How Zappos “Delivers happiness to Soles and Souls”

This pandemic made people discover their latent Mozart, Monet, MasterChef, or marathoner. Specifically, if someone wanted to start a fitness habit such as running, cycling, or home-workout, he/she would mostly be looking for sports attire, especially for a good pair of sports shoes.

With the shops not yet open, one could still buy the shoes online but it is a tougher challenge than waking up for a jogging session! There are concerns about fit, feel, colors, textures, and many such things. If only one could order a dozen shoes, try them out, keep the best, and return the rest – of course with no extra cost! Utopian, one might wonder.

In fact, this is exactly what Zappos has delivered for more than two decades now, and it has “WOW” ed the customers in the USA with the famous Zappos customer service strategy!

Still don’t know what Zappos is? Let me explain

Zappos was started in 1999 as an online retailer for shoes in San Francisco, USA. Initially named shoesite.com, it soon adopted the name Zappos derived from the Spanish word for shoes (Zapatos). The company was founder Nick Swinmurn’s brainchild and had an initial investment of $2 million from Tony Hsieh and Alfred Lin from Venture Frogs.

By 2004, Zappos gross sales had reached $184 million and had received an additional $35 million from Sequoia Capital. In the same year, the decision to move the headquarters from San Francisco to Las Vegas was taken. In the following three years, Zappos grew to achieve $840 million in gross sales and added additional products such as handbags, eyewear, clothing, watches, and kids’ merchandise.

Zappos crossed the $1 billion gross sales mark in 2008. It was acquired by Amazon in 2009 for $1.2 billion on the condition of not diluting the company culture. Zappos is known for its company culture and customer service strategy. Putting customers at the heart of everything and Delivering Happiness is its main motto.

Tony Hsieh was the CEO of the company for 20+ years, and he stepped down in August 2020 to pursue philanthropic activities but unfortunately died in a fire accident in November 2020. Tony is succeeded by Kedar Deshpande as the CEO of Zappos.

Customer Service Strategy- Theory- Fundamentals

The saying “Customer is King” is timeless and is a universal business mantra! In the business universe, at a micro-level customer is like the nucleus of an atom, and at a macro level, the customer is like the center of the solar system. In essence, the customer is at the heart of every business.

Having said that, not all businesses value and have the same extent of customer-centricity (imagine orbits of different planets having different radii). A strong customer service strategy is not just a feel-good factor notionally but also makes good business sense – with enough supporting data to it. Let us explore the importance of having a good customer service strategy.

A customer goes through several steps in the customer journey before purchasing a product/service (refer above diagram). As in a funnel, the number of customers passing on to the next steps keeps reducing in every step (refer above diagram). A company has to utilize its marketing budget judiciously to move a customer from awareness to the purchase phase.

This average spends to acquire a new customer is the Cost of Customer Acquisition (CoCA). Companies want this value to be as low as possible. Besides, once the customer purchases the product/service, the companies want the customers to be loyal and purchase repeatedly.

The total amount that a customer spends on the products/services of the company is the Customer Lifetime Value (CLTV). Ideally, this number has to be high. Imagine all the efforts required for a mango tree to grow from the beginning. However, once it starts to give fruits, you want it to reap the benefits year after year (and do not forget that the seeds from fruits can lead to further new trees – word-of-mouth marketing).

So investing in good customer service increases customer experience which in turn increases customer loyalty and CLTV, resulting in better topline and bottom line. Zappos has taken numerous actions to ensure the best customer service, a couple of interesting ones are listed here.

Factors that make “Zappos Customer Service Strategy” Unique

365 Days Return Policy

One of the highlights of Zappos’ Customer Service Strategy is their 365 days Return Policy. Combined with the free 2-way shipping, this takes away the customers’ risk and makes it convenient for them to order as many shoes as they want, keep the ones that fit, and return the others at no additional cost. The customers now do not have to worry about the fit, design, or comfort of the shoes and try out all the options at home. This encourages people to leverage the advantages of online shopping and simultaneously removes the drawbacks.

Yes, this policy has meant that the returns at Zappos are around 35% of online order values (compared to the general brick and mortar retail industry average of 10%) but the customer WOW factor has led to increased customer loyalty. 50% of the customers shopping from Zappos do return for further purchases. 75% of the total revenues are through repeat customers. Zappos considers this customer service strategy as a marketing expense towards customer acquisition and the results are visible in the overall increase in the customer lifetime value.

Zappos achieves this excellence in Customer Service by having a strong foundation system of Customer Loyalty Team, which ensures a smooth and hassle-free process. This team works 365 days and 24×7 to make the entire journey special.

The metrics used for the performance of this team are based on the value-added to the customer and the quality of interactions, which is opposite to the conventional practice measuring number of calls completed per shift. There is no script given or upselling attempt in these calls. In fact, Zappos has the record for the longest customer care call at 10 hrs 43 mins!

This customer-centricity is extended throughout the Zappos website. They display the customer care numbers easily visible on every page instead of burying several layers (or clicks) below the surface. They actually encourage customers to call their customer care numbers. They are confident that these are the touchpoints to create a positive experience for the customer leading to increased loyalty.

Moving Customer Support to Vegas

As discussed in the previous section, the call center or the Customer Loyalty Team at Zappos is at the core of their business. It is not seen as just another supporting function or an operational department but is viewed as the most important team, which can greatly impact their customers.

They agreed that high-quality, empathetic customer care executives are essential to achieve this. Keeping the Customer Loyalty Team’s importance in mind, Zappos came up with a clever customer service strategy in its early days.

Zappos, who until then operated in San Francisco, decided to move their Customer Loyalty Team to Las Vegas. Here are some of the reasons why they did that:-

1. Zappos wanted top quality and the best resources handling its customer service, and the high rents at San Francisco and competing ecosystem meant that they could not get the best talent for their budget. They also believed that outsourcing customer service would be outsourcing their core strength. Furthermore, they believed that people who could not connect to their customers culturally might not deliver a WOW experience. Therefore, their move to Vegas (apart from the lower tax rates) was to hire top talent for their customer service team.
2. Moving to Vegas was also dictated by the fact that it is a 24×7 city, and the city never sleeps. If Zappos had to provide 24×7 customer support, the employees should feel comfortable being in a city that operates 24×7. When the employees would step out of work after an odd-timing shift, they should see that the world around them is still up and running.
3. Vegas is a place that attracts many tourists, and hence the culture of the city itself is that of service and hospitality. Zappos, which was truly customer-centric, wanted the employees to be a part of that culture and wanted service-mindedness to rub off on them.

Zap-Post 2020

Zappos positions itself as “A Service Company That Happens To Sell Shoes.” The top management was not averse to the prospect of having Zappos Airline and Zappos Hotels someday.

With online shopping growing by the day, Zappos is well-positioned as it begins its third decade. The digital wave has brought the customers closer to brands making customer interactions more frequent and real-time. Zappos and its motto of “Delivering Happiness” seem to be on the right path in the decade ahead.

To conclude, when Amazon and Zappos union happened in 2009, some people thought it is a natural thing given the customer obsession of both these companies. But an important difference in which Amazon and Zappos complement each other is that Amazon approaches customer service with data, analytics, and such left-brain-driven methods and Zappos’ customer service strategy is more about connection, empathy, and softer right-brain aspects.

Knowing these companies, one could say that between them Amazon and Zappos represent the A to Z of customer service!

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