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Zappos Case Study

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Title: Zappos Case Study


1
Zappos Case Study
  • Minder Chen
  • Professor of MIS
  • Martin V. Smith School of Business and Economics
  • CSU Channel Islands
  • minderchen_at_gmail.com or minder.chen_at_csuci.edu
  • Web site http//faculty.csuci.edu/minder.chen/

2
http//images.businessweek.com/ss/09/02/0219_custo
mer_service/20.htm
3
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4
A failed trip to the mall
  • It all started with a failed trip to the mall.
  • In 1998, film-school grad Nick Swinmurn was
    scouring the Bay Area for a pair of Airwalks, but
    couldn't seem to find the right size and style.
    Swinmurn, who was working at the Internet
    consumer site Autoweb.com at the time, used the
    model behind that site for selling shoes online.
    This idea would eventually become Zappos.com.

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6
Shoesite.com
  • It was the fact that 5 percent of a 40 billion
    (i.e., 2B ) shoe business was already being done
    through mail order (i.e., Total Addressable
    Market size). That was my big statistic. People
    were already buying shoes without trying them on.
  • So they Venture Frogs invested 500,000 -
    which at the time felt like I had just raised
    100 million.
  • The company was a little more stable at that
    point, so Fred Mossler (a agreed to leave
    Nordstrom and come on board as our Senior VP of
    Merchandising

http//about.zappos.com/press-center/media-coverag
e/zappos-milestone-qa-nick-swinmurn http//www.ted
xsincity.com/speakers/fred-mossler/
7
Zappos
  • Founded in 1999.
  • A service company that just happens to sell
    shoes. - Tony Hsieh, CEO of Zappos
  • Zappos can cultivate a reputation for outstanding
    customer service to the point where it, too, can
    become a springboard into several markets.
  • It rang up a record 1 billion in sales in 2008.
  • Employees are referred to as Zapponians.

8
Meet Zappos CEO Tony Hsieh
9
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Source http//www.triballeadership.net/happiness
https//shopping.zappos.com/tribal/ for the Free
Audio Book of Tribal Leadership
11
  • ???(?)???????????????,?????????,????? ?????/??
  • Read more ?????

12
http//kmol.online.pt/en/2009/07/31/zappos-en
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14
Logo Design
Zappos (a variation of "zapatos," the Spanish
word for "shoes") so as not to limit itself to
selling only footwear.
15
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16
Are you Tony Hsiehing it?
  • Tony Hsieh is the founder and CEO of Zappos.com.
    Hsieh inspired me to get into social media. He
    was one of the first people I followed on Twitter
    and I was completely blown away by the amount of
    time he spent tweeting.
  • He was so passionate about his customers that I
    consider him a social media pioneer He used it
    to grow his business. And, he was reachable to
    everyone. I actually received a message from him
    when I responded to one of his tweets. What CEO
    does that?
  • How could an online shoe business have nearly 1.7
    million followers? Hsieh worked hard at growing
    his community. Youve got to Hsieh it to stay in
    it.

http//flipthemedia.com/index.php/2010/07/what-is-
social-media-its-more-than-just-twitter-and-facebo
ok/
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18
What is the story behind a Pizza?
19
Graphic Facilitation
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24
"We believe that customer service shouldn't be
just a department it should be the entire
company." - Tony Hsieh, Zappos CEO
25
The things you have heard already
  • Culture is the 1 priority (customer is not
    first)
  • Core value of Deliver WOW through service
  • 2 weeks of call center training for ALL employees
  • 4000 to quit at the end of training
  • Legendary calls and stories

26
Customer Service What Customers First See
  • 24/7 1-800 number on every page
  • Free shipping
  • Free return shipping
  • 365-day return policy

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29
Customer Service Is Everything
  • At Zappos.com, Customer Service Is Everything.
    In Fact, It's The Entire Company.
  • We've been asked by a lot of people how we've
    grown so quickly, and the answer is actually
    really simple... We've aligned the entire
    organization around one mission to provide the
    best customer service possible. Internally, we
    call this our WOW philosophy.

30
Power of Repeat Customers Word of Mouth
31
Repeat Customers
  • Great product, Great service, or Low Prices
  • (Choose and focus on 2 of the 3)

32
Repeat Customer Data for Zappos.com
33
Customer service value proposition in
action Zappos is committed to WOWing each and
every customer.
  • Customers come
  • 8.0M total purchasing customers (2.7 of US
    population)
  • 3.5M have purchased in the last 12 months
  • Customers come back
  • On any given day, about 75 of purchases from
    returning customers
  • Repeat customers order gt2.5x in the next 12
    months
  • Customers come back, order more and order more
    often
  • Repeat customers have higher average order size
  • 111.98 first time customers in Q406
  • 143.22 returning customer in Q406

34
Customers Reward Zappos by Coming Back
Zappos Insight, April 25, 2014.
Plus (link)
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37
Three Key Areas BCP
  • Branding through customer service (build our
    brand and drive word of mouth through customer
    serice),
  • Culture (which would lead to the formation of our
    core values), and
  • Employee training and development (which would
    eventually lead to the creation of our Pipeline
    Team HR?).

38
  • Inc., June 2010 Why I Sold Zappos?
  • Sequoia made 248 million out of 20 million

39
Case Study Questions
  • Why selling shoes online is not considered a good
    e-commerce idea?
  • What policies Zappos have to make it easier for
    you to buy shoes online?
  • Why changed Tonys mind to invest in Zappos
    (shoesite.com)?
  • Why were the challenges in the early stages of
    Zappos company history?
  • Why Amazon acquired Zappos?
  • Why Zappos moved its headquarter to Las Vegas?
  • Why did Zappos locate its logistic center at
    Kentucky?
  • Explain the meaning of Zapposs culture and how
    it foster its culture
  • What are the major differences between Amazon and
    Zappos?
  • What are the unique approaches that Zappos have
    taken that are against traditional wisdom?
  • Carry less and sale more (drop-ship) vs. Carry
    all
  • Outsource call center vs. in-house call center
  • How is the performance measured for call center
    employees?

40
Assignment Questions
  • 1. What are Zappos core competencies and sources
    of competitive advantage? How sustainable are
    they? What role does corporate culture contribute
    to its success?
  • 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?
  • 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?
  • 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?

Source Stanford Graduate School of Business,
Case GS-65, Teaching Notes
41
Zappos Core Values
  • 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

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44
Be Humble
  • Be Humble is probably the core value that ends up
    affecting our hiring decisions the most. There
    are a lot of experienced, smart, and talented
    people we interview that we know can make an
    immediate impact on our top or bottom line. But a
    lot of them are also really egotistical, so we
    end up not hiring them. At most companies, the
    hiring manager would probably argue that we
    should hire such a candidate because he or she
    will add a lot of value to the company, which is
    probably why most large corporations dont have
    great cultures.

45
Be Humble
  • While we have grown quickly in the past, we
    recognize that there are always challenges ahead
    to tackle.
  • We believe that no matter what happens, we should
    always be respectful of everyone.
  • While we celebrate our individual and team
    successes, we are not arrogant nor do we treat
    others differently from how we would want to be
    treated. Instead, we carry ourselves with a quiet
    confidence, because we believe that in the long
    run our character will speak for itself.
  • Ask yourself Are you humble when talking about
    your accomplishments? Are you humble when talking
    about the companys accomplishments? Do you treat
    both large and small vendors with the same amount
    of respect that they treat you?

46
Company Culture Alignment
  • We wanted a list of committable core values that
    we were willing to hire and fire on. If we
    werent willing to do that, Then they werent
    really values.
  • - Tony Hsieh

Source Delivering Happiness, Pp. 157-158
47
10 rules for creating a customer-centric culture
  • Make customer service a priority for the whole
    company.
  • Make "wow" a part of your company' vocabulary.
  • Don't measure call times, and don't force agents
    to upsell.
  • Empower your customer service team.
  • Don't hide your toll-free number.
  • Have the entire company celebrate great service.
  • Create a culture book.
  • Find people who are passionate about customer
    service.
  • Give great service to everyone customers,
    employees, and vendors.
  • Make customer service part of everyone's
    performance reviews.
  • Source http//decker.typepad.com/welcome/2006/12/
    zappos_10_rules.html

48
Zappos Culture
  • Video

Jon Wolske, Zappos - "The Importance of Being
Intentional with Your Culture" (link)
49
Business Strategy Invest in Company Culture
  • Our Business Strategy since 2005 has been to
    invest in company culture, with the belief that
    the culture will ultimately drive employee
    productivity, customer service quality and brand
    strength.
  • - Tony Hsieh

50
Tony Hsiehs Core Values that Deliver Happiness
  • Participate creatively in something that requires
    more than just you alone to succeed the whole
    is always greater than the sum of its parts.
  • Seek out tribal (level) connectedness this is
    where the spiritual resides.
  • Live with passion.
  • Have vision.
  • Only when you are totally free can you be the
    best of yourself.
  • Fight inertiaseek meaning in every activity.
  • Meet and treat people with the philosophy of PLUR
    (Peace, Love, Unity, Respect)
  • Experience matters more than things.
  • http//www.triballeadership.net/happiness

51
Customer Service What We Do Internally
  • No call times, no sales-based performance goals
    for reps
  • Run warehouse 24/7
  • Inventory all product (no drop-ship)
  • 5 weeks of culture, core values, customer
    service, and warehouse training for everyone in
    Las Vegas
  • Well pay you 2000 to quit
  • Culture book
  • Interviews and performance reviews are 50 based
    on core values and culture fit

52
CLT Customer Loyalty Team (Call Center)
  • ZAPPOS CUSTOMER LOYALTY TEAM
  • Service is who we are
  • Call center is not a cost center.
  • It is the best possible marketing that we could
    have.

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Guidelines
  • First impression
  • Customer is heard
  • Needs are met
  • WOW the customer
  • Make PEC (Personal Emotional Connection)
  • Offer assistance for future needs

55
Check this out (link)
56
Creating Great Customer Experiences
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Average NPS Scores
59
Applying Metrics to 'Wow' Moments
  • Zappos utilizes a 100-point scale called the
    Happiness Experience Form. This measure
    evaluates each call against the following
    factors
  • Did the agent try twice to make a personal
    emotional connection (PEC)?
  • Did they keep the rapport going after the
    customer responded to their attempt?
  • Did they address unstated needs?
  • Did they provide a wow experience?

(link)
60
Zappos 5 Out-of-the-Box Ideas for Keeping
Employees Engaged
  • Let employees be themselves. 
  • Let employees explore their passions and express
    creativity. (recruit for culture)
  • Empower employees with tools to
    succeed. (employee engagement)
  • Provide opportunities for continuous learning and
    inspire.
  • Allow employees to fulfill their higher purpose. 

(Link)
61
Supporting Team Members
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Zollars and Zollars Store
  • Zappos Zollar program is a fun way that Zappos
    managers use to recognize employees around the
    office for doing a good job. Zollars are made up
    money that Zappos uses to allow employees to
    purchase things from the Zollar store.
  • (link)

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Logistics
  • From drop-ship model to controlling all aspects
    of order fulfillment
  • Order fulfillment could only be controlled and
    quality maintained if Zappos had its own
    warehouse and merchandise.
  • Zappos has warehouse space of over 100,000 square
    feet was secured in Shepherdsville, Kentucky and
    Zappos took over all aspects of order fulfillment.
  • http//about.zappos.com/zappos-story/fulfillment-f
    acility

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71
Social Media for Building Brands and Relationships
  • Theres a lot of buzz these days about social
    media and integration marketing. As unsexy and
    low-tech as it may sound, our belief is that the
    telephone is one of the best branding devices out
    there. You have the customers undivided
    attention for five to ten minutes, and if you get
    the interaction right, what weve found is that
    the customer remembers the experience for a very
    long time and tells his or her friends about it.

72
SMM Social Media Marketing Dont be afraidTALK
with your customers
  • Zappos Blogs http//blogs.zappos.com
  • Zappos.TV http//Zappos.tv (VIDEO)
  • Twitter http//Twitter.zappos.com
  • Facebook http//www.facebook.com/zappos

73
Marketing
  • Zappos.com did a fair amount of offline
    advertising in its early days to help establish
    its brand with shoe manufacturers. Shoe
    manufacturers were apprehensive to work with a
    young company like Zappos.com and were concerned
    about how their brand would be perceived via the
    online channel. Thus, Zappos.coms initial
    marketing investment was only partially aimed at
    consumers it was more to impress suppliers. Once
    Zappos.com had secured some shoes to sell, they
    could use cost effective online marketing (SEM,
    affiliates) to attract consumers.
  • Philosophically, Zappos.com chose to invest in
    superior customer service rather than marketing.
    Something like 15 of their revenue is spent on
    customer service and another 15 spent on
    marketing. For most e-commerce companies, this
    ratio is skewed significantly towards marketing.

74
Why Amazon acquired Zappos?
  • A big part of the reason why Amazon is interested
    in us is because they recognize the value of our
    culture, our people, and our brand. Their desire
    is for us to continue to grow and develop our
    culture (and perhaps even a little bit of our
    culture may rub off on them).

75
Zappos/Amazon
  • Zappos is wholly owned by Amazon,
  • but it is independently operated.

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Tweets to Live By
  • For individuals, character is destiny.
    Heraclitus
  • For organizations, culture is destiny. Tony
    Hsieh
  • In the pursuit of knowledge, something is added
    every day. In the pursuit of enlightenment,
    something is dropped every day. Lao-tzu.

79
Sold to Amazon
  • It was announced on July 22, 2009 that Amazon.com
    would buy Zappos for 940 million in a stock and
    cash deal.
  • Owners of shares of Zappos were set to receive
    approximately 10 million Amazon.com shares, and
    employees would receive a separate 40 million in
    cash and restricted stock units. The deal was
    eventually closed in November 2009 for a reported
    1.2 billion.
  • Softline vs. hardline goods

80
Zappos vs. Amazon
  • Both Zappos and Amazon cared deeply about being
    customer-centric.
  • They each just had different approaches to it.
  • Zappos as being more high-touch, and Amazon as
    being more high-tech.

81
Amazon vs. Zappos
  • One of the ways that Amazon tries to deliver a
    great customer experience is by offering low
    prices, whereas at Zappos we don't try to compete
    on price.
  • If Amazon gets a lot of customer service calls,
    it will try to figure out why -- maybe there's
    something confusing about the product description
    -- and then it will try to fix the problem so
    that it can reduce the number of phone calls,
    which keeps prices low.
  • But at Zappos, we want people to call us. We
    believe that forming personal, emotional
    connections with our customers is the best way to
    provide great service.

http//www.inc.com/magazine/20100601/why-i-sold-za
ppos_pagen_2.html
82
Business Week Customer Service Champ
  • Consider No. 7, Zappos.com, the online shoe
    retailer whose devoted fans rave about its free
    shipping on both orders and returns. The retailer
    had typically upgraded both first-time and repeat
    customers to overnight shipping even though it
    wasn't advertising that perk.
  • But starting in 2009, Zappos will no longer offer
    overnight upgrades to first-time visitors.
    Instead, CEO Tony Hsieh is moving those dollars
    into a new VIP service for Zappos' most loyal
    shoppers. Launched in December, the site, which
    for now can only be accessed by loyal customers
    who receive an invitation, promises overnight
    shipping and plans to offer earlier access to
    sales and new merchandise than the plain-vanilla
    site. (Repeat customers who aren't yet asked to
    join the VIP service will continue getting the
    overnight upgrade for now.)
  • We decided we wanted to invest more in repeat
    customers," says Hsieh. "We're shifting some of
    the costs that would have gone into new
    customers."

http//www.businessweek.com/print/magazine/content
/09_09/b4121026559235.htm
83
The service is the product/brand.
  • Shoes are commodities. Any the same shoes you buy
    at Zappos can be bought at ten other online shoe
    stores.
  • The reason Zappos succeeds is that they are
    adding value to otherwise indiscernible products.
    The service is the product.

84
A Package from Zappos
85
Happiness
86
Packages as a Branding and Marketing Opportunity
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Evolution of Zappos Brand Promise
  • 1999 - Largest selection of shoes
  • 2003 - Customer service
  • 2005 - Culture and core values as our platform
  • 2007 Personal emotional connection
  • 2009 Delivering happiness
  • Zappos is about
  • delivering happiness to the world. (2009)

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Components of the Service-Oriented Enterprise
Architecture
  • Motivation Dimension
  • Motivation dimension includes business strategy
    at the highest level,
  • service goals at the tactic level,
  • and service quality (service performance measure)
    at the operational level.

Motivation
Visions, Missions, Business Strategy
Business Goals
Performance Measure
Source Minder Chen
95
Calling Career Job
Chip Conley, Peak How Great Companies Get
Their Mojo from Maslow, Jossey-Bass, 2007
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  • For many years, new employees were given a copy
    of the famous Nordstrom's Employee Handbook a
    single 5-by-8-inch (130 200 mm) gray card
    containing 75 words

Nordstrom started as a shoe store that opened in
1901 in Seattle.
100
The Face Game Knowing Each Others
  • In most companies, logging in to the computer
    systems requires a login and password. At Zappos,
    an additional step is required a photo of a
    randomly selected employee is displayed, and the
    user is given a multiple-choice test to name that
    employee. Afterward, the profile and bio of that
    employee are shown, so that everyone can learn
    more about each other. Although there is no
    penalty for giving the wrong answer, we do keep a
    record of everyones score. Internally, we refer
    to this as The Face Game.

101
Extranet VMI (Vendor Management Inventory)
  • It allows the vendors complete visibility into
    our business. Theyre able to see inventory
    levels, sales, and profitability.
  • They can write suggested orders for our buyers to
    approve. They can communicate with our creative
    team and make changes to their brand boutiques on
    the site. In effect, theyre given the keys to
    the shop.
  • The average buyer at Zappos has a portfolio of
    fifty brands, but because of transparency,
    theres an additional fifty pairs of eyes helping
    run the business too.

102
Continued
  • Not only that, vendors are the experts at what
    they do. No one buyer knows a brand better than
    the brands own representative.
  • So why not leverage their knowledge to help us
    run a better business? As a result, when they
    feel empowered to manage their own business using
    the tools and accessibility we provide, theyll
    spend more hours helping us than their typical
    account.
  • The success of our team can be attributed to our
    buyers and vendor partners, together.

103
http//money.cnn.com/galleries/2011/news/companies
/1104/gallery.best_companies_happy_campers.fortune
/2.html
104
Additional Employee Perks
105
Financial Benefits
106
Medical Program
107
Wellness Program
108
Life Coach
109
Kitchen
110
Kitchen
111
Walls of the Creative Team
112
Monkey Row
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CEO Desk, Not Office
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Replacement Words
  • Problem ? Challenge
  • Unfortunately ? Regretfully
  • Not a problem ? Absolutely
  • Ill try ? Handled
  • Abnormal ? Irregular
  • Cheap ? Bargain
  • Depend ? Rely
  • Impossible ? Challenging
  • Early ? Punctual
  • End ? Conclusion
  • Error ? Oversight
  • Failure ? Unsuccessful
  • Fanatic ? Enthusiast

119
CSR
120
New Hires Graduation Parade
121
New Hires Graduation Parade
122
CLT Office
123
Employee License Plate
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Graffiti and Art
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127
Holacracy
http//www.zapposinsights.com/training/holacracy
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129
http//www.downtheavenue.com/2010/05/be-passionate
-about-what-you-do-dont-chase-the-paper.html
130
Zappos Headquarter
  • Moved from SF to Las Vegas (Henderson) 2004. 70
    out of 96 move to Las Vegas.
  • Moved to downtown Las Vegas, 2013
  •  48 million effort to renovate and make major
    improvements to the building

131
Downtown Campus
132
Downtown Project
  • CEO Tony Hsieh, who also leads the Downtown
    Project, an effort to revitalize downtown Las
    Vegas as a vibrant cultural and economic hotspot,
    has said he wants "to be in an area where
    everyone feels like they can hang out all the
    time and where theres not a huge distinction
    between working and playing."

http//downtownproject.com/ http//www.slideshare
.net/downtownproject/downtown-project-slide-deck-f
eb-2014
133
Zappos Insight
  • Zappos Insights is the Zappos Family company that
    offers tools and community around culture,
    customer service, and leadership. Here is your
    chance to gain access to those tools. Who said
    there is no free lunch? Feast on this one month
    free membership in Zappos Insights constantly
    changing vault of resources.
  • Just go here http//www.zapposinsights.com/member
    ship
  • And copy and paste this code when you check
    out TZE01INSIGHTS

134
All Hands Meeting 5/5/2011
  • http//www.ustream.tv/recorded/14503065
  • Time 26 Findability
  • http//en.wikipedia.org/wiki/Findability
  • Time 54 QA

135
Additional References
  • http//blogs.forbes.com/work-in-progress/2010/09/0
    2/delivering-happiness-a-billion-dollar-business-l
    esson-from-zappos/?boxesHomepagechannels
  • http//www.referenceforbusiness.com/history2/90/Za
    ppos-com-Inc.html
  • Zappos Designing an Organizational Culture (free
    case), http//www.ibscdc.org/Free20Cases/OB0026.p
    df Comparison to http//www.letao.com/ (??) and
    http//www.Amazon.com
  • Tony Hsieh, Zapposs CEO on Going to Extremes for
    Customers (HBR article, JulyAugust 2010)
  • Zappos Happiness in a Box, (Free Case)
    https//gsbapps.stanford.edu/cases/detail1.asp?Doc
    ument_ID3404
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