(Excerpted from the new book, “The 800-Pound Gorilla of Sales: How to Dominate Your Market”)
Wal-Mart has long been the 800-Pound Gorilla of retail and has managed to attain that status using a single differentiator: price. So where can others add value in a world that screams “low prices”?
Perhaps no one does value-added—or, in its own words, “Wow!”—better than Zappos.com, an online retailer of shoes, clothing, handbags, and more. Based near Las Vegas in Henderson, Nevada, Zappos’ 2008 gross sales topped $1 billion; a 15 percent increase from 2007. Using current estimates of online footwear sales, Zappos easily commands 30 percent of the market—an 800-Pound Gorilla if there ever was one. Zappos.com was recently purchased by Google for nearly $1 billion just a few months ago.
Founded in 1999 by Nick Swimmurn after a frustrating search for shoes in a San Francisco mall, Zappos’ entire business model is predicated on adding value in one fundamental category: customer service. The company’s value proposition? Buy from us, and our amazingly friendly people will take your order and ship it lightning-fast for free. If you don’t like what you order, send it back within a year—for free—and we’ll give you a full refund. Our selection is so big, though, that you’re almost guaranteed to find something else you like.
“Eventually, we want to be selling anything and everything with overnight shipping,” says Zappos’ CEO Tony Hseih. “We’re listening to our customers and finding out what it is they’d like us to sell; that’s what has led us to begin selling electronics and housewares. If our customers asked us to start an airline—which a few already have—we might seriously consider that in the future.”
What has developed is a “product-agnostic” business model, according to Zappos’ VP of Business Development Aaron Magness. “We consider ourselves a service company, first and foremost. We just happen to drive our service model with shoes, but it could be anything; and at some point down the road, it will be anything and everything that makes sense for us to sell. Our customers will dictate that for us.”
On any given day, 75 percent of Zappos’ orders are from repeat customers. “We encourage all of our Customer Loyalty Team members to form personal connections with our customers,” says Magness. “That builds word-of-mouth marketing, which we think is much better than traditional media advertising to build our business.”
During a recent phone order, a Zappos rep learned that the customer was nursing a badly sprained ankle. After the order was placed, the rep grabbed a blank Zappos note card, wrote a little get well message, had 10 others around her sign it, and sent it in the mail to the customer. “The customer was blown away,” says Magness. “Nobody else does that kind of thing—especially not as big a company as we are.” That customer blogged about her Zappos experience—and even scanned the get well card to show others what she had received. “You can’t buy word-of-mouth like that. That’s why we do what we do. Yes, it’s more time-consuming, and it’s a leap of faith on our part, but it’s so rare in business today, the end result is almost predictable.” Magness estimates that 10 percent of the orders that go out are accompanied by a little note card sent separately through the U.S. mail.
Each team member is rated on a much different scale than that used by most call centers. “We don’t measure number of calls, call times, average order size, cross-sell, up-sell, or any of those things,” Magness beams. “We measure our people on one thing: Did you WOW! the customer? If they each do that, we’ve done our job; everything else will flow from there.”
Zappos does spend money on traditional advertising, but it’s minimal. The company’s media buy for 2009 was a grand total of $3 million—a paltry sum compared to its sales figures. “We consider the money spent on note cards and postage part of our marketing budget,” says Magness. “The free shipping we offer, the generous return policy, the extra time we spend with people on the phones—all these things take time and money, which we consider part of our marketing effort.”
But does the company give their customers low prices and great deals? Isn’t that what consumers are begging for?
Zappos has taken a decidedly different stand. “We charge nearly full price for most of the items we sell,” says Magness. “Price-sensitive customers are not the most loyal customers. What we’ve found matters to our customers is not the final price tag, but the brand of service we provide. They’re actually willing to pay the price for what they know they’ll receive.”
In the beginning, Zappos drop-shipped much of its inventory through other vendors. However, that led to a lack of management oversight. “If one of our vendors had a computer problem or had a truck that broke down, we couldn’t control that, and it made us look bad,” explains Magness. “We had a team-wide meeting in 2003 to figure out what our company was going to be when it grows up. We had a lot of discussion, and we decided that we didn’t necessarily want to be the biggest shoe retailer in the world. Instead, we wanted to continue to build a company culture that put customers first. It then became obvious that we needed to control all of the aspects of the service our customers received. Once we made that decision, all the other decisions were a lot easier.”
After that meeting, Zappos set out to build its own warehouse distribution center in Kentucky so that it could control the shipping itself. “It’s a much more expensive route to take than simply acting as a third-party seller and letting someone else do the fulfillment, but it’s absolutely the best option for the customer,” says Magness. “We run our center in Kentucky 24 hours a day, so if someone in New York orders a pair of shoes online at midnight, we can literally have those shoes at her doorstep at 8 A.M.”
Wow.
– Bill Guertin is CEO (Chief Enthusiasm Officer) of The 800-Pound Gorilla, a dynamic sales training and consulting company and author of the brand-new book, The 800-Pound Gorilla of Sales: How To Dominate Your Market, now available from John Wiley & Sons. Find more articles and valuable information at www.The800PoundGorilla.com, or follow Bill on Twitter at www.twitter.com/800poundgorilla.
