Saturday, May 26, 2012

Zappos Creates Value that Truly Develops Customer Loyalty


For the past 3 semesters, I’ve been fortunate to have a senior member of the Zappos Customer Loyalty Team guest speak in my Intro to Marketing & Marketing Management course for graduate students at Columbia University.  

The Zappos case study is an exemplary way to showcase a company that understands what “value” is all about.  Add “Delivering Happiness”, authored by Tony Hsieh, CEO of Zappos, as required reading for students, and they quickly see how the value proposition is providing a “Wow!” experience. 

Zappos is doing something right.  FORTUNE magazine has included them on their list of “100 Best Places to Work” for the past four years, most recently at #11.  A company that focuses on delivering the best possible service and experience to customers, mirrors that philosophy in how they treat employees.

Some may say that Zappos is the biggest online shoe store.  They wouldn’t be incorrect since the company has more than 5 million products in their warehouse, ready to be delivered at a moment’s notice.

Others may say that Zappos is one the biggest online marketplaces, selling shoes, apparel, accessories and many other types of products.  That is true as well. Zappos carries more than 1,000 brands, over 200,000 styles, and over 900,000 unique UPCs.  100% of their products are inventoried in their robotic warehouse in Kentucky.  

However, Zappos defines themselves as “a service company that happens to sell clothing, handbags, shoes, accessories, housewares….”

The company’s #1 core value is “deliver WOW through service.”  That’s the true value proposition.  Zappos doesn’t call their call center a customer service department, it is the customer loyalty department.  The 500+ person team will grow to more than 600 by the end of this year.  Unlike traditional call centers, the Zappos team doesn’t have call time limits (in fact, their longest call was 8 hours and 28 minutes, but that was an extreme outlier).  The team doesn’t have any sales performance goals. They are there to satisfy their customers, period.   They do so via phone (which they love), live chat, twitter, email, zappos.com and other social sites.

The proof is in the pudding. 
·      Customers come bac. – approximately 75% of purchases are from returning customers.
·      Customers come back, order more often – repeat customers order >2.5x per year.
·      Customers come back, order more often and order more – repeat customers have higher average order size vs. 1st time customers
·      Another interesting fact is that their most profitable customers are those that have the highest product return rates. 

It’s no surprise that Zappos hit $1B in revenues prior to their 10th anniversary and revenues continue to grow exponentially today.  Since the company has been transparent about the key to their success, I continue to wonder why other companies haven’t embraced  service and loyalty as their value proposition.  After all, the key to sustainability is about creating value for your customers and building long-term, profitable customer relationships.  Zappos has the formula for how to do it right.  When will this type of focus become the norm, rather than the exception?

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