2. As we grow as a company, it has become more and more
important to explicitly define the core values from which we
develop our culture, our brand, and our business strategies.
These are the ten core values that we live by:
Deliver WOW through service
Embrace and drive change
Create fun and a little weirdness
Be adventurous, creative, and open-minded
Pursue growth and learning
Build open and honest relationships with communication
Build a positive team and family spirit
Do more with less
Be passionate and determined
Be humble (Del Rey, 2011).
3. ◦ Tony Hsieh is the CEO of the e-commerce powerhouse called
Zappos.com. He helped to start the company in 1999 as an online
shoe store, and it has since expanded to all manner of other goods
(Hsieh, 2009).
◦ Zappos.com has been profitable since 2006. Last year, it booked
$1 billion in gross sales (20% better than the year before), and in
July of 2009, it was acquired by Amazon.com in a deal valued at
approximately $887.9 Million (Hsieh, 2009)
◦ The main purpose of Zappos.com is to relentlessly focus on
customer service first, which is all about making customers happy
and then over time put more and more emphasis on company
culture, which is all about making employees happy (Hsieh,
2010).
4. Zappos’ passion is to deliver extraordinary customer service. Customer service is such a focal
point in their brand that all new employees, regardless of their role (including legal,
accounting, and more) are required to go through the four-week customer service training. At
the end of the first week, new employees are offered $2,000 to quit (plus being paid for the
training time) and the offer is made each week until training is completed.
Early on in its life, Zappos made a deliberate decision to re-direct its marketing budget
towards delivering exceptional customer service with a great company culture, helping the
business to thrive where others have failed. Tony highlighted many deliberate decisions that
the company made with the long-term view in mind, such as encouraging customers to order
as many products as they wanted in order to “try them on,” then offering free return shipping
for a full 365 days.
Deciding to run their warehouse operation 24/7 to deliver super-fast turnaround on orders,
despite it being an inefficient way to manage fulfillment.
Encouraging customers to call them about nearly everything. Their call center takes 5,000 calls
per day, and employees work independent of scripts, quotas, or call time limits. The longest
call to date has been four hours. Zappos views the phone experience as a branding device, and
speaks to virtually every customer at least once.
Deciding to invest in “surprise” (free) upgrades to overnight shipping for most customers. This
means that most orders are delivered within 24 hours, despite the web site indicating it will
take 2-5 business days.
5. The company’s culture is defined in its ten core values that include items like “deliver WOW
through service” and “be humble.”
Tony felt funny when the company codified those core values, because it felt a bit too
corporate. But he realized that it needed to happen given the company’s growth.
Tony doesn’t want to prescribe actions for employees that show how much Zappos cares
about customers; he wants employees to do things because they genuinely care about
customers.
Zappos uses its culture as a reason to hire and fire people. All new hire candidates have a
separate interview with the HR department that focuses just on cultural fit.
New employees go though 4-5 weeks of training that includes education about the culture
and spending time on the phone with customers.
Every year Zappos publishes its “Culture Book” in which all employees are encouraged to write
about what the culture means to them.
Tony recognizes that cultures often go downhill when companies scale. He wants Zappos’
culture to get stronger as it grows.
Tony offers this advice to Zappos employees: It’s completely up to you guys. I can’t force the
culture to happen; so part of your job description is to display and inspire the culture.
6. The fun-yet-focused culture at online retailer Zappos has done much to create strong
loyalty among employees and customers alike. But how that playful attitude will mesh
with the culture of acquirer Amazon remains an open question.
Amazon has an Endless store line that sells shoes and handbags thus creating an
internal competition. Amazon has no plans to discontinue their Endless store line.
For the target company and its investors, takeovers are a way to cash out (or stock out
in this case). For the acquirer they're a means of hiring good engineers and removing a
would-be rival.
Zappos offers a 365 day free shipping program, which also includes overnight shipping.
A big question is whether or not this merger will affect that aspect of the supply chain.
Zappos sold to Amazon for a price that wasn’t much more than 1x the revenue (they
sold for a little over a billion dollars). Many are curious as to why a fast growing
company would sell for so low.
7. Zappos’ pre-tax net profit is in the low single digit range – 3-4%. For the
independent SEO’s reading this , you’d be better off working in house on
margins like that. For the veteran e-commerce players, you know that this is
not a good long term business model.
Net Sales of $635 million in 2008. If quoted gross sales of a billion are
accurate, then the return rate is more than thirty percent, pretty typical for
footwear, but crippling to a profit and loss statement.
Through various sites it was made abundantly clear that Amazon consumed
Zappos to increase their market share, the merger did not significantly
increase their profit margin.
Through their P&L’s, Zappos has proven over the years to spend a significant
amount on advertising which is usually a positive; however, due to their
limited profit margin this can also prove to be a negative.
8. Online shoe stores are much more convenient, and you will be able to find
what you are looking for in a fraction of the time.
Shoe stores carry a limited inventory, and stick with the most popular sizes.
If you want to find shoes in hard to find sizes, Zappos carries that inventory
and offers free shipping.
As consumers 'pre-search' by scouring Web sites for the best prices and
deals, they will likely discover that shopping online offers not only
competitive prices, but a whole lot more convenience and they decide to buy
online.
By offering free shipping, Zappos is able to not only position itself
competitively in regards to inventory but also convenience.
With the widespread use of smartphones, online retailers like Zappos have
implemented “applications” that allow consumers to more easily access their
operation.
9. In late 2006, Tony Hisieh launched an outsourcing program to handle selling, customer
service, and shipping for other companies, and last December, he started an educational
website for small businesses that charges them $39.95 a month to tap Zappos
executives for advice.
Zappos claims it’s goal is to eventually move beyond retail to businesses such as hotels
and banking -- anything where customer service is paramount. He also does not rule
out the possibility of a Zappos airline.
Zappos's warehouse boasts a fleet of 70 brand-new robots that allows it to ship a pair of
shoes in as little as eight minutes, earning reams of praise from logistics-industry trade
publications.
The methods of using free shipping and free returns was introduced in order to gain
traffic to the web site, due to their success, those methods have remained intact.
There has been the development of a comprehensive curriculum. The first course,
intended for employees who have worked at Zappos for two years or less, involves more
than 200 hours of class time (during work hours) and mandates that students read nine
business books. Advanced students can take classes in public speaking and financial
planning. "The vision is that three years from now, almost all our hires will be entry-
level people," Hsieh says. "We'll provide them with training and mentorship, so that
within five to seven years, they can become senior leaders within the company."
10. Recently Zappos asked their customers to reset their passwords due to an intruder
gaining unauthorized access to their online servers.
Customers' names, e-mail addresses, billing and shipping addresses, phone numbers,
the last four digits of their credit card numbers, and their scrambled passwords may
have been illegally accessed. However, Hsieh said that "critical credit card data and other
payment data was not affected or accessed."
Hsieh distributed a letter to all customers apologizing for the breach and giving
instructions on how to reset their passwords. This was his method to regain some trust
after years of establishing a relationship with loyal consumers.
24 million plus customer accounts compromised.
Every Zappos employee, regardless of department, assisted with securing the databases
and notifying those customers who’s accounts were hacked.
The hackers may be able to use the various information retrieved from the Zappos
database to access those customers’ other accounts and personal information.
11. Customer service representatives start at $11 an hour, warehouse workers at
$8.25.
Though Zappos has an amazing work environment, their non-competitive
customer service rep wages make them vulnerable to the competitors.
The average annual salary is $48,000, though the average customer service
representatives salary is $23,000. Interesting that they pay their customer
service representatives the least when customer service is what their
reputation is built upon.
They pay 3% below the national average; however, they offer free medical
and a 401K match in order to stay competitive.
The real discussion revolves around what the associate values as the most
important attribute of their job: quality of the work environment or most
competitive pay scale.
12. One of the biggest opportunities Zappos has is it’s name. Their company
has become synonymous with customer service. That being said, their
ability to grow the operation by branching out to hotels and banking as
discussed in the opportunities slide is not an irrational expectation. By
building on their exceptional corporate culture and continuing to
establish relationships with their loyal customer base, the sky is the
limit.
However, this ties directly into the threat we discussed in regards to the
database breach. As Tony Hsieh has acknowledged, this is a strain on
Zappos relationships with their customer base that has taken 12 years to
establish. This year the company will have to prove they are willing to
stand behind those consumers if that breach causes them any damage.
Zappos “all hands on deck” recovery and letter to all 24 million +
customers shows a willingness to do just that!
13. Israel, S. (2009, July 23). Why I Don’t Like the Amazon-Zappos Deal. Retrieved from
◦ http://redcouch.typepad.com/weblog/2009/07/why-i-dont-like-the-amazonzappos-deal.html
Lacy, S. (2009, July 30). Amazon-Zappos: Not the Usual Silicon Valley M&A. Retrieved from
◦ http://www.businessweek.com/technology/content/jul2009/tc20090730_169311.htm
Adams, S. (2010. June 7). Refreshing Honesty on Why Zappos Sold to Amazon. Retrieved from
◦ http://www.techdirt.com/articles/20100607/0014299706.shtml
Ari, B. (2009. November 11). Why Zappos Shouldn’t Be Your Business Model. Retrieved from
◦ http://www.ariozick.com/why-zappos-shouldnt-be-your-business-model/
Hillstrom, K. (2009, September 3). Zappos Profit and Loss Statement: 2007-2008. Retrieved from
◦ http://minethatdata.com/blog/2009/09/zappos-profit-and-loss-statement-2007.html
Berk, C. (2010, October 20). Retail’s Big Opportunity: Online Sales. Retrieved from
◦ http://www.cnbc.com/id/39505020/Retail_s_Big_Opportunity_Online_Sales
Chafkin, M. (2009, May 1). The Zappos Way of Managing. Retrieved from
◦ http://www.inc.com/magazine/20090501/the-zappos-way-of-managing.html
Musil, S. (2012, January 15). Zappos Customer Data Accessed in Security Breach. Retrieved from
◦ http://news.cnet.com/8301-1009_3-57359536-83/zappos-customer-data-accessed-in-security-breach/
