Company Profile Zappos started out by selling shoes online to become the world’s largest online retailer of shoes. Subsequently, in their quest to boost sales, they moved beyond footwear to become an E-tailer that sells ‘anything and everything’. Since its founding, sales have grown exponentially from US$1. 6 million in 2000 to US$1B in 2008 (Exhibit 1. ). This strong growth was dependent on a strong and loyal customer base, which in turn was dependent on employees who were passionate about and took pride in their work by providing exceptional customer service in their quest to ‘WOW’ their customers.
In addition to excellent customer service, two complementary reasons for exponential sales growth were the large number of SKUs available as compared to inventory carried in the brick-and-mortar stores and shorter delivery times that amazed customers. Industry Profile The online shoe retailing industry typically purchases goods from manufacturers at wholesale prices, which are then sold to customers at retail prices. As a result, the industry is projected to generate revenue of US$7. 8B in 2012, with a current and estimated annual growth of 17. 4% between 2007-2012 and 10. 2% between 2012- 2017.
Annual growth is estimated to increase since the market is still fairly unsaturated. Furthermore, since online shopping has only recently gained acceptance as a shopping channel, the industry’s long-term prospects will be aided by rising consumer confidence, since it contributes to customer satisfaction and retention. Major companies include Amazon. com with a 10. 4% market share, which acquired Zappos. com in 2009 to become an expert in online shoe sales overnight and Footlocker Inc, with a 5. 3% market share. The rest of the market is fragmented and made up of other companies like Nike Inc and Shoebuy. om Inc. Core Competencies When the CEO describes his business as a “service company that sells shoes,” he highlights Zappos’ competitive advantage. Zappos concerns itself with the “WOW” factor, seeking to excite their customers in five specific ways. Firstly, their main core competency, which is their commitment to next-day air delivery has won them a loyal customer base. They are able to operate from an in-house inventory and are free from the constraints of drop-shipping. Zappos operates their warehouse 24/7, and has invested a lot in developing their supply chain.
In doing so, they achieved quick delivery times and thereby marketed themselves positively. Customers are WOWed by the experience and often promote it by word of mouth. Zappos’ second core competency revolves around their 24/7 call center. Not only does the call center average a low hold time of 20 seconds, but it also seeks to help the customer in any way it can, even if this means passing off the sale of a pair of shoes to another, cheaper retailer. Since Zappos seeks to make the customer’s experience as pleasant as possible, this leads to the competitive advantage of a strong base of repeat customers.
Also, the company stands out because it decided to provide the service themselves instead of outsourcing it to another firm. The third is the company’s supply web. Zappos created “Powered by Zappos. ”, a program that allows manufacturers to sell directly to customers. They pay Zappos to create and manage their websites, run their call centers, and distribute their products from the Zappos distribution center. Unlike the inventory in a brick-and-mortar store that requires its own space, Zappos has inventory from one distribution center serving multiple online stores it powers through its program.
There is also a mutual benefit between vendors and Zappos’ buyers that was established through the extranet that provides critical sales and inventory information in a timely manner. The fourth competency is the company’s efficient strategies when dealing with excess inventory. Instead of following the traditional model of discounting items from a particular season well before the following season comes around, the company lets customer demand drive the discounting. The logic being this strategy is that demand for seasonal products do not automatically fall when their respective season ends.
This prevents them from discounting products too early (which the company believes the traditional brick-and-mortar model often does). Zappos has a discounting system that automatically adjusts prices based on demand information. The company also opened outlet stores (under names of companies they acquired) so that it could get rid of its remaining excess inventory without hurting its brand. Finally, much of Zappos’ philosophy is built around showing customers why they are better off buying shoes online as opposed to in-store.
They have comprehensive information about each shoe, as well as eight photos of each product shown from different angles. Because they provide detailed information about each shoe, extensive customer feedback, and discussions about particular issues like gait, Zappos answers any reservations that customers may have about ordering shoes online. Unfortunately, many online retailers have begun to catch up with many of these core competencies. The concepts of next-day delivery and “above and beyond” customer service are no longer the “WOW” factors that they may have been five years ago.
However, the relationships that make up “Powered by Zappos” are tough to beat and give the company a competitive advantage through its supply web. At the time of this case, Zappos still holds the niche of being an online shoe expert, but companies like Amazon have begun to encroach on their territory as they become more and more comprehensive in terms of the variety of goods they sell. However, because Zappos has such a unique corporate culture and vision, the business remains sustainable. It has been able to differentiate itself from competitors, because the company remains small enough to maintain a pervasive family culture.
And this culture of fun and openness is what drives Zappos’ competitive advantages of superb customer service. Familial, intimate philosophy encourages conversation between employee and customer about which running shoe might fit the customer best. It may even lead to animated discussions about physical fitness or the Olympics. The corporate culture has also kept the company sustainable by encouraging growth. Whenever they branch out and sell other goods, like electronics, Zappos encourages employees who are interested in electronics to lead this expansion.
This familial credo of empowerment not only helps to grow the business, but it also raises employee satisfaction. A great example of the employee commitment was when many employees went weeks without getting a paycheck in the early stages of the company. It is clear that they stayed at Zappos because they loved the environment, embraced the challenges, and believed the company would grow. Next-day Air Shipment Next day air shipment is very important to the customer experience. It is one of the “WOW” factors.
While the customer is expecting to wait as long as five days for their delivery to come through, they almost consistently get it in one day. This not only makes the recipient feel more positive about the shipment itself, but it also is more likely to make the recipient a repeat customer. Unfortunately for Zappos, customers have begun to expect next-day delivery from online retailers and it is no longer the “WOW” factor that it may have been in 2005. However, even in the current cost-conscious atmosphere, Zappos should not discontinue its practice of next-day delivery.
Although it may not turn as many heads as it used to, it is what some consumers have come to expect and the company would lose customers if they discontinued it. In the current cost-conscious environment, Zappos could benefit from downsizing the number of products available for shipment and the number of brands that they support. Instead of juggling 1,417 different brands and the complications it brings to the supply chain, Zappos instead should emphasize its role as a well-oiled machine that ships quickly and is more intimate than the large, discount internet retailers, like Ebay. The company could lso start requiring a minimum purchase order amount. They could decide to waive this requirement for more profitable items that have a high value-to-bulk ratio(i. e. t-shirts that weigh virtually nothing and take up little volume) so customers have an incentive to buy them. Zappos could also seek out an acquisition from one of these discount internet retailers, assuming that they continue to encroach on Zappos’ territory. Business Expansion To expand the business, we suggest that Zappos. com should neither expand its product variety nor geographies. Rather, it should sell more private labels.
Expanding variety will bring Zappos head to head with the mass merchandisers who have advantages in economies of scale and are able to sustain low prices in the retail industry. This fierce competition will not only increase the cost of operation, but will also endanger Zappos’ current competitive advantages. Since a future trend of the industry is increasing market concentration, this means that companies would compete to serve different customers segments to avoid a zero-sum game. Therefore, instead of expanding product variety, Zappos should focus on its main core competency, which is to maximize customer experience.
Secondly, expanding to other countries would require intensive capital to set up local warehouses and call centers in order to achieve the successful business model in the U. S. Also, an international expansion would require Zappos to understand the foreign culture and negotiate with local brands. With these challenges and costs, international expansion is a risky strategic decision for Zappos. If Zappos increases in selling private label, it could take advantage of the current supply chain system without incurring any new cost in this part.
In addition, this strategy goes with Zappos’ “WOW” experience. By providing private labels, Zappos create more values for the customers who now have access to these private labels from every corner of the country without geographical constraints. Zappos can attract new customers and the private labels can get more publicity and make use of the well-established distribution system of Zappos. It’s a win-win situation for multiple stakeholders in this case. Increasing Profitability Moreover, Zappos could consider implementing live customer support to their websites.
This feature enables customers to find out answers to their questions on the spot in real-time, which will enhance the “WOW” experience when they are shopping at Zappos. At the same time, the live chat feature shares part of the work with call center, which is costly to run 24/7. Another way to lower the cost associated with the focus on service is that Zappos could use smartphones to enhance their customer experience. By developing a Zappos app using by smartphones, it could replace the hold time with an intelligent call-back, as well as using a visual interface to help customers navigate through the menu before they call.
In this way, the call center could lower handle times and lower costs. Strategy in a Cost-Conscious Typically you would expect that a more cost-conscious consumer would strongly affect Zappos’ business, since they would prefer to buy discounted products. But this is not the case since they are not Zappos’ target market. Zappos specifically separated itself from brands like 6PM which it acquired so that discounts wouldn’t become part of their image. This is evidenced by a revenue growth for Zappos during the economic recession even when other retailers had double digit sale decreases.
This growth is due to their branding.. Customers don’t shop at Zappos because they expect low prices, but because they expect reliable and quick shipping, good customer service, and competitive prices (not necessarily cheaper, but comparable to other websites). The most noticeable change in customer behavior was that customers didn’t purchase products as quickly. For example, they visited the Zappos website many times or came to the site through comparison shopping engines.
It seems that customers wanted to be sure that they were getting the best deal possible compared to other websites and retail channels, and that they were buying something that they were sure they wanted. Zappos has already emphasized that they wanted to be as informative as possible when it comes to their products by posting significantly more photos than other sites and describing the product with as much detail as possible. Zappos could continue to emphasize this competency by adding even more details about the shoes and adding more pictures, or even videos of people modeling the shoes.