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Question 1: What are Zappos’ supply chain-related core competencies and sources of competitive advantage? How sustainable are they? What role does corporate culture play in these questions?
Zappos considers themselves to be a service company that happens to sell shoes.” The main core competency of the company is its customer service. Hsieh considered customer service to be one of the most important aspects of the business. If a business has excellent customer service, then customers are more likely to return to purchase from the business again. Hsieh saw that excelling in customer service and trusting the word of mouth of their customers would build up their customer base and their sales. A 24-hour call center and a toll-free number, which are displayed on all of their websites, are the basis of this customer service. Every call operator is trained to deal with any situation; there is no need for the customer to be transferred to a different operator or to hold while a supervisor/manager is called. Zappos provides free delivery to their customers within 5 working days.
However, they aimed for next-day delivery. This was all part of the customer service that Hsieh was so passionate about. If a customer received their purchase the next day, they were impressed and more likely to purchase again. One of the biggest issues for customers when buying online is the issue of fit. Since you physically cannot try on the product before buying it, it leads to customers being reluctant to buy online. Zappos addressed this problem by providing free returns 365 days a year. Zappos’ excellent customer service is a distinct competitive advantage. Another one is their acquisition of the online discount shoe retailer 6pm. Through 6pm, Zappos could sell shoes at clearance prices without harming their own image as a high-end retailer. They monopolized the shoe market as they could now target many different customer bases. Another advantage is bringing their inventory in-house. This way, any shoe that is on the Zappos website is in stock. It provides a better experience for the customer and makes the Zappos supply chain more efficient and effective. With the world in recession, sustainability is the keyword in business.
The services offered by Zappos cost the business a lot of money, but in the eyes of Zappos, it is worth the cost. Is world-class customer service sustainable in these times? It has to be. Zappos has built itself around the fact that they are an excellent service provider. Take that away, and Zappos would lose a lot of its loyal customer base. Corporate culture has a lot to play in the core competencies of the company. The employees enjoy going to work; they enjoy being there. They are loyal to the company, and that makes them better workers. They go above and beyond for customers because they want to, not because they have to. The people in leadership roles encourage and nurture creativity and fun in the workplace. The culture of the company is just as important to them as the growth of the company. As they see it, one will feed off the other.
Question 2: How important is next-day air shipment to the customer experience? Is it worth the cost? How might you change it in the cost-conscious environment facing the company in late 2008?
The next day air shipment is an extremely important factor for the customer experience with Zappos. Next day shipment is one of the main “WOW!” factors that Zappos has based its company around, along with its exceptional customer services and the free returns within 365 days policy. Changing this service because of an economic downturn means that Zappos would potentially lose customers. The money Zappos could save by not investing in next day delivery would not balance out the money they would lose from loyal or new customers buying from the competition in the long run. Maintaining high-quality service is a long-term investment that Zappos believes will comprise long-term financial growth. It was found that if Zappos focused on ground delivery and stopped doing overnight free delivery, the estimated savings could be significant. This is a short-term saving. From studies, UPS estimated that if the air shipping were stopped and ground delivery was focused on for all of Zappos’ deliveries, they would be able to reach 11% of Zappos customers in one day, 49% in two days, 18% in three days, 21% in four days, and 1% in five days.
However, this goes against the business model that Zappos has spent so much time developing. Customers receiving a delivery the day after placing the order for a 4-5 day shipment are surprised and impressed, which encourages them to order from Zappos again and to encourage friends to use Zappos for future purchases. If next day air delivery were taken away, Zappos would lose a large part of the competitive edge they have over their competing sites, such as ShoeBuy.com and Endless.com, that can deliver within the same time constraints as Zappos and even do next day delivery at a cost. Customers that Zappos would lose by doing this render the savings made from removing next day deliveries not worth it. If there were a case where Zappos wanted to reduce the costs of next day air delivery, then they could reduce the number of shipments they do by this method. A suggestion to cut down on the number of next day deliveries would possibly be to only do next day delivery based on customer loyalty, by rewarding customers who have ordered from the site before by giving them next day delivery for free. Also, in order to keep new customers interested, give a select number of first-time buyers next day delivery but clearly state that delivery could take 4-5 days after order.
This would keep the WOW!” factor that Zappos is renowned for when the new customer receives a next-day delivery package. Another suggestion would be to add a cost to the next-day delivery. However, as other companies already offer this service, there would still be a much higher level of competition. Case studies have revealed that during the economic downturn, Zappos has been reaching its internal revenue targets, continuing along its predicted growth trajectory. This means that sales are not the issue, as people will still buy things they need and want, maybe more cost-consciously. The main findings for Zappos were that customers spent more time researching different competitor websites before ordering from Zappos.
The solution to this could be to make the Zappos page more attention-grabbing and informative in order to convince people to order straight from Zappos instead of researching the competition. Question 3: How would you expand the business? Would you add more products, more geographies, or sell private labels? As you expand the business, how can the company become more profitable, particularly in light of the costs associated with the focus on service?
There is no real benefit to be gained for Zappos by expanding into foreign markets at this stage in their development. This is because, as mentioned in the case study, the next biggest market is the European market, which is, in actual fact, made up of individual, distinct markets, each with their own languages, cultures, and stylistic considerations, and even in some cases, currencies. This would place too much pressure on the current Zappos business model, which focuses on customer service rather than the product itself. To maintain the same level of service that Zappos prides itself on in the European market, call centers for each region would be required, rather than one centralized call center like the one in Las Vegas. The emerging markets and the Asian markets would also be problematic, as the language barriers would again impose the same limits on the customer service experience. However, it could be worth considering branching into the Australasian market and the United Kingdom. These markets both have the advantage of being westernized and English-speaking, meaning that the cultures would not be too far removed.
The United Kingdom also has the advantage of a high population on a small landmass, meaning that there should not be too much of a problem in attaining the same delivery times as are currently achieved in the US. The main focus of their international expansion should be on the Canadian market, as they are in close proximity and share similar values in terms of customer service expectations. To expand in the Canadian market, they will need to build relationships with suppliers to work out distribution rights and deals. Zappos currently has an extensive portfolio of product lines, but there are currently some rather large untapped markets. They don’t currently sell toys; however, there would be too much space and inventory management required to start selling toys along with the already extensive product lines. Another omission was beauty products. It would be understandable that the customer who is interested in shoes, handbags, and clothing would also be interested in beauty products.
These could also fit into the existing Zappos model, whereby last season’s items are sold at discounted prices on the 6pm site, catering to both the high-end and discount customer bases. Zappos needs to increase its customer base through effective advertising campaigns. This can be done cheaply and effectively through the use of internet advertising and utilization of social media. They should not focus on selling private labels as their strengths as a company lie in customer service rather than production and manufacturing. We feel that it would be more worth their time to focus on maintaining current standards and trying to improve rather than branching into other areas.
To remain profitable during its expansion, Zappos needs to either increase its margins by decreasing costs or increasing sales. To cut down on costs, it could build another distribution center in the Northwest of America to cover more ground and be able to uphold and even improve delivery times. Zappos should also look at taking over transportation of goods inwards to its distribution center. This would allow Zappos to take goods directly from suppliers and would reduce current inefficiencies with optimizing cargo capacity by only having full truckloads delivering to the distribution center on its watch. Deliveries from the distribution center could then be handled by UPS, maintaining the current relationship with UPS. Question 4: How would you expect the environment of a more cost-conscious consumer to affect Zappos’ business? What can Zappos do in such an environment to maintain sales growth?
The financial and economic breakdown has caused consumers to become more cautious with their spending. Changes in consumer behavior continue throughout the economic downturn, and this poses new challenges for Zappos. One of these challenges is that consumers spend a lot more time researching products before purchasing. Before the financial downturn, consumers went directly to the Zappos website and purchased their products. However, as the financial struggle continued, it was shown that before consumers purchased from the Zappos website, they visited comparison sites, Google ads, or similar websites. Even if Zappos had good prices and bargains, the consumer would still do research before purchasing from Zappos. Also, although the consumer might eventually buy from them, they might not return to the website to purchase again. It is up to Zappos to build loyalty with the consumer throughout the economic downturn and maintain it so that when the consumer purchases from Zappos, they return to the site time and time again.
As the cost-conscious consumer is becoming more fickle with their spending, maintaining consumer loyalty is key to sustaining sales growth throughout the economic downturn. Great customer service is the key to building and maintaining loyalty with consumers. Zappos aims to provide the WOW!” factor by giving them great customer service. Even before the financial collapse, Zappos provided great customer service, such as overnight shipping, a free return system, and a robust consumer call service. Zappos must maintain all of these aspects at a high level to maintain sales growth. These all make up the “WOW” factor, which creates loyalty with consumers and, overall, makes them return to Zappos over and over again. Lowering prices and cutting service costs may lead to an initial increase in sales growth, but due to the unpredictable, cost-conscious consumer base, it is not beneficial in the long term. Consumers will eventually spend their money elsewhere when they see other great deals or if the level of service decreases. Maintaining great customer service is a long-term investment. A Zappos call service is where the culture and customer service of the business come together to provide a more personalized and trustworthy experience, which is imperative in a cost-conscious environment.
Not only does this strengthen consumer loyalty, but a consumer experiencing great service is also more likely to tell friends or relatives about it, which may gather more consumers. Word of mouth is more important in a cost-conscious environment as it is more trustworthy. Additionally, the number of returns would increase due to the cautious and indecisive consumer. Therefore, Zappos must continue providing their free return policy to preserve consumer loyalty. While a consumer might send back a product, if the return procedure is carried out efficiently and problem-free, they are more likely to come back to Zappos due to peace of mind and reliability. Zappos could also provide a reward system for existing consumers by granting certain sales and discounts for consumers who buy products from Zappos on a regular basis. This reward system would increase impulse purchases, which have decreased since the financial collapse, while also enhancing consumer loyalty.
Question 5: Explore what happened to Zappos’ (articles, news reports, etc.) after 2008. Compare this to your answer to Q3 above and comment accordingly.
Since 2008, Zappos has continued to grow as a company, with a particular emphasis on company culture. They even provide business-to-business services such as coaching and consultancy on how to achieve the Zappos Culture.” Even though Zappos was bought out by Amazon.com in 2009 in a deal worth $1.2 billion, they continue to run independently. They built a new distribution center to cater to increasing customer demand, but instead of dividing geographies, the new distribution center remained in Kentucky, where it was close to the services provided by UPS. They diversified their product range to include beauty, homeware, and baby products, as recommended. This is one of the manifestations of corporate company culture, in that if employees and customers are passionate about particular products, management will heed requests and provide the particular product. They also sell niche Zappos branded products to cater to their fan base.
By 2014, they aim to have clothing making up 50% of sales, up from 15% in 2008. In 2010, they were ranked number one out of 150 e-retailers by the STELLAService Ranking. In 2009, they stepped up their advertising campaigns, instead of relying primarily on word-of-mouth advertising, by showing product-driven ads on cable television shows. They also effectively used social media and mobile applications to connect with customers and provide an exceptional customer experience. This was one of the recommendations put forward previously, as it is an area that had previously been given little attention. Although international orders can be placed, the level of service provided to North American customers is not provided to international customers. Their main impact internationally has been through the influence of the Zappos culture on other businesses and even governments, with CEO Tony Hsieh having spoken on a UK parliamentary discussion panel titled Happy Workers = Business Growth?” Zappos offers a two-day seminar on how to recreate corporate culture and also has a website (Zappos Insights) available that offers management videos and tips from workers at Zappos for a monthly cost.
References.
Bets, Mitch (2010) reported that Zappos earned the #1 ranking for E-Retailing in Computerworld. Clack, Erin E. and Young, Marcie (2009) wrote an article in Footwear News on May 4, 2009, in Vol. 65 Issue 17, p24-1NULL, with one page and four black and white photographs. Footwear News (2009) also published a timeline on Zappos’ milestone on Monday, May 4, 2009. Karman III, John R. (2011) wrote about Zappos’ hiring and expansion plans in Bullitt County, making it a major economic engine for Business First’s 2011 Year in Review.
Martin, Russ (2013) wrote an article in Marketing Magazine titled “Zappos Branding Strategy: Delivering Happiness; A Path to Profits; Passion and Purpose.” The article can be found in the August 19th, 2013 issue, Volume 118, Issue 8, on pages 20-21. It is 2 pages long and includes 1 chart. Witkin, Jim (2012) also wrote an article about how Zappos profits from the happiness business in The Guardian.
