ZAPPOS: DELIVERING ABSTRACT Zappos is an online retail store with a unique corporate structure and customer-focused marketing strategy. This case analyzes the ways in which this strategy has worked in regards to the success of Zappos and how Zappos can continue to attract potential customers while maintaining long term customer relationships. Raechel Brand HAPPINESS
I. EXECUTIVE SUMMARY Zappos is an online retail store with a unique corporate structure and customerfocused marketing strategy. This case analyzes the ways in which this strategy has worked in regards to the success of Zappos and how Zappos can continue to attract potential customers while maintaining long term customer relationships. II. SITUATION ANALYSIS A. Internal Environment Zappos has a strong corporate image that focuses on their ten 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. These core values make Zappos stand out as a company that cares about the wellbeing of its customers and employees. They strive to provide the best customer service experience and ensure that the customer has an enjoyable experience when they shop at Zappos. Zappos uses word of mouth advertising primarily, recognizing that if customers are satisfied they will recommend to others. As such, their business model is customer focused and is built around developing long term relationships with customers. However, this also means that Zappos is not reaching their profit capabilities. The generous shipping and returns policies mean that customers are satisfied and likely to return to shop again (in fact, 75% of purchases are made by repeat customers), however Zappos loses some profit in the process. Zappos strives to make the corporate culture enriching for employees, paying 100% of employee medical benefits and on average 85% for employee dependents. The culture is one of learning and striving to develop professionally. Employees must attend 200 hours of training sessions and must read nine business books a year. Employees are encouraged to socialize at work and outside of work which serves to build friendships and enhances communication and team building. There are many morale-boosting activities at Zappos such as ugly sweater day or office parades. Page 1 of 7
Zappos promotes the importance of their unique culture by having employees compile an annual culture book that features essays on Zappos culture and reviews. Employees that fail to fit into this laid back culture are fired. B. The Customer Environment The target customer for Zappos is 25-49 years old, female, with a median income of $75,000 or more. This customer is likely to be educated, married, and a parent. She is referred to by the company as the happy hunter. This is a very broad demographic and Zappos recognizes that it needs to pinpoint additional sub-segments in order to develop a more thorough marketing strategy. Because most of Zappos business comes from shoes, the majority of customers are ordering shoes. Customers are encouraged to purchase additional shoes citing the free ship-back return policy. In fact, the industry standard for return rates is 35% but Zappos has quite a large return rate of 50%. This policy may seem counter-intuitive to running a successful business, Zappos considers the satisfaction of the customer top priority and acknowledging they could not have become the successful business they are today without their loyal customers. Zappos does not have a brick-and-mortar store and their business is conducted online only. This eliminates the problem of limited sizes and inventory that make shopping for shoes in person frustrating. The Zappos website allows the customer to quickly find exactly what they are looking for and even to order a few pairs of shoes in different styles or sizes and ship back any shoes they find unsatisfying. Part of what makes Zappos so convenient is their excellent shipping times. Their warehouses are always operating so that the items get to the customers faster. There have even been instances where Zappos has hand delivered items to customers, as was the case with a groom who needed shoes for his wedding. There are, however, potential deterrents of shopping with Zappos. They are not the cheapest option, which they acknowledge. Zappos CEO, Tony Hsieh believes that the customer service adds enough value that customers won t mind paying a little more. C. The External Environment The major competitor for Zappos is Virgin Group Limited, a UK based conglomerate. Zappos strives to drive inspiration from this company, appreciating their successful business model. Another major competitor is J.C. Penney. J.C. Penney sells many shoes, handbags, and accessories online and while Zappos is still the number one online seller of shoes, J.C. Penney is right behind them. Page 2 of 7
ShoeBuy.com is another major competitor offering more than 800,000 footwear products from thousands of brands. This company also operates the websites BagsBuy.com and a sister site ProductExpress.com. Many of these competitors offer similar perks however, online reviews show that Zappos is still ahead of them all with excellent customer service. The economy has affected the success of Zappos as well; due to the recession the company found itself in the position of needing to lay off 8% of its employees. However, when this happened they were completely transparent about the reasons why and offered the laid-off employees generous severance packages. Shortly after this, Zappos was acquired by Amazon, which has allowed Zappos to retain its unique corporate culture and operate independently. The economy of online retailers is one of the fastest growing sales channels in the US and for the past decade has grown at an exceptional rate and out performs most brick and mortar stores. It is expected that within the next five years, online retail sales will increase at an average annual rate of 9.4%. Politically, consumers have recently become wary of large corporations, fearing that large corporations may not have their best interests at heart. When Zappos was acquired by Amazon, there was a lot of concern that was voiced by both employees and consumers. Additionally, with the rise of cyber-crimes and hacking, online retailers are at a higher risk of security breaches. This is exactly what happened to Zappos in 2012, damaging customer service relationships that had taken over a decade to cultivate. Moving forward, this is a huge concern for companies and security should be a top priority for any web-based business. Zappos target market is ideal in that they have disposable income and prefer online shopping. However, this same broad target market enjoys buying other things besides shoes and accessories. Home goods is a growing market that is this demographic in particular participates in. Additionally, many in this market are parents and expanding items to home goods and child specific items is a great way to keep this target market engaged with Zappos. III. SWOT ANALYSIS A. Strengths Excellent customer service is Zappos most obvious strength. Through their dedication to providing the best experience possible for their customers, Zappos has built up a favorable reputation as one of the best online retailers. Customer service is the value-add that keeps customers returning and justifies the prices on their website. Page 3 of 7
Additional strengths include having a strong brand identity, the backing of Amazon, and the unique corporate culture which contributes to their favorable brand identity and reputation for customer service. Zappos has also recently began focusing on environmental issues, showing that it is an ethical and environmentally conscious company. This is something that consumers are looking for when choosing a brand. B. Weaknesses The strengths that contribute to Zappos success also contribute to its weaknesses, which include low profit margins. Zappos could be making much more profit but it would have to compromise some of its core values. However, this weakness can be overcome in other ways. Another major weakness is advertising. Zappos traditionally does not do much advertising, choosing instead to rely on word of mouth and social media. However, when launching their more than shoes campaign, the advertising they did do fell flat. Many were displeased with the provocative nature of the advertisements which featured implied nudity. Zappos should focus on creating ads that will speak to their target market, not alienate them. Having lax security was a huge blow to Zappos reputation. Security is a major issue with online shopping that most consumers are very sensitive to. The ramifications of having sensitive customer data stolen is devastating. Zappos should spend a significant amount of resources improving their online security. C. Opportunities Expanding product lines is a great opportunity for Zappos. They have worked to expand to product lines such as home goods and accessories, however shoe sales still generate about 80% of their total sales. Focusing on expanding these product lines will generate more revenue as people tend to buy home good items more often than shoes. Zappos is currently US focused. Allowing for international delivery could prove to be a beneficial opportunity. Zappos has a large online following as they are very transparent and open with their customers, responding to customer concerns and even ordering pizza for customers that tweet that they are hungry. Promoting more customer involvement through crowd-sourcing is a wonderful opportunity to encourage customers to become more invested in the company. It is an opportunity for Zappos to repair some of the damage done with the poorly-received advertisements of its past and contribute to future successful advertisement. Page 4 of 7
D. Threats Competition is a threat to the continued success of Zappos. Other companies are starting to see the benefit of a customer service oriented business model and putting more focus on value-added benefits. Without doing more to set itself apart, these competitors could drastically impact Zappos. The aforementioned rise in cyber-crimes is another threat that Zappos should be particularly sensitive to. Taking preventative measures and making security a top priority should be a major and continuing concern for Zappos. IV. MARKETING GOALS AND OBJECTIVES Moving forward, Zappos should continue to expand its advertising efforts while focusing on the value added benefits offered. The company should concentrate on expanding product lines and promoting more customer involvement. Producing a memorable advertisement that is still family friendly is possible and Zappos should strive to do just that. A great way to gain insight into the needs and desires of their target market is to ask for their input and what they find appealing in a commercial. Starting an interactive campaign that involves the customer is a great way to get people invested and excited. Promoting all the benefits of Zappos should be the priority. They have a fantastic reputation for good customer service, but if you re not familiar with the brand you may not know their reputation. Therefore highlighting these benefits can bring new customers to the website. This can also tie into crowdsourcing advertisements. Asking customers to record videos of their best customer service experiences, for example, and promoting a large online campaign and a smaller-scale TV advertising campaign could be a great way to achieve this. Zappos should also look into the benefits of international shipping. To keep the same value-added benefits it may not be feasible right away, but with increased advertising and therefore, increased revenue it may be a good long-term objective. V. MARKETING STRATEGY The primary market for Zappos is married women who are parents, educated, with a median household income of $75,000+. This demographic cares about saving money or finding good deals, prefers the convenience of online shopping, and has a higher interest in home good items. Heavily promoting other product lines to this market is ideal. They may purchase shoes and accessories at Zappos, but if while they are there they see that Zappos also sells comforters, crock pots, or children s clothes, they will continue to fill their shopping carts. Zappos should then keep the customer involved by asking them to participate in surveys and to submit video testimonials of positive experiences. The surveys Page 5 of 7
ensure that the consumers needs and concerns are being addressed and the testimonials ask customers to revisit a time when Zappos made them feel happy, which encourages the customer to have positive feelings about the company, and to spread that joy to new potential customers. The thing that was missing from Zappos more than shoes ad campaign was the emotional connection. Zappos wants to be known as the company that makes customers happy, and so focusing on fostering an emotional connection to the company is key. Being more vocal about their environmental impact is another way to achieve this goal. Making a promise to continue to find ways to improve on reducing their environmental impact and being transparent about their efforts is a great way to promote a favorable brand image and keep customers feeling good about purchasing from this company over other competitive brands. Zappos also contributes to charities, and using an integrated charity campaign is another way to spread the word, improve their image, and increase positive customer perception. VI. ADDITIONAL QUESTIONS FOR DISCUSSION A. How would you define Zappos target market, and how would you describe its strategy to service this market? Zappos has a relatively broad market. They target women age 25-49 who are married, educated, parents, and make at least $75,000. This target, known as the happy hunter, prefers online shopping for its convenience. Zappos naturally appeals to this audience. However, I feel that Zappos does not fully understand their target market. Some of their advertising efforts have fallen flat and as evidenced by the many blunders Zappos has endured in the past, relying purely on customer service as a value-add is not sustainable in the long-term. Zappos is going to have to get to know the specific segments a little better to more effectively market to them. B. Has Zappos emphasis on customer satisfaction contributed to its profitability? Explain There is no denying that the customer satisfaction is responsible for the success of Zappos today. Many of their sales are made up of repeat buyers. However, the lengths that they go to in providing that excellent customer service means that they are not nearly as profitable as they could be. The core values of Zappos tend to indicate that keeping customers happy takes priority over turning a huge profit, but eventually Zappos is going to have to find a way to increase profits in other ways. Page 6 of 7
C. Has Zappos developed long-term customer relationships that provide a competitive advantage in the purchase of shoes and other products? Zappos has worked very hard to develop long-term customer relationships. They go out of their way to make the customer feel important and valued which puts them ahead of competitors. However, they have also struggled to maintain these customer relationships. This was evidenced when Zappos ad campaign was poorly received and tarnished the image of the brand. We can also see this relationship damaged by the security breach of 2012; it is very hard to win people back when their security is at risk. Other technical difficulties such as the delays and issues in 2011 and the price errors of 2010 have damaged customer relationships. Furthermore, relying too heavily on customer relationships for the success of the business means that if a customer has a bad experience with a customer service representative, it can be difficult to win them over. So while Zappos still retains its competitive edge as far as customer service is concerned, history has shown that this relationship can waver and Zappos must be very careful when cultivating customer relationships. Page 7 of 7