in 25% of its revenue but was against their policies and was not standing for its brand
Drop- shipping procedure resulted in delay in the delivery time causing inconvenience to the customers so 100% stock was maintained and warehouse were kept open 24*7
DIFFRENTIATION STRATEGY
Its cost strategies were inconsistent with its aim of making Zappos customer services focused as opposed to price focused…It also realized their cost strategies would only attract Price-minded, one time customers instead of brand loyalists
Strategies implemented to add to the uniqueness of the Zappos products:
24*7 toll free customer service Search Engine Marketing (SEM) Usage of social media extensively Company Culture besides fanatically emphazing on
customer services 75% of sales came from repeat customers wherein their
expenditure for the repeat purchase was higher
DIFFRENTIATION STARTEGY CONTD..
CUSTOMER SERVICES: As per their WOW policy they believed in having a toll free
customer service 1-800-927-7671 Emphasis on customer services made them change their
headquarter from San Francisco to Las Vegas- ” We were having a hard time finding good customer service
people in San Fransisco. Las Vegas has a lot of call centers and lots of people who want to do customer service as a career.”
Directing customer towards its competitors websites was also one of its differentiating attributes
Scoring of every customer call made it easy to follow the performance of each customer service representatives
It also had its warehouse location Kentucky worked round the clock for convenience of their customers
DIFFRENTIATION STARTEGY CONTD..
CUSTOMER SERVICES:
KEY VARIABLES Services as
marketing
Toll-free number
Invitation to interact
Toll-free number hours
Outsourcing
Employees as advocate
Traditional Media spend
TYPICAL BRANDLow
Hidden
Hard to find
9:00 a.m-5:00p.m.
Common
Medium
High
ZAPPOSHigh
Written on forehead
Everywhere
24*7
Unthinkable
Off the charts
Low
SEARCH ENGINE MARKETING
SEARCH ENGINE MARKETING CONTD…
CRITICAL ANALYSIS OF AFFILIATE ROGRAMS
PROSo Open Invitationo Huge membership~17000 o Associates given USD 15/order
against average sales of USD100
o Referral rate was 15%o Associates could add a Zappos
search box to their websiteo Associates could choose to
recommend specific shoe or product line
CONSo Zappos did not accept
International affiliates even if they had a website targeted at US citizens
o Zappos had a reversal rate of 31% in case of which the affiliate also had to lose out
DIFFRENTIATION STRATEGY CONTD..SOCIAL MEDIA USAGE: PROMOTING TRANSPERANCY AND REACHING
OUT TO CUSTOMERS IN A FRIENDLY WAY
DIFFRENTIATION STRATEGY CONTD..
COMPANY CULTURE CENTERED AROUND CUSTOMER SERVICES: Believed contemporaries could imitate their services but its
culture would give them competitive advantage To give maximum services to customers it was important to have
committed set of employees on the payroll Their strategy of having committed employees meant recruiting
the right people on the payrolls 5 week training period recruits had to work in company call center
for some time and then at warehouse This Strategy had been in limelight for quite sometime with “If you
quit, we will pay you USD 1000+bonus USD 2000 “ Managers were asked to build relations by spending time with
employees and to improve communication and build trust between them
Doing this Zappos was growing by Word of Mouth unlike other competitors
Competition Analysis:
• V/S
v/sZappos.com endless.com
Zappos.com was founded by Nick Swinmurn
Endless.com is offered by Amazon.com
Inception: 1999 Inception: 2007
Features:• Huge Collection (1000 brands in over 150,000 styles)• 24/7 Customer Service• Free Overnight Shipping• Free Return Shipping• 110% Price Guarantee • 365 days- return opportunity• Affiliate Programs
Features:• Wide Selection• 24/7 Customer Service• Free Overnight Shipping• Free Return Shipping • 110% Price Guarantee• 365 days- return opportunity
v/sZappos.com shoebuy.com
Zappos.com was founded by Nick Swinmurn
Shoebuy.com was founded by CEO, Scott Savitz
Inception: 1999 Inception: 1999. Went live: 2000
Features:• Huge Collection (1000 brands in over 150,000 styles)• 24/7 Customer Service• Free Overnight Shipping• Free Return Shipping• 110% Price Guarantee • 365 days- return opportunity• Affiliate Programs
Features:• Wide Selection• Free Shipping• Free Return Shipping • 110% Price Guarantee• No Sales Tax
v/sZappos.com Piperlime.com
Zappos.com was founded by Nick Swinmurn
Piperlime.com is offered by GAP Inc.
Inception: 1999 Inception: 2006
Features:• Huge Collection (1000 brands in over 150,000 styles)• 24/7 Customer Service• Free Overnight Shipping• Free Return Shipping• 110% Price Guarantee • 365 days- return opportunity• Affiliate Programs
Features:• Wide Selection• Free Shipping• Free Return Shipping • 100% Price Guarantee
Zappos’ Competitive advantage
“It would be easy for competitors to copy services like free shipping and free returns, it would be difficult to imitate its culture, and
this could serve as a major competitive advantage.” -Hsieh
• Superior Customer Service- Engraved with the Culture of the company.
• Price Protection Policy• Free Return Shipping- First in online Retail business• 24/7 Toll free Customer Service Number- First in online Retail
business• Aims to bridge the gap between the ‘Experiences’- Competing
with Brick & Mortar shoe retailers.• Transparency• Strong Public Image- PETA• Unique Customer Connect- Use of Social Networking Sites.• Unique Affiliate Program
Why Zappos was sold to Amazon?
• The first time Amazon.com tried to buy Zappos was in the summer of 2005.
• By 2005, sales were $370 million, but zappos was not profitable yet, but it was close to breaking even, and revenue was growing quickly.
• Zappos wanted to achieve sales of $1 billion by 2010 and eventually go public.
Initial Offer
• Sales of zappos was $1 billion in 2008 ahead of their target.
• Zappos raised tens of millions of dollars from outside investors, including $48 million from Sequoia Capital, a Silicon Valley venture capital firm. As with all VCs, Sequoia expected a substantial return on its investment.
• Zappos relied on a revolving line of credit of $100 million to buy inventory but was incapable of financing it because of lending agreements and unwillingness of bank to invest because of recession.
Difference of opinion
• Some board members had always viewed company culture as a pet project -- "Tony's social experiments," they called it. He disagreed. The board wanted him, or whoever was CEO, to spend less time on worrying about employee happiness and more time selling shoes.
• To tony, Zappos wasn't just a job -- it was a calling. So he came up with a plan: He and Alfred would buy out stake of board of directors. They figured to do so would cost about $200 million.
Acquisition Proposal
• Alfred sensed that Amazon would be more open than last time to the idea of letting Zappos continue to operate as an independent entity.
• Tony was concerned about the similarities and dissimilarity between Zappos and Amazon.
Terms & Conditions
• Amazon initially offered to buy Zappos in cash, but later an all-stock transaction was proposed .Zappos shareholders would simply trade their stock for Amazon stock.
• Board voted to accept the proposal on July 20.On July 22 the deal was publicly announced.
Amazon-Zappos Merged
• The acquisition closed on November 1, at a valuation of $1.2 billion (based on Amazon's stock price on the day of closing). Sequoia made $248 million. Board was replaced by a management committee that includes tony , Jeff, two Amazon executives, and two Zappos executives.
• Zappos continues to operate independently. Our relationship is governed by a document that formally recognizes the uniqueness of Zappos's culture and Amazon's duty to protect it.
Ansoff’s “Strategic Readiness Diagnosis”. He introduced “gap analysis” (the gap between where you are today and where you want to be).
Ansoff Matrix
Existing Product New Product
Existing Market
NewMarket
Market Penetration
Market Development
Diversification
Product Development
Market penetration
• Maintain or increase the market share of current products by a combination of competitive pricing strategies, advertising, sales promotion.
• Secure dominance of growth markets.• Increase usage by existing customers
– for example by introducing loyalty schemes.
Market development
• New geographical markets : First North America and then other countries.
• New product dimensions or packaging.• New distribution channels or
acquisition of local manufacturers and using “Hub and Spoke model.”
• Different pricing policies to attract different customers or create new market segments.
Product development
• Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and development of modified products which can appeal to existing markets, e.g. complimentary products.
Diversification
• New products in new markets.• A clear idea about gain from the
strategy and an honest assessment of the risks.
Recommendation: Change/review salary instead of layoffs.
THANK YOU
• Presented By:• Jimit Mehta 09BS0000963• Mausam 09BS0001217• Mukesh Sagar 09BS0001337• Nisha 09BS0001400• Mohsin Pathan 09BS0001571
