Zappos Case Study

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Company Profile

Zappos started out by selling shoes online to become the world’s largest online retailer of shoes. Subsequently, in their quest to boost sales, they moved beyond footwear to become an E-tailer that sells ‘anything and everything’.

Since its founding, sales have grown exponentially from US$1.6 million in 2000 to US$1B in 2008 (Exhibit 1.). This strong growth was dependent on a strong and loyal customer base, which in turn was dependent on employees who were passionate about and took pride in their work by providing exceptional customer service in their quest to ‘WOW’ their customers.

In addition to excellent customer service, two complementary reasons for exponential sales growth were the large number of SKUs available as compared to inventory carried in the brick-and-mortar stores and shorter delivery times that amazed customers.

Industry Profile

The online shoe retailing industry typically purchases goods from manufacturers at wholesale prices, which are then sold to customers at retail prices. As a result, the industry is projected to generate revenue of US$7.8B in 2012, with a current and estimated annual growth of 17.4% between 2007-2012 and 10.2% between 2012- 2017.

Annual growth is estimated to increase since the market is still fairly unsaturated. Furthermore, since online shopping has only recently gained acceptance as a shopping channel, the industry’s long-term prospects will be aided by rising consumer confidence, since it contributes to customer satisfaction and retention.

Major companies include Amazon.com with a 10.4% market share, which acquired Zappos.com in 2009 to become an expert in online shoe sales overnight and Footlocker Inc, with a 5.3% market share. The rest of the market is fragmented and made up of other companies like Nike Inc and Shoebuy.com Inc.

Core Competencies

When the CEO describes his business as a “service company that sells shoes,” he highlights Zappos’ competitive advantage. Zappos concerns itself with the “WOW” factor, seeking to excite their customers in five specific ways. Firstly, their main core competency, which is their commitment to next-day air delivery has won them a loyal customer base. They are able to operate from an in-house inventory and are free from the constraints of drop-shipping. Zappos operates their warehouse 24/7, and has invested a lot in developing their supply chain. In doing so, they achieved quick delivery times and thereby marketed themselves positively. Customers are WOWed by the experience and often promote it by word of mouth.

Zappos’ second core competency revolves around their 24/7 call center. Not only does the call center average a low hold time of 20 seconds, but it also seeks to help the customer in any way it can, even if this means passing off the sale of a pair of shoes to another, cheaper retailer. Since Zappos seeks to make the customer’s experience as pleasant as possible, this leads to the competitive advantage of a strong base of repeat customers. Also, the company stands out because it decided to provide the service themselves instead of outsourcing it to another firm.

The third is the company’s supply web. Zappos created “Powered by Zappos.”, a program that allows manufacturers to sell directly to customers. They pay Zappos to create and manage their websites, run their call centers, and distribute their products from the Zappos distribution center. Unlike the inventory in a brick-and-mortar store that requires its own space, Zappos has inventory from one distribution center serving multiple online stores it powers through its program. There is also a mutual benefit between vendors and Zappos’ buyers that was established through the extranet that provides critical sales and inventory information in a timely manner.

The fourth competency is the company’s efficient strategies when dealing with excess inventory. Instead of following the traditional model of discounting items...
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