Read the case “If the Shoe Fits (and Even if It Doesn’t): Customer Service at
Zappos” at the end of Chapter 14.
Answer the following questions and/or statements in detail:
1. The great customer service at Zappos increases costs — free same-day shipping; extensive employee training; and so on. Do you think the company can reduce costs in other areas of operations to help offset these costs? If so, how? Use credible sources and research to support and explain.
2. By off-shoring its customer call center, even if Zappos offers wages and perks much higher than the going rate, it would stand to save substantial amounts of money. Do you think Zappos should consider this? Why or why not? Use credible sources and research to support and explain.
3. In what other ways do you think Zappos can affordably enhance its customer service? Use credible sources and research to support and explain.
Make sure you format your papers in proper APA 6th. Be sure to properly cite your sources inside your text using APA 6th citations rules as well as proper APA referencing guidelines in your “References” (bibliography) section at the end of your papers.
If the Shoe Fits (and Even if It Doesn’t):
Customer Service at Zappos
One day in 1999, at the height of the dot-com boom, Nick Swinmurn
went shopping for shoes in San Francisco. Despite spending hours
going from store to store, he couldn’t find the shoes he wanted.
After returning home empty-handed, Swinmurn tried shopping
online but found himself defeated there as well. Online stores of
every type were springing up, but none was devoted to a huge
selection of shoes. Swinmurn saw a market opportunity from his
personal need and knew that the investment environment at that
time made substantial growth possible.
Although potential investors were initially skeptical that anyone
would buy online something as individual and difficult-to-fit as a
pair of shoes, Swinmurn had research showing that 5 percent of
shoes were already being sold through mail-order catalogs, and that
shoes were a huge market. He received a $500,000 investment, and
he and his investors—one of whom, Tony Hsieh, would later become
co-CEO—changed the name of the company from shoesite.com to
Zappos—reminiscent of the Spanish word for shoes, “zapatos.”
Swinmurn’s original idea was to offer the absolute best selection
in shoes. Selection would be the company’s competitive advantage.
But when Zappos couldn’t get a number of shoe brands to
participate, the company realized it had to differentiate, based on
customer service. From the beginning Zappos offered free shipping.
When someone ordered ground shipping, Zappos sent it overnight
instead, amazing the recipient. The company also offered free return
shipping—and accepted returns up to a year after purchase. The
goal was to surprise and wow customers…and to get them talking
Yet all this was costly. Shipping is extremely expensive, and twoway
shipping significantly reduces profit margins. Zappos believed
in delivering purchases quickly, which is also expensive. One way
Zappos reduced its cost was to use “drop-shipping.” In other words,
the manufacturers (or their distributors) sent orders directly to the
customers from their own warehouses rather than from Zappos’.
The advantage, of course, was that Zappos could maintain far lower
inventory levels—thereby reducing costs. But it also had far less control
over the customers’ experience. Shipments would come from
different sources; they could be slow, lost, or just plain wrong.
So in 2002, Zappos built its own centralized distribution
warehouse next to a UPS facility in Kentucky. That meant that
orders could often be shipped out the same day they were
received. And the next year, the company discontinued the
practice altogether of drop-shipping from other companies.
Zappos also realized it needed to make sure its customer
service representatives were well trained, highly customer
motivated, and passionate about the company. The company
instituted above-industry salaries, extensive training,
and lots of extra perks for employees. New Zappos hires
are put through a five-week training course (extraordinarily long
by industry standards) to ensure that they are fully immersed in
corporate culture, customer service, and distribution skills. Then,
at the end of their training, they’re offered $2,000 to leave. Anyone
not completely enamored of the company is encouraged to take
the money and go. Few do. (In 2011 Forbes ranked Zappos 15th on
its list of the 100 best companies to work for.)
Another way that Zappos differed from the industry was in how
it treated call center workers. Unlike in other call centers, calls to
Zappos are not timed, nor do the call center workers have to meet
minimum sales goals. In the end, all of this paid off. With lower
turnover—the company’s call center turnover is under 7 percent,
compared to 150 percent industrywide—Zappos saves considerable
dollars in recruiting, hiring, and training costs.
Another way Zappos keeps costs down is by eliminating errors.
Employees are rewarded when spotting potential mistakes in shipping
or warehousing. Without the need to correct costly mistakes
after the fact, operational expenses are also kept in line.
Zappos considers customer service an investment, not a cost center.
Although returns amount to approximately 35 percent of overall
revenues, 75 percent of orders come from repeat customers, who
typically buy, on average, 2½ times within a year, spending more
By depending on happy customers to spread news of the company
through word-of-mouth marketing, Zappos also keeps its
advertising budget low. A full 43 percent of new customers come
from word of mouth.
Zappos was first profitable in 2006, and since then has had an
unbroken record of profitability. It was acquired by Amazon in 2009
(a short 10 years after its founding) for about $1.2 billion, and is
operated as a wholly owned subsidiary.