How Zappos WOWs Customers To Win

By Sam Frampton

Zappos is a trailblazer. They don’t follow conventional thinking when it comes to building a business. They don’t hire like normal brands, they don’t treat culture the same as most brands, and they go about delivering profits differently than most. They’ve done a lot of revolutionary things that customers love and achieved the feat of outdoing Amazon in terms of being the most customer-centric online company.

So what’s the story behind their rise to become the most loved e-commerce brand on the planet and what’s their secret to delivering a brand powered by customer experience?

“If it’s something that creates a great customer experience, choose to do it, because we believe that in the long run, little things keep the customer in mind will end up paying short dividends” - Tony Hsieh - CEO @ Zappos

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Meet Zappos

Zappos has built a brand powered by customer experience. Back in 1999, Tony Hsieh and a small team of internet entrepreneurs had the vision to deliver happiness to customers and provide the very best customer service.

It may be hard to believe that an upstart company purchasing shoes from brick and mortar stores, and then turning around to sell them online, has become a mainstay in online retail. But that’s exactly what Zappos has done.

Today they are worth billions of dollars, and have become one of the most recognizable brands in the world.

By 2009 Zappos had grown revenue to over $1 billion in gross merchandise sales. Jeff Bezos and Amazon were such big admirers of their culture, operating model and dedication to customer experience, they acquired the business for $1.2bn. What’s even more unique is that Amazon let Zappos operate under their own brand, keep the same management team, and retain its staff.

But it hasn’t always been plain sailing for Zappos.

In the early stages of the company's history, as Zappos was growing, it was haemorrhaging money. Tony Hsieh ended up one by one selling off all of his apartments to fund the growth of Zappos. All this was happening at a bad time. The year was 2000, and it was pretty much impossible for Zappos to raise any money from VCs.

The dot com bubble had just popped and even if someone wanted to raise money as an internet company. The last thing anyone wanted to do was to invest in an online shoe company. Who would want to buy shoes online people thought?

Zappos was burning cash and running out of money, and they quickly needed to turn round their fortunes and find a way to get to profitability fast. By 2002, Zappos was running out of runway. Zappos had to worry about short profitability and long term growth. Tony Hsieh decided they needed a bigger purpose than just making money.

In a conversation with Zappos Executive, Fred Mossler, Tony was brainstorming ideas about the company’s mission and purpose.

“We had a customer email us the other day. He ordered a pair of shoes that we had in our warehouse, and we surprised him with a shipping upgrade, so he got his order in two days instead of our original promise of a week. He said he loved our customer service and would tell his family and friends about us. He even said we should one day start Zappos Airlines.”

It was later decided that the Zappos brand should be about the very best customer service. Contrary to most brands, it wasn’t all talk. For the next decade, they lived and breathed customer experience.

So how did they become the most customer-obsessed brand in the world? Surprisingly, it had nothing to do with shoes.

Culture

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“We focus on making sure we have a great service-focused culture. If you get the culture right, then a lot of really amazing things happen on their own.” - Tony Hsieh, CEO @ Zappos

Today Zappos is world renowned for its culture. It’s known for being a little bit weird and they are always looking for ways to improve company culture, no matter how unconventional or counterintuitive the approach may be.

Zappos offers tours of their headquarters in Las Vegas to the general public. People who study company culture come from all over the world to visit the Zappos offices to see how the company operates.

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To provide the best customer service, Tony Hsieh knew the culture was paramount to success. Each Zappos employee needed to understand that customer experience is a priority for the whole company, not just a department.

Before Zappos, Tony Hsieh learnt a hard lesson. At his first company he sold he began to hate the culture and didn’t want to get out of bed. After 2.5 years he sold Link Exchange sold to Microsoft in 1998 for 268 million dollars. What a lot of people don’t know is that the real reason Tony and his founder ended up selling the company was because company culture had completely gone downhill.

To maintain focus on the customer, they laid a few initiatives to ensure customer service was central to what they did as they scaled.

Culture Book

Zappos releases a culture book every year. A culture book is a powerful way to focus the company on the core values. The original idea for the book was simple. They would ask each employee to write in a few paragraphs, the answer to the question: What does Zappos culture mean to you? Craziest part is that they would leave it completely unedited.

It acts as a medium for the employees to freely express themselves, and a way everyone can get a pulse of where the company’s culture and core values stand. Above all, because the company believes culture is an essential part of the business, it has become the brand book.

Check it out here.

10 Core Values:

Tony reached out to all Zappos employees, asking for their input on core values. Thirty-seven beliefs were refined, and on February 14, 2006, Zappos’ 10 core values were born.

  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

Those values are set up to reflect everything Zappos does, including how they interact with customers, how they interact with each other, how they interact with vendors and business partners.

Dual Interview

At Zappos, they believe if you get culture right, most of the things - like great customer service, or building a great brand will happen naturally on its own. So how do you maintain the culture that you want as you grow? It starts with a great hiring process.

Zappos provides potential employees with two sets of interviews. The first interview is looking for technical ability and relevant experience, etc. But that’s followed by a second interview based purely on cultural fit. Candidates have to pass both sets of meetings to be hired.

“We’ve actually said no to a lot of very talented people that we know can make an immediate impact on our top or bottom line. But because we felt they weren’t a culture fit, we were willing to sacrifice the short term benefits to protect our culture (and therefore our brand) for the long term.” - Tony Hsieh, CEO @ Zappos

New Hire Bootcamp

Zappos designed a 4 week program, in which they go over company history, the importance of customer service, the long term vision of the company. They’re even on the phone for two weeks in the call centre, taking calls from customers. Keeping very much in tune with the belief that customer service shouldn’t just be about the department, it should be the entire company.

But what’s even more unique about the training course is that after the first week they make an offer to the class. Not an offer to skip the course, or take some additional holiday. They offer everyone $2,000 to quit. Yes you read that correctly.

“We make sure that employees are here for more than just a paycheck. We want employees that believe in our long term vision, and want to be part of our culture. As it turns out, on average, less than 1% of people end up taking the offer.” - Tony Hseih, CEO @ Zappos

Strategy & Tactics

Zappos strategy comes down to staying true to one key principle. To live and deliver WOW. Company-wide, it is a daily quest for every employee to “WOW” customers in new and wonderful ways.

“To WOW, you must differentiate yourself, which means do something a little unconventional and innovative. You must do something that’s above and beyond what’s expected. And whatever you do must have an emotional impact on the receiver. We are not an average company, our service is not average, and we don't want our people to be average. We expect every employee to deliver WOW.” - Tony Hsieh, CEO @ Zappos

Free Shipping & Returns

In a world where most consumer products spend most of their marketing on paid advertising, Zappos does the complete opposite. All the profits they make they reinvest back into the customer experience. Where most companies see expenses and costs, Zappos see’s opportunities.

For example, Zappos offers free shipping both ways to make transaction as easy as possible and risk free for customers.

“A lot of customers will order five different pairs of shoes, try them on with five different outfits in the comfort of their living rooms, and then send back the ones that don’t fit or they simply don’t like - free of charge. The additional shipping costs are expensive for us, but really we view those costs as a marketing expense.” - Tony Hsieh, CEO @ Zappos

Generous return policies

Generous may be an understatement. Zappos offer a 365-day return policy for people who have trouble committing or making up their minds. Now you don’t have to put those $90 Nikes on Craigslist.

Easy-to-find contact info

Zappos doesn’t make it hard for customers to get in contact. A lot of websites bury customer service numbers five links deep, and even when you find it, it’s a form or e-mail address that you can only contact once.

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Zappos takes a completely different approach. They put the contact information at the top of every single page of their website, because they actually want to talk to customers. And they staff their contact centre 24/7.

“As unsexy and low tech as it may sound, our belief is that the telephone is one of the best branding devices out there. You have the customers undivided attention for five to ten minutes, and if you get the interaction right, what we’ve found is that the customer remembers the experience for a very long time and tells his or her friends about it. Too many companies think of their call centers as an expense to minimise.” - Tony Hsieh, CEO @ Zappos

Unlimited Call Times

At Zappos, they don't measure call time, they’re longest call was almost six hours long! They don’t use scripts because they trust employees to use their best judgement when dealing with each and every customer.

“We want our reps to let their true personalities shine during each phone call so they can develop a personal emotional connection with the customer.” - Tony Hsieh, CEO @ Zappos

24/7 Warehouse

Running a warehouse 24/7 isn’t a cost effective strategy when it comes to running a delivery business. They try to maximise for customer experience, which means getting orders out to their customers as quickly as possible. They also have their warehouse conveniently located just 15 minutes away from the UPS Worldport hub. Which means they can get orders out to customers in super quick time.

“A lot of customers order as late as midnight EST, and are surprised when their orders show up on their doorstep eight hours later. This creates a WOW experience, which customers remember for a very long time and tell their friends and family about.” - Tony Hsieh, CEO @ Zappos

At the Technological Forefront

What differentiates Zappos from traditional brick-and-mortar business, and even most of its online competitors, is the technological innovation culture that Zappos fosters internally. Since its founding in 1999, Zappos has leveraged cutting-edge technology, social media presence, and excellent customer service practices to sell its products in a way that follows the ever-changing lifestyles of its consumers.

A clear manifestation of the company’s vision is its philosophy around technology.

The pillars of technology that have helped Zappos blitzscale growth are advanced supply chain management, their social media strategy and the use of Chattermill’s customer insights.

Supply Chain Management:

Zappos supply chain infrastructure is a secret weapon that gives the brand an edge.

24/7 operating warehouses, equipped with the most advanced systems and robotics infrastructure ensure speed, organization and overall efficiency.

This capital intensive initiative is a testament to Zappos’ culture-centred culture. The company understands how much speed and accuracy matter for customers, and are prepared to invest dearly to ensure that the customer experience is improved every day.

Very few companies are able to stick to this long-term vision. But Zappos is different. They had the foresight to invest in what was at the forefront, for the long-term; something we can all learn from and apply in our own organizations!

Social Media Strategy

The Zappos leadership team has been contrarian since the beginning and have pioneered the use of social media to gather customer feedback, at a time when most other companies weren't doing that.

When other companies were using Facebook, Twitter, and YouTube for promotion, Zappos was using these social media platforms to gather comments from customers and employees and do “word-of-mouth” marketing.

Zappos employees were always encouraged to participate on social media platforms to share their experiences about working at the company and their experiences with customers. These personal posts served to spread the culture and mission, and was able to magnify the customer-centric philosophy that governed not only Zappos’ strategy, but the entire company’s purpose.

Chattermill’s Platform

The new hidden asset of Zappos is Chattermill’s platform.

Like all exceptional companies know that you can’t build great products without genuinely understanding the voice of the customer. It’s vital you have the technology and text analytics systems capable of analysing customer feedback at scale.

AI-powered text analytics has allowed Zappos to better understand the customer experience from start to finish. Chattermill’s technology ensures that no piece of feedback remains unseen and unheard.

Thanks to our AI-backed sentiment tracker, Zappos is able to pinpoint the parts of the customer journey that users take issue with and uncover hidden insights. These insights can be used by the entire team to allocate resources more efficiently and hone in on the priorities behind logistical, product, and marketing strategies which drive the company’s value generation.

That’s how Zappos sustains and widens their competitive advantages.

Good to Great

The benefit of customer-centricity is that it creates a flywheel. A concept coined by the business strategy guru, Jim Collins, Zappos’s exceptional service would translate into lots of repeat customers, which in turn, would require less marketing expenses for future customer acquisitions, leading to increase in long-term profits, and thus, exponential growth.

The cycle feeds itself - like a snowball that grows bigger and bigger. With markets being efficient, this value did not go unnoticed for long.

In 2009, Amazon bought Zappos for $1.2B.

However, Zappos sale came at a time of dire straits. In Tony’s words:

“At the time, Zappos relied on a revolving line of credit of $100 million to buy inventory. But our lending agreements required us to hit projected revenue and profitability targets each month. If we missed our numbers even by a small amount, the banks had the right to walk away from the loans, creating a possible cash-flow crisis that might theoretically bankrupt us. In early 2009, there weren't a lot of banks eager to give out $100 million to a business in our situation.”

Out of that stressful situation came a silver lining. They found a true, congruent partner that would not only safeguard the business, but exponentially increase its value.

This whole transaction set precedent of what a ‘smart’ acquisition is for the rest of the market.

In his letter, the CEO summed up his thoughts:

We are excited about doing this for 3 main reasons:

  1. We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster.
  2. Amazon supports us in continuing to grow our vision as an independent entity, under the Zappos brand and with our unique culture.
  3. We want to align ourselves with a shareholder and partner that thinks really long term (like we do at Zappos), as well as do what’s in the best interest of our existing shareholders and investors.

In hindsight, it’s logical to assume that Amazon bought Zappos customer-centricity flywheel, which displayed the company’s growth potential and its legendary customer service culture, all built by Zappos exceptional talent base.

Intelligently, and in the interest of keeping their customers happy, Zappos made sure that the deal remained governed by a contract that formally recognized the uniqueness of Zappos’s culture and Amazon’s duty to protect it.

“We think of Amazon as a giant consulting company that we can hire if we want—for instance, if we need help redesigning our warehouse systems.” - Tony Hsieh

P.S - We'll be publishing a bi-weekly column here on Chattermill.com presenting a brief CX analysis of thought-provoking companies and events in tech.

Our hope is that this is something fun and interesting that you can read while on your commute or in between heavy lifting at work.

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