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 consider themselves “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 24hour call centre and a toll-free number, which was displayed on all of their websites, were the basis of this customer service. Every call operator was trained to deal with any situation; there was no need for the customer to be transferred to a different operator or to hold while a supervisor/manager was called. Zappos provide free delivery to their customers within 5 working days.
However they aimed for next day delivery. This was all part of the customer service which 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 of the 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 monopolised 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 it makes the Zappos supply chain more efficient and effective. With the world in recession, sustainability is the key word 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 the 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 the 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 believe will comprise long term financial growth. It was found that if Zappos focused on ground delivery and stopped doing overnight free delivery that the estimated savings could be significant. This is a short term saving. From studies UPS estimated that if the air shipping was stopped and ground delivery was focused on for all of Zappos’ deliveries that 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 surprises and impresses them which encourages them order from Zappos again as well as to encourage friends to use Zappos for future purchases. If next day air delivery was 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 doing this render the savings made from removing next day deliveries not worth it. If there was 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 a delivery could take 4-5 days after order.
This would keep the “WOW!” factor that Zappos are 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 competition. Question 3: How would you expand the business? Would you add more products, more geographies, or by selling 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 is 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 on the product itself. To maintain the same level of service which Zappos prides itself on in the European market would require call centres for each region rather than one centralised call centre 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. It could however be worth considering branching into the Australasian market and the United Kingdom. These markets both have the advantage of westernised 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 the suppliers to work out distribution rights and deals. Zappos currently have 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 and thereby catering both to the high end and discount customer bases. Zappos need to increase their 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 the selling of 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 focuses on maintaining current standards and trying to improve rather than branching into other areas.
To remain profitable during their expansion Zappos need to either increase their margins by decreasing costs or increasing sales. To cut down on costs they could build another distribution centre in the North West of America to cover more ground and be able to uphold and even improve delivery times. They should also look at taking over transportation of goods inwards to their distribution centre. 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 centre on their watch. Deliveries from the distribution centre 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 behaviour 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 more fickle with its spending, maintaining consumer loyalty is the key for sustaining sales growth throughout the economic downturn. Great customer service is the key to building and maintaining loyalty with the consumer. In giving them great customer service, Zappos aims to provide the “WOW!” factor for them. Before the financial collapse, Zappos already provided great customer services such as overnight shipping, a free return system and a robust consumer call service. Zappos must maintain all these aspects to a high level to maintain sales growth. These all make up the “WOW” factor, which creates that loyalty with the consumer and overall, makes them return to Zappos over and over again. Lowering prices and cutting service costs may lead to an increase in sales growth initially but due to the unpredictable, cost-conscious consumer base, it is not beneficial on a long term basis. 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, a consumer experiencing great service is 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’s more trustworthy. Also, the number of returns would increase due to the cautious and indecisive consumer. Therefore, Zappos must continue providing their free return policy in order 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. Zappos could grant 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 have continued to grow as a company, with particular emphasis on company culture and they even provide business to business services such as coaching and consultancy in how to achieve the ‘Zappos Culture’. Even though Zappos were bought out by Amazon.com in 2009, in a deal worth $1.2 billion, they continue to run independently. They built a new distribution centre to cater for increasing customer demand, but instead of dividing geographies, the new distribution centre remained in Kentucky where it was close to the services provided by UPS. They diversified their product range to include beauty, home ware 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,
then management will heed requests and provide the particular product. They also sell niche Zappos branded products to cater for their fan base.
By 2014 they aim to have clothing making up 50% of sales from 15% in 2008. In 2010 they were ranked number one out of 150 e-retailers by STELLAService Ranking. In 2009 they stepped up 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 Hesih having spoken on UK parliamentary discussion panel Happy Workers = Business Growth? Zappos offer a two day seminar on how to recreate corporate culture and also have a website (Zappos Insights) available that offer management videos and tips from workers in Zappos at a monthly cost.
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