Transcript of "Business Policy & Strategic Management Assignment"
GREEN UNIVERSITY of BANGLDESH
Business Policy & Strategic Management
Topic: Case Study on Zappos.com
Md. Murad Hasan.
Assistant professor, DBA, GUB
Md. Moazzem Hossain
Submission Date: 7th January, 2014
Zappos was founded by Nick Swinmurn in 1999. The initial inspiration came when he couldn‟t
find a pair of brown Airwalks at his local mall. That same year, Swinmurn approached Tony
Hsieh and Alfred Lin with the idea of selling shoes online. Hsieh was initially skeptical, and
almost deleted Swinmurn‟s voice mail. After Swinmurn mentioned that "footwear in the US is a
40 billion dollar market and 5% of that is already being sold by paper mail order catalogs," Hsieh
and Lin decided to invest $2 million through their investment firm Venture Frogs. The company
was officially launched in June 1999, under the original domain name "ShoeSite.com."
A few months after their launch, the company's name was changed from ShoeSite to Zappos (a
variation of "zapatos," the Spanish word for "shoes") so as not to limit itself to selling only
footwear. In January 2000, Venture Frogs invested additional capital, and allowed Zappos to
move into their office space. During this time, Hsieh found that he "had the most fun with
Zappos" and came on board as co-CEO with Nick Swinmurn. After minimal gross sales in 1999,
Zappos brought in $1.6 million in revenue in 2000.
In 2001, Zappos more than quadrupled their yearly sales, bringing in $8.6 million. In 2002, they
opened their own fulfillment center in Shepherdsville, Kentucky. Advertising costs were
minimal, and the company grew mostly by word of mouth. It was around this time that Hsieh
and Zappos executives set long-term goals for 2010: achieve $1 billion in sales and receive
inclusion on Fortune‟s list of The Best Companies to Work For.
In 2003, Zappos reached $70 million in gross sales and abandoned drop shipping, which
accounted for 25% of their revenue base. The decision was based on supplying superior
customer service, as Hsieh says "I wanted us to have a whole company built around [customer
service] and we couldn‟t control the customer experience when a quarter of the inventory was
out of our control." In 2004, Zappos did $184 million in gross sales, and received their first
round of venture capital, a $35 million investment from Sequoia Capital. That same year, they
moved their headquarters from San Francisco to Henderson, Nevada.
Over the next three years, Zappos doubled their annual revenues, hitting $840 million in gross
sales by 2007. They expanded their inventory to include handbags, eyewear, clothing, watches,
and kids‟ merchandise.
Zappos‟ primary selling base is shoes, which accounts for about 80% of its business.  There
are currently about 50,000 varieties of shoes sold in the Zappos store, from brands like Nike,
Ugg boots, ALDO Shoes, and Steve Madden heels. They also serve the niche shoe markets,
including narrow and wide widths, hard-to-find sizes, American-made shoes, and vegan shoes. In
2004, they launched a second line of high-end shoes called Zappos Couture.
In 2007, Zappos expanded their inventory to include clothing, handbags, eyewear, watches, and
kids‟ merchandise, which currently account for 20% of annual revenues. Zappos expects that
clothing and accessories will bring in an additional $1 billion worth of revenue by 2015, as the
clothing market is four times the size of the footwear market. Hsieh states that "our
whole goal is we want to build the best brand of customer service. Hopefully, 10 years from
now, people won‟t even realize that we started selling shoes.
The overall scope and direction of a corporation and the way in which its various business
operations work together to achieve particular goals.
On average, Zappos employees answer 5,000 calls a month, and 1,200 e-mails a week (except in
the holiday season, when call frequency increases significantly). Call center employees don't
have scripts, and there are no limit on call times. The longest call reported is 10 hours 29
Zappos employees are encouraged to go above and beyond traditional customer service. In
particular, after a late night of barhopping and closed room service, Hsieh bet a Skechers rep that
if he called the Zappos hotline, the employee would be able to locate the nearest late-night pizza
delivery. The call center employee, although initially confused, returned two minutes later
with a list of the five closest late night pizza restaurants. Inc. Magazine notes another example
when a woman called Zappos to return a pair of boots for her husband because he died in a car
accident. The next day, she received a flower delivery, which the call center rep had billed to the
company without checking with her supervisor.
Zappos often gives "surprise" free upgrades to overnight shipping for customers, though
their website reports that delivery will take two to five business days.
Zappos Family Core Values
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:
1. Deliver WOW Through Service
2. Embrace and Drive Change
3. Create Fun and A Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Honest Relationships With Communication
7. Build a Positive Team and Family Spirit
8. Do More With Less
9. Be Passionate and Determined
10. Be Humble
A training team trains employees in each core value. So, every employee hears the same
message, learns the values, and learns the behavior that is expected to live the values
every day at work. The trainers are available for training value gaps.
The hiring process at Zappos is more like a courtship than a traditional recruitment. Ms.
Henry, for example, attended a merchandising team recognition meeting at a bar and
interacted with Zappos' employees in a variety of social settings for four months before
While the courtship may not be as rigorous for every job, before an employee is hired, he
or she will meet with multiple employees and normally attend some type of department
or company event. This allows the employees who are not participating in interviews to
meet the prospective employee informally.
Zappos takes cultural fit seriously and hires slowly. Months can pass between an initial
cultural fit interview with an HR recruiter and an actual job offer. If a potential employee
fails to pass the cultural fit interview (50% of the weight in hiring), he or she is not
invited to meet the hiring manager and other employees. While not all hires wend this
slow road, Zappos hires for cultural fit first.
Interviewers have developed five or six behaviorally based questions that illuminate a
candidate's congruence with each of the Zappos core values cited earlier. This approach
to interviewing allows interviewers to assess a candidate's potential ability to fit within
the culture and to exhibit the necessary skills.
Every interviewer gives specific feedback about candidates; some hires require consensus
from the interviewers, some vote. Interviewing team members enter feedback directly
into a computer system. They answer specific questions followed by free forms that
assess their opinions of the candidate's fit at Zappos.
If you are hired by Zappos, you can expect to spend your first three-four weeks manning
phones in their call center learning how to respond to customer needs. While this is an
introduction to the soul of the business, it is also a practical approach to serving
Zappos does not hire temporary employees during the busy seasons, so all employees are
expected to sign up for shifts in the call center to handle busy times such as holidays. The
early training allows employees to serve customers professionally. When crunch time
comes, each employee puts in their ten hours a week in the call center.
Upon completion of their time in the call center, Zappos employees are offered $3,000.00
to leave the company. Yes, you heard that correctly. Leave. If you haven't become a
Zappos insider, committed to the goals and the culture, the company really prefers that
you leave. Take the money though, and you can never come back.
Raises at Zappos come from building skills and capabilities. Employees pass skill tests
and receive pay raises. Raises do not come from schmoozing with managers or other
preferential, not measurable actions. Call center employees are expected to be available
for customer calls 80% of the time and this is the standard employees must meet.
Standards are not yet in place for mid-management to senior executives' jobs.
Each manager is expected to spend 10-20% of the departmentâ€™s time on employee
team building activities. This makes employees feel comfortable with the culture, with
each other, and they develop relationships that live the core values that Zappos espouses.
Activities range from contest dioramas from movies in employee services to the shipping
department putting on an Easter egg hunt. Various departments hold cook outs regularly.
Zappos sponsors a couple of family events a year and three big company-wide events: a
summer picnic, a January party at Tony Hsieh's, and a vendor party that employees and
families attend. Additionally, Zappos holds quarterly smaller events such as theater,
bowling alley parties, and so on.
Managers are key at Zappos for promoting the company culture. Managers hire and fire,
but they must do it with Human Resources support. Managers make job offers; call and
then do a written job offer. Managers enter data in offer letter forms for consistency.
Performance evaluations at Zappos reinforce the culture. Managers do cultural
assessments rather than performance evaluations and give employees feedback on their
fit within the culture and how to improve. In an environment that gives raises based on
skill tests, this makes sense.
Managers are responsible for creating career paths within their departments. They have a
regular career path for individual contributors and a super star career path for individuals
who excel. Living the cultural norms is key in career progression.
Call center employees are fully empowered to serve customers. At Zappos, these
customer service employees do not work from a script and are encouraged to use their
imagination to make customers happy. They do not have to ask permission from a boss to
give their customers the wow factor. With over 75% of sales from repeat customers, they
Zappos has a culture book that is written by employees every year. It details how people
feel about the Zappos culture and how they reinforce and develop the culture every day.
Statements attributed to employees emphasize and reinforce the Zappos culture. Zappos
gives these culture books to anyone who tours the company or writes an email to the
company and asks for a copy.
Zappos provides tours of the company in Henderson, NV. They have an employee who
organizes these tours and the company will even pick you up at the airport and bring you
to their location if you've arrived in town for the tour. Tourists get to meet employees,
marvel at the decorated work areas, observe daily business, and ask questions about the
work environment and culture. Employees seem proud to show off their zany, loud,
decorated workplace say several people I know who have taken the tour. Guests are
greeted at every corner by ringing cowbells, employees signing, and spur of the minute
parades. Zany, fun, and a little bit weird.
In a process that they had just started, when I spoke with Ms. Henry, during the last three
- four days of new employees working in the call center, new employees participate in a
scavenger hunt to meet people and to find things out about the company.
An employee's whole department is invited to their graduation after they have completed
their call center stint and the scavenger hunt. Employees graduate to the regular
workforce to the tune of music like Pomp and Circumstances, certificates delivered on a
stage, and with the cheering of their families and new departments ringing in their ears
during the ceremony.
Following call center learning, the scavenger hunt, and graduation, the employee's
department takes over and provides employee orientation and continues to reinforce the
company values. Each department has developed their own process that will ensure new
Zappos staffs Human Resources for success with people. When I spoke with Ms. Henry,
there were 1200 employees with 28 employees in HR in Nevada, 13 of those in
recruiting, and at their Kentucky warehouse, for 2000 people, 15 employees worked in
HR. The corporate group provides company-wide services like the employee handbook.
Zappos takes specific actions every day that reinforce its culture of a fun workplace that
is a tiny bit weird. With a majority of call center employees, this makes sense. Take these
ideas, where possible, and use them to reinforce the culture in your workplace.
Hsieh’s Top 10 Ways to Instill Customer Service in Your Company
1. Make customer service a priority for the whole company, not just a department. A
customer service attitude needs to come from the top.
2. Make WOW a verb that is part of your company‟s everyday vocabulary.
3. Empower and trust your customer service reps. Trust that they want to provide great
service … because they actually do. Escalations to a supervisor should be rare.
4. Realize that it‟s okay to “fire” customers who are insatiable or abuse your employees.
5. Don„t measure call times, don‟t force employees to upsell, and don‟t use scripts.
6. Don‟t hide your 800 number. It‟s a message not just to your customers, but to your
employees as well.
7. View each call as an investment in building customer service brand, not as an expense
you‟re seeking to minimize.
8. Have the entire company celebrate great service. Tell stories of WOW experiences to
everyone in the company.
9. Find and hire people who are already passionate about customer service.
10. Give great service to everyone: customers, employees, and vendors.