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Zappos. Customer relationship management Essay

Introduction
Cana company focuse don happiness besuccess ful?Zappos,anonlineretailer,isprovingthatitcan. The company’srevenuegrewfrom $1.6millionin2000to$1.64 billionin 2010.

TonyHsieh, Zappos’CEOsays,

“It’sabrandabouthappiness,whethertocustomersoremployeesoreven  endors. ”Zappos’

zanycorporatecultureandfocusoncustomersatisfactionhasmadeitboth

successfulandamodelforothercompanies.

ThiscaseexamineshowZappos’focusonstakeholderhappinesshascontributedtoitssuccess. First,weexaminethehistoryof Zappos,itscorevalues,anditsuniquebusinessmodel. Next,we analyzethecompany’scorporatecultureandhowitinfluencesitsrelationshipswithemployees, customers,theenvironment,andcommunities. Wethenlookatsomeofthechallengesthecompany hasfacedandhowitplanstomoveintothefuture.

HISTORY
NickSwinmurnfounded Zapposin1999afterafruitlessdayspentshoppingforshoesinSan Francisco.Afterlookingonline, Swinmurndecidedtoquithisjobandstartashoewebsitethat offeredthebestselectionandbestservice .OriginallycalledShoeSite. com,thecompanystartedasa middleman,transferringordersbetweencustomersandsuppliersbutnotholdinganyinventory(a “dropship”strategy). ThewebsitewassoonrenamedZappos,aftertheSpanish
wordforshoes (zapatos).

In2000,entrepreneur Tony Hsiehbecamethecompany’sCEO.Hsieh,26atthetime,wasanearly investorinZappos,havingmade$265millionsellinghisstartupcompanyto Microsoftin1998. Hsiehwasn’tinitiallysoldontheideaofanInternetshoestore. HetoldInc.magazine,“Itsounded liketheposterchildofbadInternetideas…butIgotsuckedin.”AfterbecomingCEO,Hsiehmadean unconventionaldecisiontokeepZapposgoing,evensellinghisSanFranciscolofttopayforanew warehouseandoncesettinghissalaryatjust$24.

Zapposstruggledforitsfirstfewyears,makingsalesbutnotgeneratingaprofit.Thedot‐comcrash forcedZappostolayoffhalfitsstaff,butthecompanyrecovered.Bytheendof2002,Zapposhad salesof$32millionbutwasstillnotprofitable.In2003,thecompanydecidedthatinordertooffer thebestcustomerservice,ithadtocontrolthewholevaluechain—fromordertofulfillmentto delivery—andbeganholdingitsentireinventory.ZapposmovedtoLasVegasin2004totake advantageofalargerpoolofexperiencedcallcenteremployees. Thecompanygenerateditsfirst profitin2007afterreaching$840millioninannualsales.Zapposalsostartedtoberecognizedfor itsuniqueworkenvironmentandapproachtocustomerservice. Thismaterialwasdevelopedby HarperBaird,BernadetteGallegos, and BeauSheltonunderthedirectionofO.C. FerrellandLindaFerrell.It providedfortheDanielsFund EthicsInitiativeattheUniversityofNew Mexicoandisintendedforclassroomdiscussionratherthanto illustrateeffectiveorineffectivehandlingofadministrative,ethical,orlegaldecisionsbymanagement.Usersofthismaterialareprohibited fromclaimingthismaterialastheirown,emailingittoothers,orplacingi
tontheInternet.PleasecallO.C.Ferrellat505‐277‐3468formore information.(2012)

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In2010,Amazonboughtthecompanyfor$1.2billion.AlthoughHsiehhadrejectedanofferfrom Amazonin2005,hebelievedthatthisbuyoutwouldbebetterforthecompanythanmanagement fromthecurrentboardofdirectorsoranoutsideinvestor.Hsiehsaid,“WithAmazon,itseemedthat Zapposcouldcontinuetobuilditsculture,brand,andbusiness.Wewouldbefreetobeourselves.” Amazonagreedtolet ZapposoperateindependentlyandtokeepHsiehasCEO(athiscurrent $36,000annualsalary).Hsiehmade$214millionfromthemerger,andAmazonsetaside$40 millionfordistributiontoZapposemployees.Afterthemerger,thecompanyrestructuredinto10 separatecompaniesorganizedundertheZapposFamily.

COREVALUES
Zapposhastencorevaluesthatguideeveryactivityatthecompanyandformtheheartofthe company’sbusinessmodelandculture.
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DeliverWOWthroughservice.
Embraceanddrivechange.
Createfunandalittleweirdness.
Beadventurous,creativeandopen‐minded.
Pursuegrowthandlearning.
Buildopenandhonestrelationshipswithcommunication.
Buildapositiveteamandfamilyspirit.
Domorewithless.
Bepassionateanddetermined.
Behumble.

Zappos’corevaluesdifferfromthoseofothercompaniesinacoupleofways. Inadditiontobeing untraditional,thecorevaluescreateaframeworkforthecompany’sactions. Thisisexemplifiedin thecompany’scommitmenttotheircustomers’andemployees’well‐beingandsatisfaction. ZAPPOS’CUSTOMER‐FOCUSEDBUSINESSMODEL

TheZapposbusinessmodelisbuiltarounddevelopinglong‐termcustomerrelationships. Zappos doesnotcompeteonpricebecauseitbelievesthatcustomerswillwanttobuyfromthestorewith thebestserviceandselection. Thecompanystrivestocreateauniqueandaddictingshopping experience,offeringawideselectionofshoes,apparel,accessories,andhomeproducts,free shippingtothecustomer,freeshippingandfullrefundsonreturns,andgreatcustomerservice. SHOPPINGANDSHIPPING

Zapposstrivestomaketheshoppingexperienceenjoyable. Thewebsiteisstreamlinedforaneasy shoppingexperience.Productsaregroupedinspecializedsegments,withsome(likeoutdoor products)ontheirownmini‐sites. Customerscanvieweachproductfrommultipleanglesthanksto photographstakenatthecompany’sstudio,and Zapposemployeesmakeshortvideoshighlighting
theproduct’sfeatures.Zapposanalyzeshowcustomersnavigatethesitetoimprovefeatures,adapt searchresults,andplaninventory.

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Thespiritofsimplicity,innovation,andgreatserviceextendsto Zappos’inventoryanddistribution systemsaswell.Zappos hasoneofthefewliveinventorysystemsontheweb.IftheZapposwebsite displaysanitem,itisinstock. Oncethecompanysellsoutofanitem,thelistingisremovedfromthe website.Thishelpstoreducecustomerfrustration.Itsinventoryandshippingsystemsarelinked directlytothewebsiteviaacentraldatabase,andallitsinformationsystemsaredevelopedin‐ houseandcustomizedtothecompany’sneeds. Theirwarehousesoperatearoundtheclock,which allowsthemtogetaproducttothecustomerfaster.Fastshippingcreatesaninstantgratification thatissimilartoshoppinginaphysicalstore.

Mostcompanieshaveanegativeviewtowardreturns,but Zappos’mentalityisthecomplete opposite.Itseesreturnsastheabilitytomaintaincustomerrelationshipsandtoincreaseitsprofits. Zapposoffersa100%SatisfactionGuaranteedReturnPolicy.Ifacustomerisnotsatisfiedwitha purchase,heorshecanreturnitwithin365daysforafullrefund.Thecustomercanprintapre‐ paidshippinglabelthatallowsalldomesticcustomerstoreturntheproductforfree.Thisreturn policyencouragescustomerstoorderseveralstylesordifferentsizesandreturntheitemsthatdo notworkout.

Whilethisstrategyseemsexpensive,itactuallyworkstoZappos’advantage. Theaverageindustry merchandisereturnrateis35percent,butZappos’mostprofitablecustomers
tendtoreturn50 percentofwhattheypurchase.Thecustomerswhohavethehigherreturnpercentagesarethe mostprofitablebecausetheyhaveexperiencedZappos’customerserviceandreturnpolicy,which createloyaltytothecompany.Thesecustomersarelikelytomakepurchasesmoreoftenandto spendmoreoneachpurchase.CraigAdkins,whoisthevicepresidentofservicesandoperations, statedthatthisisexactlywhathasmadeZappossosuccessful,saying,“Sinceitcoststhesameto shipa$300pairofpumpsasitdoesa$30pairofsandals,theZappospolicyofwinningover shopperswithitsreturnspolicyhashelpedtobringinhighprofitmarginsonmanyofitsorders.” CUSTOMERSERVICE

Whatreallymakesthe Zapposbusinessmodeluniqueisthecompany’sfocusoncustomerservice. Thecompanyhasestablishedamethodofservingcustomersandhandlingtheirissuesthatis distinctivefromtherestoftheindustry.Zapposbelievesgreatcustomerserviceisanopportunity tomakethecustomerhappy.

CustomersareencouragedtocallZapposwithanyquestions.Thenumberisdisplayedonevery pageofthewebsite.Hsiehsays,“…AtZappos,wewantpeopletocallus. Webelievethatforming personal,emotionalconnectionswithourcustomersisthebestwaytoprovidegreatservice.” CustomerservicerepresentativesalsoactivelyusesocialmediasitessuchasFacebookandTwitter torespondtocustomerissues.

AnotherkeyaspectofZappos’customerservicemodelisthatnothingisscripted.Employeeshave freereignintheirdecision‐makingandareexpectedtospendasmuchtimeas
theyneedto“wow” customers.Theyhelpcustomersshop,evenontheircompetitors’websites,encouragethemtobuy multiplesizesorcolorstotry(sincereturnshippingisfree),anddoanythingittakestomakethe shoppingexperiencememorable.

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Zappos’customerservicerepresentativestrytodeveloprelationshipswiththeircustomersand makethemhappy.Storiesaboutgreatcustomerserviceincludecustomersupportcallsthatlastfor hours,sendingflowerstocustomersontheirbirthdays,andsurpriseupgradestofastershipping. SomeextremecaseshaveincludedZapposhand‐deliveringshoestocustomerswhohavelost luggageandtoagroomwhoforgottheshoesforhiswedding. Zapposhasevensentpizzastothe homesofcustomerswhohavetweetedtothecompanyaboutbeinghungry. Zapposbelievesthatgreatcustomerexperiencesencouragecustomerstousethestoreagain.In addition,Zappos’long‐termstrategyisbasedontheideathatgreatcustomerservicewillhelpthem expandintoothercategories.Whilearound80percentof Zappos’orderscomefromshoes,the marketsforhousewaresandapparelaremuchlarger.Thecompanysaysitwillexpandintoany areathatitispassionateaboutandthatmeettheircustomers’needs. Thecompanyalsoconsidersword‐of‐mouthmarketingtobethebestwaytoreachnewcustomers. CFO/COOAlfredLinsays,“Thecustomerismorepowerfulthanpaidadvertising. ”Withover75 percentofpurchasesmadebyrepeatcustomers,itisevidentthatZappos’missionto“providethe bestcustomerservicepossible”isworkingwellforthecompany. TRANSPARENCY

TransparencyisalsoacriticalpartoftheZapposmodel.Employeesreceivedetailedinformation aboutthecompany’sperformanceandareencouragedtoshareinformationaboutthecompany. Zapposbelievesthatemployeesshoulddevelopopenandhonestrelationshipswithall stakeholderswiththehopethatthiswillassistinmaintainingthecompany’sreputation.Hsiehuses FacebookandTwittertoshareinformationwithemployeesandcustomers(hehas2.2million followers).WhenZapposlaidoff124employeesin2008,Hsiehannouncedthedecisionvia Twitter andlaterbloggedaboutit.Althoughsomecompaniesmayhesitatetoopenthemselvestopublic criticism,Zapposfeelsithasnothingtohide.Infact,mostofthepublicpostsonZappos’social mediasitesarepraisefromcustomers.

ZAPPOSINSIGHTS
Zappos’businessmodelissosuccessfulthatthecompanyofferstoursandworkshops,whichcost $5,000fortwodaysatthecompany’sheadquarters. ThecompanyalsocreatedZapposInsights,an onlineservicethatallowssubscriberstolearnmoreabout Zappos’businesspracticesthroughblogs andvideos.Theseprogramshavehighprofitpotentialforthecompanybecausetheyarebuilton whatZapposalreadydoesbest.

CORPORATECULTURE
Thecorporatecultureat Zappossetsitapartfromnearlyeveryothercompany.AsAmazon’sCEO, JeffBezos,says,“I’veseenalotofcompanies,andIhaveneverseenacompanywithaculturelike Zappos.’”Zappos’unorthodoxcultureistheworkofCEOTonyHsieh,aninnovativeandsuccessful


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