EXT 550 - Zappos Business Case


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Although this sort of assignment is fairly typical in business & marcomm schools, I wanted to note it in this "artifact journal" because it actually ties in with my final project: persuading users in online environments.

In this case, I loosely assess Zappos as a service company and analyze their use of persuasion techniques on their website (which is now totally different, since being purchased by Amazon --- but whatever!). Ultimately, this paper simply highlights that Zappos doesn't have much to worry about in an economic downturn, given how great they are with their customer policies, but that they may need to consider testing discounts and abandonment issues to keep cost-conscious people coming back to complete their purchases.

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EXT 550 - Zappos Business Case

  1. 1. ZAPPOS 1 Running head: ZAPPOS Zappos Business Case Joanna Wiebe University of Alberta
  2. 2. ZAPPOS 2 Zappos is a service company that sells shoes – as well as over 3 million other consumer products (Napolitano, 2009), including apparel, accessories, and house-wares. Founded in 1999 and now lead by CEO Tony Hsieh, Zappos has grown into an online powerhouse with 2008 gross merchandise sales of $1 billion and a “happy, loyal customer base” (Hoyt, 2009, p.3), three-quarters of which is comprised of repeat customers. The Zappos culture and our dedication to providing great customer experiences – from free overnight shipping and paid return shipping costs to call centre operators whom we encourage to hold conversations with our customers – are our key differentiators as an online retailer; additionally, our “sell-through” product discounting process keeps our prices competitive, which continues to please some consumers. Further, the supply Web that we have developed (i.e., “Powered by Zappos”) sets us apart from other online retailers while reinforcing our brand on the websites of would- be competitor shoe retailers and generating additional revenue. Zappos is well-positioned for continued growth along the same trajectory. Even in the economic recession, Zappos is meeting internal revenue targets; meanwhile, our offline competitors have reported double-digit sales decreases. Top Challenges Zappos Is Facing During This Recession Now a year into the recession – and in spite of suggestions that the economy is improving – we face two key challenges. The first is the same challenge we have had since growing to 3 percent market share: continued growth in the US, which is admittedly a significant challenge in difficult economic times, without drastically reducing our prices and in doing so diluting our brand.
  3. 3. ZAPPOS 3 The second is a new challenge: converting Zappos.com users earlier in their foraging process. With regards to the second challenge, we have seen that, as the economy has shifted down, users continue to visit our site at a high rate, but they also visit other sites and use other channels several times before finally purchasing on Zappos.com. The problem is not that we are losing customers – in fact, our online conversion rate is still at expectations, our reach is nearly four times that of our primary competitors ShoeBuy.com and Endless.com, and users are spending on average over five minutes on our site (see Appendix A). Rather, the issue is that we are failing to convince our users to purchase while on Zappos.com, which introduces an opportunity for them to visit and choose a competitor. Even with high customer loyalty, Zappos may find that our customers are rethinking their brand loyalties, a common move in a recession (Palmeri, 2009), and so we ought not depend on loyalty to see our profitability through. The issues of increasing market share and converting users sooner speaks to our need for a strong competitive strategy in this volatile economy – an economy in which competitors may drive prices down to increase their market share and in which we may lose customers (during the now-extended foraging process) to new entrants who duplicate our well-publicized differentiators. It is important to remember, however, that, as Quelch and Jocz (2009) note, four consumer segments appear in a downturn, and two of those segments continue to purchase both essentials and treats regardless of recession. Accordingly, with essentials and treats describing the majority of the products we sell and with a customer base that shops Zappos for the experience more than for the
  4. 4. ZAPPOS 4 discounts, we should market equally to all four segments rather than focusing on marketing to price-conscious segments only. Proposed Solutions to Our Top Two Challenges in This Economy We need to maintain market share before we attempt to grow it, which means that it is important to address our second challenge, preventing users from leaving Zappos.com by convincing them to stay and, in turn, converting them sooner. Zappos.com currently includes proven persuasive elements, such as highlighting free overnight shipping, but the site does not highlight clearance items or sales on the home page, even though volatile economies may cause segments of consumers to be more price-conscious (Eyink, Marn & Moss, 2008; Holden, 2008; Higgins, 2009; Quelch & Jocz, 2009). I recommend running a split- test on the home page, with the current home page as a control and a discount- focused home page as the treatment; further, I recommend hiring a conversion consultant, such as Karl Blanks of Conversion Rate Experts or Bryan Eisenberg of FutureNow. To ensure that those users who leave the site ultimately choose Zappos, I recommend an abandonment pop-up in which we offer a code for twenty percent off the user’s next purchase at Zappos.com, which would expire within seven days of issue to expedite returns to the site, and message that price-sensitive users ought to visit 6pm.com for even lower prices. With market share stabilized, Zappos can strive to improve our competitive position in order to grow. We can win against competitors by continuing to develop partnerships with “Powered by Zappos” retailers, preventing them from becoming aggressive competition. We should also promote
  5. 5. ZAPPOS 5 Zappos differentiators – specifically our strong culture, which remains resilient as our company remains profitable and as we uphold our ten core values; in doing so, we will appeal to the customer segments who believe in the Zappos way. I recommend that we continue to share our story with customers via social media outlets, such as Twitter (e.g., @zappos), on which we currently have over one million followers – compared to approximately 1000 @shoebuy followers and no Endless Twitter presence. Twitter will allow us to communicate quickly, inexpensively and directly. By interfacing with customers in this way, we will continue to position ourselves as a service company while also remaining true to our sixth core value (i.e., Build Open and Honest Relationships With Communication) and our eighth core value (i.e., Do More With Less), which we put in place to guide us through exactly these sorts of challenging times. Alternative Solutions Although half of the four consumer segments grow increasingly price conscious in downturns, we should not lower our prices to attract cost-conscious consumers to our site. Rather, we should allow our rivals to create price wars amongst themselves because we do not want our success to be based on discounting; we, in turn, will create an even stronger, more stable brand. Summary of Issues and Recommendations The economic downturn does not change Zappos, which will continue to thrive if it remains a service-oriented company. The two issues addressed here are not significant challenges, given the severity of the economic downturn in the United States, and so the solutions presented are straightforward rather than
  6. 6. ZAPPOS 6 overly reactionary. To encourage price-conscious consumer segments to purchase on our site in their first visit, we will both run a discount-heavy test, where lift will indicate that our customers require more discounting to shop on Zappos.com, and add an abandonment message to draw users back to our site or move them to 6pm.com. To continue to attract those consumer segments that are not affected by pricing during a downturn, we will continue to share our story, especially via Twitter.
  7. 7. ZAPPOS 7 References Eyink, C., Marn, M., & Moss, S. (2008, December). Pricing in an inflationary. McKinsey Quarterly, Retrieved July 22, 2009, from Business Source Complete database. Higgins, M. (2009, April 12). Bidding online for better deals. New York Times, Retrieved July 23, 2009, from Academic Search Complete database. Holden, R. (2008, May 5). How to price smart in a recession. B to B, 93(6), 11- 11. Retrieved July 23, 2009, from Computers & Applied Sciences Complete database. Napolitano, M. (2009, February 1). Warehousing and distribution centers: Zappos.com goes space age. Retrieved July 23, 2009, from http://www.logisticsmgmt.com/article/CA6635284.html Palmeri, C. (2009, June). Dreaming of luxury sales amid recession. Business Week Online, Retrieved July 22, 2009, from Academic Search Complete database.
  8. 8. ZAPPOS 8 Appendix A Percent of Global Internet Users Who Visit Zappos.com. (2009). [Graph illustration July 23, 2009]. Alexa.com. Retrieved from http://alexa.com/siteinfo/zappos.com