The Right Fit
Tony Hsieh might seem like a low-key guy, but when it comes to being a great leader, he's a "shoe in."
Hsieh, 33, is the chief executive officer and director of Zappos.com, the online shoe retailer that carries more than 1,000 brands, more than 90,000 styles and 3.5 million pairs of shoes in its warehouses, ready for immediate shipment.
Hsieh joined the Henderson, Nev.-based company in 2000, and under his leadership Zappos.com has grown gross merchandise sales from $1.6 million in 2000 to $597 million in 2006. The company is on track to reach $800 million in gross merchandise sales in 2007.
It also has more than 1,300 employees (350 customer loyalty/call center employees, 600 warehouse workers and 350 other employees), as well as warehouse space in Kentucky " near major FedEx and UPS hubs " with a total area equivalent to 17 football fields. Zappos.com also has three outlet stores in Las Vegas and one in Kentucky. Not to mention more than 6 million customers, which is close to 2 percent of the U.S. population. One of the reasons Zappos.com is so successful, Hsieh says, is its focus on customer service in lieu of marketing and advertising.
"The way we've gown primarily over the past eight years is through repeat customers and word-of-mouth," he explains. "Our philosophy [is] 'Any money that we would have spent on marketing, let's instead put it back into the customer experience and the customer service level we provide.'" And it's working: On any given day, 75 percent of Zappos.com's customers are repeat customers, according to Hsieh.
Examples of Zappos.com's stellar customer service include free, overnight shipping. Unlike with most e-tailers, orders placed before 1 p.m. PST Monday through Thursday for delivery within the 48 contiguous United States ship the next day. Orders placed after 1 p.m. Thursday through 1 p.m. Monday generally ship the first Tuesday after the order, in some cases sooner. "We believe that the speed at which a customer receives an online purchase plays a very important role in how that customer thinks about shopping online again in the future," Hsieh says. "So at Zappos, we have put a lot of focus on making sure the shoes get delivered to our customers as quickly as possible.
"In order to do that, we warehouse everything that we sell and, unlike most other online retailers, we don't make an item available for sale unless it is physically present in our warehouse," he adds. Other examples of great customer service at Zappos.com include free return shipping, a 365 day return policy, 24/7 operations at its call center, and its large, efficient warehouse.
"All of those things are very expensive to do, but our business model is, Let's invest as much as possible into the customer experience and customer service, and let our own customers do our own marketing for us through word-of-mouth," Hsieh says.
"Our goal is to position Zappos as the online service leader," he continues. "If we can get customers to associate the Zappos brand with the absolute best service, then we can expand into other product categories beyond shoes."
A bit of history
Zappos.com "the name is based on zapatos, the Spanish word for shoes" was founded in 1999 by Nick Swinmurn, who was walking around a mall in San Francisco, looking for a pair of shoes. One store had the right style, but not the right color. Another store had the right color, but not the right size. Swinmurn spent the next hour in the mall, walking from store to store, and finally went home empty-handed and frustrated.
At home, Swinmurn tried looking for his shoes online and again was unsuccessful. Although there were a lot of "mom and pop" stores selling shoes online, what was interesting to Swinmurn was there was no major online retailer that specialized in footwear.
So, Swinmurn quit his day job to start an online shoe retailer " and Zappos.com was born. The original idea was to create a Web site that offered the absolute best selection of shoes in terms of brands, styles, colors, sizes and widths. Over the past seven years, however, the Zappos.com brand and its aspirations have evolved, and in addition to offering the best selection, it now wants to be the company that provides the absolute best service online " not just in shoes, but eventually in any category.
Customer service: the main event
Customer service isn't just a department for Zappos.com it's the company's mantra. "We believe that if we continue to focus on providing the absolute best service and the absolute best shopping experience, then we can continue to grow as a company," Hsieh says. In fact, every employee who joins Zappos.com's Henderson office goes through three weeks of customer-loyalty training. Employees learn about the company's history, its core values, its philosophy about customer service and its company culture.
They also learn how to use customer-service tools, and each employee spends a week on the phone talking to customers, taking orders, etc. Each also spends a week in Kentucky, performing all of the warehouse functions, such as picking, packing, shipping and receiving. Each Henderson-based employee gets a total of five weeks of training, regardless of what position he or she was hired for, according to Hsieh.
"Our hope is that our focus on service will allow us to 'wow' our customers, our employees, our vendors and our investors," he says. "We want Zappos to be known as a service company that happens to sell shoes, handbags, and anything and everything."
While the main focus is on customer service, Zappos.com does engage in some interactive marketing to promote its company.
For example, it has a successful affiliate marketing program called the Associates Program, which allows online publishers to add a simple text link to their site advertising Zappos.com's casual and athletic shoes, and earn referral fees if the link results in a sale. The current referral fee is 12 percent, and the average associate makes about $12 per order.
Associates can choose one of Zappos.com's banners and link straight to its homepage, recommend specific shoes, add a search box to their Web sites or show Zappos.com's complete product line. The program, which has been in existence for more than five years, brings in many first-time customers.
"But our No. 1 source of growth has been from repeat customers and word-of-mouth, not from paid advertising," Hsieh says.
Another of Zappos.com's acquisition-oriented strategies is search engine marketing " buying keywords on Google and other major search engines, for example.
"We buy generic words, such as 'shoes' or 'high heels,' and brand terms, such as 'Clarks,'" Hsieh says.
Zappos.com also uses Web analytics tools to track the sales from each keyword it buys and then looks at whether the ratio makes sense for the company.
"For example, if for a certain keyword we spent $100 to buy the keyword but only got $50 in sales, then we would not continue bidding as much on that keyword," Hsieh says. "If, instead, we spent $100 and got $5,000 in sales, then we would increase our buy for that keyword."
As for retention programs, Zappos.com sends out e-mails to a general mailing list of customers once every two weeks. Currently, about 3 million customers receive the e-newsletter, which contains information about new styles and new brands. Customers also can sign up for specific, targeted mailing lists, depending on their interests. They include updates on specific brands or sizes, and a customer looking for a specific item that is out of stock can sign up to receive an e-mail once the stock is replenished.
"Someone can [sign up] to be notified every time we get a new style of Kenneth Cole shoes, for example," Hsieh says. "Or, if they have a hard-to-find shoe size, they can be notified anytime we get a size 16 EEE in."
Zappos.com also has entered into the social-networking sphere with another e-mail newsletter called Shoe Digest, which lets customers participate in discussions about shoes with other Zappos.com customers. The opt-in e-newsletter, which is published three times a week and moderated by the e-tailer, discusses different topics every time, depending on what readers are interested in. "Shoe Digest comes in the form of an e-mail, and each e-mail has maybe 10 or 12 different postings about whatever the topic happens to be," Hsieh says. "It covers anything from what are good shoes for a wedding to what are good running shoes to wear for a marathon."
Hsieh also mentions that Zappos.com does not focus on coupons, promotions or specials " in its e-mail newsletters or otherwise " because it doesn't want customers to buy from it solely on the basis of price.
"When you base your business model on offering the lowest price, as soon as someone else comes up with a better discount " which anyone can do " those buyers will just go to the competition," Hsieh says. "If someone is buying just on price, then we really don't want that customer."
eM+C asked Tony Hsieh, CEO/director of
Zappos.com, for his tips on what it takes to be a successful e-tailer.
Here's what he said:
- 1. Don't get into a business that
competes on price: "It's hard to sustain this type of model unless you
are Wal-Mart. Focus on being the best in whatever it is you are
selling. Stay away from competing on price."
- 2. Focus on
the back end as well as the front end. "Companies ... put a lot of
resources into their marketing or their Web site, but then won't invest
enough in act-ually fulfilling the order or the customer service side
of things. If you do that, it's hard to build your business because if
people don't have a great experience after they've handed over the
credit card, then they are not likely going to buy again from you. So,
we focus on what happens on the back end as much as what happens on the
front end of the sale."
- 3. Remember: Customer service is a
great long-term investment. "Customer service ... really helps
companies over the long term, even though it may be hard to see the
payoff in the really short term."