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Monday, October 26, 2009

Zappos - Have Fun, Make Customers Happy, Money Follows

Last month, I attended annual summit which is the biggest gathering of prominent online retailers in the country. Since the event was in Las Vegas, I took the opportunity to visit Zappos headquarters in Henderson, NV for a company tour.

Zappos is a fascinating company. It was started in 1999 and booked $1B+ in sales last year. A few months ago, it was acquired by Amazon for ~$940M. The company mainly sells shoes with laser sharp focus on customer service. The company tag line is "Powered by Service". The story is that the Zappos founder, Nick Swinmurn, could not find a pair of shoes he was looking for and there was no online retailer which specialized in wide selection of shoes. So, he started Zappos. Today, Zappos has 4M+ items in its warehouse in Kentucky, 1200 brands and 200,000 styles, and 900,000 UPCs.

Zappos is known for wide selection, fast and free delivery, free return shipments, and 365 day return policy. Behind the scenes, there are three main attributes which make Zappos successful:

1. Understanding of the impact of organization culture on business
2. Understanding of consumer needs and behavior
3. Sophisticated supply chain technology use

Following are my random observations from the two hour long Zappos tour:

1. The User Experience (UX) team has 8 people and is divided into three groups:

a) Information Architecture
b) Design
c) Usability Testing

Isn't it amazing that 8 people create a UX which generates $1B in sales/year?

2. Separate teams which need to collaborate on regular basis are housed next to each other. For example, Development, Quality Assurance, and UX teams sit next to each other.

3. All new employees must attend a 4 week training program which includes answering customer phone calls and warehouse training. This teaches employees interdependence among various teams and discourages "silo" thinking.

Zappos employees at work

4. After two weeks of training, new employees are offered $2,000 cash to leave the company. This is to make sure that the employee likes the culture. And, the company wants to protect the culture. Last year, 3% of new employees took the offer.

5. All potential employees are interviewed by two people- one tests the candidate for skills and the other for the culture fit. Both interviewers must agree for the candidate to get the job.

6. Top three fastest loading e-commerce websites are:


7. Zappos only uses Direct Marketing with focus on:

i) Email Marketing
ii) Affiliate Marketing
iii) Search Engine Marketing (SEM)
iv) Comparison Shopping

8. Each item can be viewed on 8 different angles on Zappos website.

9. Zappos uses RFID and Robotics in its warehouse. This makes the supply chain fast and cost effective.

10. Merchandisers are free to choose what items they want to make part of Zappos collection and they also forecast how many of the selected items Zappos will sell.

11. Zappos shows real-time purchases on the US map to identify local trends.

12. All products have a Wiki page which the customer service reps can pull up when a customer calls about a product and modify it based on the customer interaction. The customer service team is called Customer Loyalty Team (CLT) at Zappos.

13. There is 1 copywriter for the entire website!

14. 90% of Zappos sales are shoes and 8% are apparel.

15. All employees get free food, snacks, candy, etc.

16. All employees get free books which management likes.

17., a site operated by Zappos, has a separate CLT.

18. There are 4 people in Zappos Brand Marketing Team!

19. There is no requirement for CLT to complete a call within certain time frame. The idea is to make the customer happy and not to get customer off the phone ASAP. There is no commission and no script for completing the call!

20. Zappos gets 6,500 calls every day.

21. December 15, 2008 has been the biggest sale day for Zappos so far. They sold $6M worth of merchandise that day.

22. There is a nap room for employees and visitors to take a break.

23. Dr. Vik is the famous coach at Zappos. Any employee can set up a 30-day goal (anything an employee wants) with Dr. Vik and he helps you achieve it.

24. Zappos reinforces the culture with its ten values. See This is not just talk. When you visit Zappos you can feel that the employees live by these values.

25. The extra money Zappos spends in empowering employees and keeping customers happy is more than compensated by repeat customers (and better supply chain). 75% of sales are to repeat customers. According to Zappos, their margins are comparable to other online retailers.

The most amazing part was that the two hours I spent at Zappos, I did not see a single employee who was not having fun.