What Any Catalog Success Reader Should Learn From Zappos.com
Whether they’re great CEOs from good companies, good CEOs from great companies or great CEOs from fantastic companies, these people often don’t want to let the rest of the world know what’s made them or their companies so great. So, it was a joy to sit in on a wonderful presentation by Zappos.com CEO Tony Hsieh during the e-Tail conference in Washington, D.C., on Aug. 8. He openly reeled off 10 truly fascinating ways Zappos has succeeded in its first eight years as a dot-com seller of shoes and apparel.
What does your company have in common with the $800 million Zappos? For all kinds of readers of The Corner View, I’m going out on a limb to guarantee you that regardless of how large or small you are, consumer or B-to-B, catalog, online, retail, etc., there are lessons to be learned from Hsieh’s presentation, and I’ve outlined his 10 key points below in their entirety.
I always welcome your feedback on any issues I explore here, but for this one in particular, if you can’t find at least one usable idea, I want to know. Just click on the comment buttons you can find on our site beside and beneath this column. In the meantime, feast on these...
1. The e-commerce business is built on repeat customers. “When we first started,” Hsieh said, “we did what every other dot-com did: spent a lot of money on ad campaigns to acquire as many customers as possible. This is a good idea if your goal is to lose as much money as possible. Instead, we started focusing on repeat-customer behavior.”
Zappos increased the percentage of customers who buy again within the next 12 months from 20.5 percent in 2001 to 51.3 percent in 2006, Hsieh shared.
2. Word-of-mouth really works online. “Everybody tells everybody about great experience they have online,” he boldly noted. “We found that out early on about how horrible our service was. But the reverse is true, too.”
Some people, Hsieh pointed out, say “‘Yeah, that’s 50 friends, how valuable or qualified are they?’ The thing is, even if they’re not all qualified customers, word still spreads much faster. The No. 1 driver is repeat customers and word-of-mouth. When customers register with us, the No. 1 question we ask is, ‘How did they hear about us?’ The top answer is through the Internet and through friends and family.”
3. Don’t compete on price. “We found that a $10-off coupon increased conversion rates dramatically,” Hsieh recalled, “but found down the road that those customers weren’t loyal to us, and we lost those customers. We quickly stopped doing that; we wanted customers who’d be loyal to Zappos for the long term, who’d buy for our service and selection.”
4. Make sure your Web site inventory is 100 percent accurate. Early on, Zappos didn’t have any inventory. “We’d place orders with manufacturers, and they’d get back to us that they were out of stock, and we’d have to tell customers we were out of stock, Hsieh said. “Customers would e-mail 50 friends and tell them how bad we were. As we grew, we found that even 1 percent inaccuracy of inventory was too much. We decided if we were going to be all about being about top service, we needed inventory to be 99.99 percent accurate. Our Web site is updated in real time, so anything you put in your shopping cart is in our warehouse.”
5. Centrally locate your distribution. Having originally set up its fulfillment center in California, Zappos found that it took up to a week for its East Coast customers to receive their packages.
“A lot of companies don’t pay enough attention to what happens after the checkout,” Hsieh said. “We went to everything overnight, that instant gratification that everybody’s looking for.”
Zappos relocated its fulfillment center to Kentucky where both United Parcel Service and FedEx have hubs, Hsieh said. “If your distribution is located on one of the coasts,” he said, “I recommend you move it central.”
6. Customer service is an investment, not an expense. “We originally thought of it as an expense,” he recalled. “We had to reduce it like other expenses.”
But today, Zappos’ goal is to build lifelong relationships with customers. “So we don’t try to get customers off the phones as quickly as possible,” he said. “If customers are looking for particular types of shoes and we’re out of stock, we’ll steer them to competitors who have it. Customers are surprised, but next time they need another pair of shoes, we’re the first site they’ll look for.”
Hsieh shared a sad story. Last month, a woman bought a pair of shoes for her husband and Zappos overnight shipped them to her. Unfortunately, later that night, her husband was killed in a car accident. “She called us a few days later, wanting help with the return process. Our rep sent her flowers a few days later.”
Zappos doesn’t have a specific policy or procedure for situations like this, but as Hsieh explained, the woman was so touched by this that at the funeral, she mentioned the experience to 30 or 40 close family members and friends, and all said they’d become Zappos customers, Hsieh said.
He considers this not only an example of the right thing to do, but also, had Zappos considered this kind of customer service action only as an expense, it wouldn’t result in revenue. “Do what’s right for the customer even if it doesn’t result in direct sale or costs a little more,” he shared. “Make sure you go above and beyond for the customer.”
7. Start small. Stay focused. You’ll never get the plan perfectly right — how customers will behave or what problems will come up. If you launch a new feature or Web site and have a huge marketing campaign to get people to the site, some issues will come up, and you need time to figure it out. “When we launched apparel,” Hsieh said, “we just hit it on the site and found out over time what customers wanted.”
8. Don’t be secretive and don’t worry about competitors. “For some reason, people in companies love to be secretive,” Hsieh pointed out. “We believe in the opposite: sharing as much information as possible. The benefit of having 1,200 extra pairs of eyes looking at our information far outweighs the possibility of our competitors getting their eyes on it. We focus on repeat-buying behavior; and as long as those numbers go up, what our competitors are doing really doesn’t matter.”
9. Actively manage your company culture. Hire and fire people based on how they fit into the company culture. “Customer service is what we want our company culture to be all about,” Hsieh said. “It’s the entire company. It doesn’t matter what position. You could be our new legal council. We put people through three- to four-week training, including being on the phones with customers, and send them to Kentucky for a week handling warehouse operations — a total of a five-week investment.”
It’s important for everyone in the company to represent and know what your company is all about, he noted. For instance, a few weeks ago, a woman bought a wallet from Zappos and returned it not realizing that she’d left $150 inside it. The next few days, “she was beating up on her kids,” he said. “The third day, she got a package back from us with [the money returned]. That was just a warehouse worker who was honest enough to do this. It was one of those things where [the worker] could have easily pocketed it and nobody would have any idea, but she understood our values. That didn’t come from call center, it came from the warehouse in Kentucky.”
10. Be wary of so-called “experts.” “We’ve dealt with a lot of consultants in almost every area of the business on customer service,” Hsieh said. “We found that we spent a lot of money, and at the end of the day, we should’ve just trusted ourselves more. These experts know a little about a lot of companies, but nobody knows their companies better than our own. That’s not to say there aren’t good consultants; just that it’s very rare. Ninety percent are a big waste of money.”
Upon completing his presentation, one of the first questions Hsieh got was about how Zappos can afford free overnight shipping. He said that the company started out like most dot-coms in the late 1990s with expensive heavy media advertising.
“We started with ground delivery,” Hsieh said. “But we later decided to put more money toward customer experience than marketing. What we would’ve spent on marketing, that money goes into our free overnight shipping. We don’t just recklessly go out of our way to lose money; we spend our money as much as it makes sense. It’s another form of marketing, because we’re relying on that customer for word-of-mouth.”
