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If the Shoe Fits (and Even if It Doesn’t): Customer Service at Zappos

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

 

about Zappos.

 

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

 

each time.

 

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.

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