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).
◦ 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).
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.
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.
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 theyre 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.
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.
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.
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. Zapposs 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. "Well provide them with training and mentorship, so that within five to seven years, they can become senior leaders within the company."
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.
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.
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!
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