zappos case study operations management

• SUGGESTED TOPICS
• The Magazine
• Newsletters
• Managing Yourself
• Managing Teams
• Work-life Balance
• The Big Idea
• Data & Visuals
• Reading Lists
• Case Selections
• HBR Learning
• Topic Feeds
• Account Settings
• Email Preferences

Zappos and the Connection Between Structure and Strategy

• Juan Pablo Vazquez Sampere

When it comes to holacracy, you don’t know the whole story.

Leaders of large enterprises struggle to balance the need to make their core business more efficient with the need to move nimbly to new processes and business models, particularly in the face of threats from disruptive startups. This is a fact we know, and know well.

• Juan Pablo Vazquez Sampere is a professor of business administration at IE Business School.

Partner Center

About Stanford GSB

• The Leadership
• Dean’s Updates
• School News & History
• Commencement
• Business, Government & Society
• Centers & Institutes
• Center for Entrepreneurial Studies
• Center for Social Innovation
• Stanford Seed

About the Experience

• Learning at Stanford GSB
• Experiential Learning
• Guest Speakers
• Entrepreneurship
• Social Innovation
• Communication
• Life at Stanford GSB
• Collaborative Environment
• Activities & Organizations
• Student Services
• Housing Options
• International Students

Full-Time Degree Programs

• Why Stanford MBA
• Academic Experience
• Financial Aid
• Why Stanford MSx
• Research Fellows Program
• See All Programs

Non-Degree & Certificate Programs

• Executive Education
• Stanford Executive Program
• Programs for Organizations
• The Difference
• Online Programs
• Stanford LEAD
• Seed Transformation Program
• Aspire Program
• Seed Spark Program
• Faculty Profiles
• Academic Areas
• Awards & Honors
• Conferences

Faculty Research

• Publications
• Working Papers
• Case Studies

Research Hub

• Research Labs & Initiatives
• Business Library
• Data, Analytics & Research Computing
• Behavioral Lab

Research Labs

• Cities, Housing & Society Lab
• Golub Capital Social Impact Lab

Research Initiatives

• Corporate Governance Research Initiative
• Corporations and Society Initiative
• Policy and Innovation Initiative
• Rapid Decarbonization Initiative
• Stanford Latino Entrepreneurship Initiative
• Value Chain Innovation Initiative
• Venture Capital Initiative
• Career & Success
• Climate & Sustainability
• Corporate Governance
• Culture & Society
• Finance & Investing
• Government & Politics
• Leadership & Management
• Markets & Trade
• Operations & Logistics
• Opportunity & Access
• Organizational Behavior
• Political Economy
• Social Impact
• Technology & AI
• Opinion & Analysis
• Email Newsletter

Welcome, Alumni

• Communities
• Digital Communities & Tools
• Regional Chapters
• Women’s Programs
• Identity Chapters
• Find Your Reunion
• Career Resources
• Job Search Resources
• Career & Life Transitions
• Programs & Services
• Career Video Library
• Alumni Education
• Research Resources
• Volunteering
• Alumni News
• Class Notes
• Alumni Voices
• Contact Alumni Relations
• Upcoming Events

Admission Events & Information Sessions

• MBA Program
• MSx Program
• PhD Program
• Alumni Events
• All Other Events
• Operations, Information & Technology
• Classical Liberalism
• The Eddie Lunch
• Accounting Summer Camp
• Videos, Code & Data
• California Econometrics Conference
• California Quantitative Marketing PhD Conference
• California School Conference
• China India Insights Conference
• Homo economicus, Evolving
• Political Economics (2023–24)
• Scaling Geologic Storage of CO2 (2023–24)
• A Resilient Pacific: Building Connections, Envisioning Solutions
• Adaptation and Innovation
• Changing Climate
• Civil Society
• Climate Impact Summit
• Climate Science
• Corporate Carbon Disclosures
• Earth’s Seafloor
• Environmental Justice
• Operations and Information Technology
• Organizations
• Sustainability Reporting and Control
• Taking the Pulse of the Planet
• Urban Infrastructure
• Watershed Restoration
• Junior Faculty Workshop on Financial Regulation and Banking
• Ken Singleton Celebration
• Marketing Camp
• Quantitative Marketing PhD Alumni Conference
• Presentations
• Theory and Inference in Accounting Research
• Stanford Closer Look Series
• Quick Guides
• Core Concepts
• Journal Articles
• Glossary of Terms
• Faculty & Staff
• Researchers & Students
• Research Approach
• Charitable Giving
• Financial Health
• Government Services
• Workers & Careers
• Short Course
• Adaptive & Iterative Experimentation
• Incentive Design
• Social Sciences & Behavioral Nudges
• Bandit Experiment Application
• Conferences & Events
• Get Involved
• Reading Materials
• Teaching & Curriculum
• Energy Entrepreneurship
• Faculty & Affiliates
• SOLE Report
• Responsible Supply Chains
• Current Study Usage
• Pre-Registration Information
• Participate in a Study

Zappos.com: Developing a Supply Chain to Deliver WOW!

Zappos was founded in 1999, during the Internet boom, to sell shoes online. The company’s founding premise was to provide the ultimate in selection to its customers—all brands, styles, sizes, and colors. Zappos organized all aspects of its business (including recruiting, culture, call center, inventory, website, and supply chain) to provide the best possible service—it wanted to “wow” everyone who interacted with the company, from customers to employees to corporate partners. Zappos grew rapidly, and by 2008 was profitable with net sales (after returns) of about $650 million. The company faced a number of issues as it looked forward. While it had penetrated only about 3 percent of the U.S. market for shoes, Zappos had expanded its product lines to items such as camping gear and video games. It needed to determine those elements of its strategy had contributed to its success in shoes, and whether it would be able to duplicate that success in other product lines. It also needed to determine how it could scale its business—much of the effort it had made to “wow” its customers was labor intensive and expensive—could this be scaled to a company with revenues of tens of billions? Finally, the economic landscape changed dramatically in late 2008, with the financial market collapse and recession. The service-intensive Zappos.com business was based on sales at little to no discount, unlike many websites that relied on selling at the lowest possible price. Would the company need to make changes to respond to the changed economic environment, and if so, what were those changes? The case provides an opportunity to evaluate the core competences of an Internet retailer that has experienced rapid, initial success. The case enables students to consider supply chain issues, which are critical to the company’s success, in the broader context of the business: the bases of Zappos’ success, its core competencies, culture, and competitive environment.

• Priorities for the GSB's Future
• See the Current DEI Report
• Supporting Data
• Research & Insights
• Share Your Thoughts
• Search Fund Primer
• Affiliated Faculty
• Faculty Advisors
• Louis W. Foster Resource Center
• Defining Social Innovation
• Impact Compass
• Global Health Innovation Insights
• Faculty Affiliates
• Student Awards & Certificates
• Changemakers
• Dean Jonathan Levin
• Dean Garth Saloner
• Dean Robert Joss
• Dean Michael Spence
• Dean Robert Jaedicke
• Dean Rene McPherson
• Dean Arjay Miller
• Dean Ernest Arbuckle
• Dean Jacob Hugh Jackson
• Dean Willard Hotchkiss
• Faculty in Memoriam
• Stanford GSB Firsts
• Certificate & Award Recipients
• Teaching Approach
• Analysis and Measurement of Impact
• The Corporate Entrepreneur: Startup in a Grown-Up Enterprise
• Data-Driven Impact
• Designing Experiments for Impact
• Digital Business Transformation
• The Founder’s Right Hand
• Marketing for Measurable Change
• Product Management
• Public Policy Lab: Financial Challenges Facing US Cities
• Public Policy Lab: Homelessness in California
• Lab Features
• Curricular Integration
• View From The Top
• Formation of New Ventures
• Managing Growing Enterprises
• Startup Garage
• Explore Beyond the Classroom
• Stanford Venture Studio
• Summer Program
• Workshops & Events
• The Five Lenses of Entrepreneurship
• Leadership Labs
• Executive Challenge
• Arbuckle Leadership Fellows Program
• Selection Process
• Training Schedule
• Time Commitment
• Learning Expectations
• Post-Training Opportunities
• Who Should Apply
• Introductory T-Groups
• Leadership for Society Program
• Certificate
• 2023 Awardees
• 2022 Awardees
• 2021 Awardees
• 2020 Awardees
• 2019 Awardees
• 2018 Awardees
• Social Management Immersion Fund
• Stanford Impact Founder Fellowships and Prizes
• Stanford Impact Leader Prizes
• Social Entrepreneurship
• Stanford GSB Impact Fund
• Economic Development
• Energy & Environment
• Stanford GSB Residences
• Environmental Leadership
• Stanford GSB Artwork
• A Closer Look
• California & the Bay Area
• Voices of Stanford GSB
• Business & Beneficial Technology
• Business & Sustainability
• Business & Free Markets
• Business, Government, and Society Forum
• Second Year
• Global Experiences
• JD/MBA Joint Degree
• MA Education/MBA Joint Degree
• MD/MBA Dual Degree
• MPP/MBA Joint Degree
• MS Computer Science/MBA Joint Degree
• MS Electrical Engineering/MBA Joint Degree
• MS Environment and Resources (E-IPER)/MBA Joint Degree
• Academic Calendar
• Clubs & Activities
• LGBTQ+ Students
• Military Veterans
• Minorities & People of Color
• Partners & Families
• Students with Disabilities
• Student Support
• Residential Life
• Student Voices
• MBA Alumni Voices
• A Week in the Life
• Career Support
• Employment Outcomes
• Cost of Attendance
• Knight-Hennessy Scholars Program
• Yellow Ribbon Program
• BOLD Fellows Fund
• Application Process
• Loan Forgiveness
• Contact the Financial Aid Office
• Evaluation Criteria
• GMAT & GRE
• English Language Proficiency
• Personal Information, Activities & Awards
• Professional Experience
• Letters of Recommendation
• Optional Short Answer Questions
• Application Fee
• Reapplication
• Deferred Enrollment
• Joint & Dual Degrees
• Entering Class Profile
• Event Schedule
• Ambassadors
• New & Noteworthy
• Ask a Question
• See Why Stanford MSx
• Is MSx Right for You?
• MSx Stories
• Leadership Development
• Career Advancement
• Career Change
• How You Will Learn
• Admission Events
• Personal Information
• Information for Recommenders
• GMAT, GRE & EA
• English Proficiency Tests
• After You’re Admitted
• Daycare, Schools & Camps
• U.S. Citizens and Permanent Residents
• Requirements
• Requirements: Behavioral
• Requirements: Quantitative
• Requirements: Macro
• Requirements: Micro
• Annual Evaluations
• Field Examination
• Research Activities
• Research Papers
• Dissertation
• Oral Examination
• Current Students
• Education & CV
• International Applicants
• Statement of Purpose
• Reapplicants
• Application Fee Waiver
• Deadline & Decisions
• Job Market Candidates
• Academic Placements
• Stay in Touch
• Faculty Mentors
• Current Fellows
• Standard Track
• Fellowship & Benefits
• Group Enrollment
• Program Formats
• Developing a Program
• Diversity & Inclusion
• Strategic Transformation
• Program Experience
• Contact Client Services
• Campus Experience
• Live Online Experience
• Silicon Valley & Bay Area
• Digital Credentials
• Faculty Spotlights
• Participant Spotlights
• Eligibility
• International Participants
• Stanford Ignite
• Frequently Asked Questions
• Founding Donors
• Location Information
• Participant Profile
• Network Membership
• Program Impact
• Collaborators
• Entrepreneur Profiles
• Company Spotlights
• Seed Transformation Network
• Responsibilities
• Current Coaches
• How to Apply
• Meet the Consultants
• Meet the Interns
• Intern Profiles
• Collaborate
• Research Library
• News & Insights
• Program Contacts
• Databases & Datasets
• Research Guides
• Consultations
• Research Workshops
• Career Research
• Research Data Services
• Course Reserves
• Course Research Guides
• Material Loan Periods
• Fines & Other Charges
• Document Delivery
• Interlibrary Loan
• Equipment Checkout
• Print & Scan
• MBA & MSx Students
• PhD Students
• Other Stanford Students
• Faculty Assistants
• Research Assistants
• Stanford GSB Alumni
• Telling Our Story
• Staff Directory
• Site Registration
• Alumni Directory
• Alumni Email
• Privacy Settings & My Profile
• Success Stories
• The Story of Circles
• Support Women’s Circles
• Stanford Women on Boards Initiative
• Alumnae Spotlights
• Insights & Research
• Industry & Professional
• Entrepreneurial Commitment Group
• Recent Alumni
• Half-Century Club
• Fall Reunions
• Spring Reunions
• MBA 25th Reunion
• Half-Century Club Reunion
• Faculty Lectures
• Ernest C. Arbuckle Award
• Alison Elliott Exceptional Achievement Award
• ENCORE Award
• Excellence in Leadership Award
• John W. Gardner Volunteer Leadership Award
• Robert K. Jaedicke Faculty Award
• Jack McDonald Military Service Appreciation Award
• Jerry I. Porras Latino Leadership Award
• Tapestry Award
• Student & Alumni Events
• Executive Recruiters
• Interviewing
• Land the Perfect Job with LinkedIn
• Negotiating
• Elevator Pitch
• Email Best Practices
• Resumes & Cover Letters
• Self-Assessment
• Whitney Birdwell Ball
• Margaret Brooks
• Bryn Panee Burkhart
• Margaret Chan
• Ricki Frankel
• Peter Gandolfo
• Cindy W. Greig
• Natalie Guillen
• Carly Janson
• Sloan Klein
• Sherri Appel Lassila
• Stuart Meyer
• Tanisha Parrish
• Virginia Roberson
• Philippe Taieb
• Michael Takagawa
• Terra Winston
• Johanna Wise
• Debbie Wolter
• Rebecca Zucker
• Complimentary Coaching
• Changing Careers
• Work-Life Integration
• Career Breaks
• Flexible Work
• Join a Board
• D&B Hoovers
• Data Axle (ReferenceUSA)
• EBSCO Business Source
• Global Newsstream
• Market Share Reporter
• ProQuest One Business
• Student Clubs
• Entrepreneurial Students
• Stanford GSB Trust
• Alumni Community
• How to Volunteer
• Springboard Sessions
• Consulting Projects
• 2020 – 2029
• 2010 – 2019
• 2000 – 2009
• 1990 – 1999
• 1980 – 1989
• 1970 – 1979
• 1960 – 1969
• 1950 – 1959
• 1940 – 1949
• Service Areas
• ACT History
• ACT Awards Celebration
• ACT Governance Structure
• Building Leadership for ACT
• Individual Leadership Positions
• Leadership Role Overview
• Purpose of the ACT Management Board
• Contact ACT
• Business & Nonprofit Communities
• Reunion Volunteers
• Ways to Give
• Fiscal Year Report
• Business School Fund Leadership Council
• Planned Giving Options
• Planned Giving Benefits
• Planned Gifts and Reunions
• Legacy Partners
• Giving News & Stories
• Giving Deadlines
• Development Staff
• Submit Class Notes
• Class Secretaries
• Board of Directors
• Health Care
• Sustainability
• Class Takeaways
• All Else Equal: Making Better Decisions
• If/Then: Business, Leadership, Society
• Grit & Growth
• Think Fast, Talk Smart
• Spring 2022
• Spring 2021
• Autumn 2020
• Summer 2020
• Winter 2020
• In the Media
• For Journalists
• DCI Fellows
• Other Auditors
• Academic Calendar & Deadlines
• Course Materials
• Entrepreneurial Resources
• Campus Drive Grove
• Campus Drive Lawn
• CEMEX Auditorium
• King Community Court
• Seawell Family Boardroom
• Stanford GSB Bowl
• Stanford Investors Common
• Town Square
• Vidalakis Courtyard
• Vidalakis Dining Hall
• Catering Services
• Policies & Guidelines
• Reservations
• Contact Faculty Recruiting
• Lecturer Positions
• Postdoctoral Positions
• Accommodations
• CMC-Managed Interviews
• Recruiter-Managed Interviews
• Virtual Interviews
• Campus & Virtual
• Search for Candidates
• Think Globally
• Recruiting Calendar
• Recruiting Policies
• Full-Time Employment
• Summer Employment
• Entrepreneurial Summer Program
• Global Management Immersion Experience
• Social-Purpose Summer Internships
• Process Overview
• Project Types
• Client Eligibility Criteria
• Client Screening
• ACT Leadership
• Social Innovation & Nonprofit Management Resources
• Develop Your Organization’s Talent
• Centers & Initiatives
• Student Fellowships

Technology and Operations Management

Mba student perspectives.

• Assignments
• Assignment: The TOM Challenge: TOM…

Zappos: Best in Class Customer Service

Zappos's operating model supports its mission to provide superior customer service.

Zappos is a company that has a strong alignment between its business and operating models. Zappos is an online shoe and clothing retailer that has over $2 billion in annual revenue. After reading Delivering Happiness by Zappos’s CEO, Tony Hsieh, it is clear to me that the decisions that Zappos makes about how it operates are in full support of the overall strategy of the firm.

Business Model

Zappos started off with a strategy of having the best online selection of shoes.  However, over time, Zappos’s strategy has changed, and it now strives to be the company with the best customer service.  This has allowed Zappos to solve the issue of customers not being able to try on products before buying products online, and Zappos has made the customer shopping experience easy and painless.  Zappos offers its customers many different features that have helped Zappos become best in class in customer service:

• Free Shipping – Customers are not charged for shipping when they buy or return a product.
• Excellent Call Center Service – Zappos’s customer service representatives are not compensated on their call volume or how quickly they complete calls. Instead, their goal is to create a personal emotional connection with the customers, and they take time to listen to the customers’ problems and give them recommendations.
• 365-Day Return Policy – Customers can order multiple shoes at a time and return the pairs of shoes that they do not want free of charge. Returns account for a third of the firm’s revenues.
• Special Moments – Customer service representatives do things like sending flowers to a customer because the customer had a death in the family.

While all of these features are additional costs, Zappos views these as expenses that the firm incurs in place of advertising and maintaining physical store locations.  Additionally, all of these build Zappos’s brand of superior customer service, and this drives additional sales volume.

Operating Model

Pathways to Just Digital Future

Zappos has set up its operations to fully support its strategy of being the company that provides the best customer service through a variety of ways:

• Supply Chain – Zappos has intentionally made the decision to insource all operations.  By doing this, Zappos is able to ensure the best customer experience.  Early on, when Zappos was unprofitable as a company, some of its only profitable items were items fulfilled with drop shipments (manufacturers shipping directly to customers).  However, these items usually had a lot of late shipments and unfulfilled orders, so Zappos made the decision to purchase inventory from the manufacturers.  They continued to outsource warehousing, but this again resulted in bad customer experiences with incorrect orders and late shipments.  Therefore, Zappos decided to operate its own warehouse because Zappos workers will ensure customers are satisfied with their experience.  Even within the warehouse, Zappos intentionally operates inefficiently in some areas so that it can provide better customers service.  Zappos’s warehouse workers will work orders immediately to get orders out to customers as soon as possible instead of letting orders pile up to increase pick density.  Additionally, they will work return shipments from customers and upgrade customers to overnight delivery, and the warehouse is open 24 hours a day, which is extremely costly.  Zappos will take on all of these additional expenses in order to improve customer satisfaction.
• Customer Loyalty Team – The call center (later named Customer Loyalty Team) is extremely important to Zappos’s business model because it directly works with customers. However, it was tough to find the right people to work in the call center out of their San Francisco location because of the cost of living.  Zappos again thought about outsourcing the call center or opening a second office.  Ultimately, Zappos decided that it needed to move its entire headquarters to Las Vegas because that is a city that would be a good fit for its call center.  Zappos did this because this move showed that customer service is a priority for the entire company, and it is not just a priority for one department.
• Culture – Zappos has core values that have shaped its culture.  Zappos believes that its culture allows the superior customer service to happen because happier workers will deliver superior service.  Zappos only hires people that it believes will fit in with the company, and culture is a part of yearly performance reviews and monthly surveys.  Additionally, all employees go through culture training in the first four weeks of working at Zappos.
• Holacracy – Zappos is at a point where it believes that it needs to innovate in order to continue to grow.  In order to do this, it is changing its internal operating model.  Now, when a problem arises, a new team is formed to develop a solution.  Once a problem has repeatedly come up, multiple different teams have developed solutions to this problem for different customers.  At this point,  executives analyze the different solutions to determine what makes the most sense from a customer experience and financial standpoint.  This is not the most efficient way to solve problems, but it should generate solutions that please customers.

Zappos’s business and operating models are closely aligned, and this has allowed Zappos to thrive.  From its warehouse to headquarter operations, everything that Zappos does is with the intention of providing the best possible customer service and improving customer satisfaction.

Hsieh, Tony. Delivering Happiness: A Path to Profits, Passion, and Purpose . New York: Business Plus, 2010. Print.

Hsieh, Tony. “How I Did It: Zappos’s CEO on Going to Extremes for Customers.” Harvard Business Review . 1 Aug. 2010. Web. 5 Dec. 2015. < https://hbr.org/2010/07/how-i-did-it-zapposs-ceo-on-going-to-extremes-for-customers >.

Richards, Dick. “At Zappos, Culture Pays.” Strategy + Business . 24 Aug. 2010. Web. 5 Dec. 2015. < http://www.strategy-business.com/article/10311?gko=c784e >.

Vazquez Sampere, Juan Pablo. “Zappos and the Connection Between Structure and Strategy.” Harvard Business Review.   3 June 2015. Web. 5 Dec. 2015. < https://hbr.org/2015/06/zappos-and-the-connection-between-structure-and-strategy >.

Zappos.com. 5 Dec 2015.

Student comments on Zappos: Best in Class Customer Service

Great summary Matt. Reading through several of these TOM Challenges I’ve seen a trend of quite a few companies differentiating themselves with great customer service. For Zappos I think it’s particularly important to continue this emphasis on customer service given such competitors as large as Amazon in the space. Aside from a profitability and logistics standpoint, I want to say it’s easy for any company to offer free shipping or free returns on orders – and many new clothing retail companies do that now. It’s a lot harder to offer the excellent customer service through call centers as you mentioned in the summary, let alone additional personal item recommendations. This involves people – which requires training and culture reinforcement. I think that’s where Zappos should continue to spend its time and energy. It could set it apart from competitors like Amazon who just won’t be able to offer the same personalized experience given the scale and breadth of different products it offers.

Great post, Matt, and great observation, Armand. I agree that, at first blush, it’s hard to imagine why Zappos would be able to compete against the likes of a behemoth like Amazon, which offers much the same type of service. And although competing on customer service is valuable, I wonder how many customers actually interact with an employee of Zappos (and thereby experience their superior customer service), versus just interacting with their website in a click-and-buy type scenario. If it is the case that most customers actually do not interact with Zappos employees in a typical transaction, then I think what Zappos is actually competing on first of all is their reputation as trusted curator of quality and fashionable shoes and clothing. This differs from Amazon, which is generally seen as simply playing a middle-man role in facilitating online shopping transactions. So the value added by Zappos is that they are offering a curated selection that enables customers to know that they’re buying a good product, because Zappos approves it. In my view, the operating model that Matt described serves both to offer great customer service but also to enable Zappos to inhabit that position of trusted curator.

Armand and Jeff – Both of you made very strong points. The one point that I wanted to address (only because Zappos’s CEO pointed it out specifically in his book) is the comment on how many consumers interact with an employee of Zappos. Tony Hsieh actually said that most customers will talk to a customer service representative at least once in their time of being a Zappos customer. Zappos’s philosophy on this is that this is an opportunity for the customer service representative to build the Zappos brand by providing exceptional customer service. Their philosophy is that if the customer service representative can create a personal emotional connection with the customer, than that person will be a customer for life.

Leave a comment Cancel reply

You must be logged in to post a comment.

• Work & Careers
• Life & Arts

Become an FT subscriber

Try unlimited access Only $1 for 4 weeks

Then $75 per month. Complete digital access to quality FT journalism on any device. Cancel anytime during your trial.

• Global news & analysis
• Expert opinion
• Special features
• FirstFT newsletter
• Videos & Podcasts
• Android & iOS app
• FT Edit app
• 10 gift articles per month

Explore more offers.

Standard digital.

• FT Digital Edition

Premium Digital

Print + premium digital, weekend print + standard digital, weekend print + premium digital.

Essential digital access to quality FT journalism on any device. Pay a year upfront and save 20%.

• Global news & analysis
• Exclusive FT analysis
• FT App on Android & iOS
• FirstFT: the day's biggest stories
• 20+ curated newsletters
• Follow topics & set alerts with myFT
• FT Videos & Podcasts
• 20 monthly gift articles to share
• Lex: FT's flagship investment column
• 15+ Premium newsletters by leading experts
• FT Digital Edition: our digitised print edition
• Weekday Print Edition
• Videos & Podcasts
• Premium newsletters
• 10 additional gift articles per month
• FT Weekend Print delivery
• Everything in Standard Digital
• Everything in Premium Digital

Complete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.

• 10 monthly gift articles to share
• Everything in Print

Terms & Conditions apply

Explore our full range of subscriptions.

Why the ft.

See why over a million readers pay to read the Financial Times.

International Edition

Building High Performance Culture: Zappos Case Study

The primary product Zappos offers is footwear although the company is constantly increasing its range of products (see figure 1). The peripheral goods and services are not essential, but they enhance the primary product and add value (Collier & Evans, 2016). Zappos provides such peripheral goods as handbags, accessories, jewelry, watches, and clothing. These items are not essential when marketing footwear, but people often try to buy things that match.

Therefore, when a customer buys the shoes of their dream, they want something nice to wear and enhance their appearance. The seller’s peripheral services include call center services, size conversion charts, and Spanish-speaking representatives. Many online retailers offer such services, which adds value and makes customers’ buying experience more enjoyable.

Free shipping can be regarded as both a common peripheral service and a variant. Variants are products or services that are unique and differentiate a company from its competitors (Collier & Evans, 2016). Zappos revolutionized e-commerce in a way since it was the first seller to offer free shipping in both ways, but, now, many online retailers provide such a service. Enhanced tracking features and Zappos Adaptive are also variants that make the organization well-recognized.

However, creative telemarketers are the primary competitive advantage of the company and one of its most valued variants. Zappos employees are encouraged to “wow” customers and are empowered to make decisions (Collier & Evans, 2016, p. 25). Although the company sells goods produced by other manufacturers, Zappos is completely responsible for their quality.

Primary management processes at Zappos involve the delivery of goods, filling orders, and the provision of support through call centers. Therefore, to execute an order, Zappos employees manage these primary processes. The company is famous for its exclusive service and creative approach to developing relationships with customers. Nevertheless, the effective implementation of these functions can hardly be achieved without support management processes that include purchasing goods from manufacturers, managing inventory and warehouses, and acquiring technology.

Zappos has one of the most efficient information systems that ensure proper data flow and management. Customers can track their orders and even learn about the availability of the items they want (Collier & Evans, 2016). Employees receive updates, reports, as well as reminders, that enable them to manage orders properly. Central general management processes necessary to execute an order at Zappos are information systems and human resources. Human resources management is one of the most remarkable aspects of the organization that pays substantial attention to the empowerment of its employees (Warrick, Milliman, & Ferguson, 2016). Employees are encouraged and trained to be creative when dealing with clients. They do not have protocols or fixed call durations, so they are free to ‘wow’ potential or existing clients.

Operations managers (OM) perform a set of activities that have an influence on the way companies sell their products and services. As far as Zappos is concerned, one of the key OM activities is service encounter design. At Zappos, services are the primary competitive advantage so critical attention is paid to this area. Employees are trained and encouraged to use creative methods to satisfy their customers’ needs. This strategy has proved to be effective as the vast majority of the clients are returning.

Technology selection is another vital OM activity that ensured the company’s popularity among online shoppers. As mentioned above, Zappos has sophisticated software that enables employees to perform their tasks quickly and effectively. Clients also benefit from the use of this system as they can seek for specific items and filter their searches. They can also identify the number of products available, which is an important feature that enhances their purchasing experience.

Finally, facility layout and design activity are often underestimated. At Zappos, the working environment is favorable since employees have comfortable working places that can be decorated to their taste. The balance of effective design and technology (proper devices, desks, chairs) and personal tough (pictures or anything employees might find relevant) is what makes Zappos one of the best companies to work for. These three activities contribute to the development of competitive advantage and excellent performance.

The case of Zappos is illustrative in terms of the difference between service-providing and goods-producing. First, Zappos offers tangible goods, but they do not manufacture anything. The company’s employees help customers to buy the items they want, and this support is hardly tangible. In contrast to goods-producing, customers play an active role in the delivery of services. Zappos’s clients call, ask for discounts, or articulate their needs that can be quite unconventional. The telemarketers of the organization under consideration make sure to address all those needs making their customers co-creators of services. At Zappos, forecasting is not one of the central activities as it is difficult or even impossible to predict the demand for services. The company reacts to the inquiries that appear each day.

While products can be stored and managed easily, services cannot be regarded as an element of inventory. When it comes to Zappos, the services they provide vary from customer to customer. Another difference between products and services is related to service management skills that are essential for the competitiveness of a service-providing company. Retailers’ representatives at Zappos always have extensive data concerning the available goods or services. One more difference is associated with price as it is often difficult to evaluate services especially if they are as unique as Zappos’s services. Finally, time is linked to the differences as well since services are expected to be provided almost immediately while customers understand that time is necessary to produce a thing.

Collier, D. A., & Evans, J. R. (2016). OM (6th ed.). Boston, MA: Cengage Learning.

Warrick, D. D., Milliman, J. F., & Ferguson, J. M. (2016). Lessons learned from Zappos on what it takes to build high performance cultures. Organizational Dynamics, 45( 1), 64-70. Web.

• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2023, December 19). Building High Performance Culture: Zappos. https://ivypanda.com/essays/zappos-case-study-project/

"Building High Performance Culture: Zappos." IvyPanda , 19 Dec. 2023, ivypanda.com/essays/zappos-case-study-project/.

IvyPanda . (2023) 'Building High Performance Culture: Zappos'. 19 December.

IvyPanda . 2023. "Building High Performance Culture: Zappos." December 19, 2023. https://ivypanda.com/essays/zappos-case-study-project/.

1. IvyPanda . "Building High Performance Culture: Zappos." December 19, 2023. https://ivypanda.com/essays/zappos-case-study-project/.

Bibliography

IvyPanda . "Building High Performance Culture: Zappos." December 19, 2023. https://ivypanda.com/essays/zappos-case-study-project/.

• The Aspects of the Zappos' Company Success
• The Zappos Company's Business Plan
• Zappos Company Culture Analysis
• Resolving the Supplier Issue: Nissan Motor Co.
• Dyson Company's Strategy in Context
• The Toshiba Accounting Scandal
• Supply Chain for Dough Pizza
• Amazon: The Champion of Customer-Delivered Value

How Zappos Customer Service WOWs Customers to Win

Zappos is a trailblazer. They don’t follow conventional thinking when it comes to building a business. They don’t hire like normal brands, they don’t treat culture the same as most brands, and they go about delivering profits differently than most. They’ve done a lot of revolutionary things that customers love and achieved the feat of outdoing Amazon in terms of being the most customer-centric online company.

So what’s the story behind their rise to become the most loved e-commerce brand on the planet and what’s their secret to delivering a brand powered by customer experience?

“If it’s something that creates a great customer experience, choose to do it, because we believe that in the long run, little things keep the customer in mind will end up paying short dividends” - Tony Hsieh - CEO @ Zappos

Meet Zappos

Zappos has built a brand powered by customer experience. Back in 1999, Tony Hsieh and a small team of internet entrepreneurs had the vision to deliver happiness to customers and provide the very best customer service.

It may be hard to believe that an upstart company purchasing shoes from brick and mortar stores, and then turning around to sell them online, has become a mainstay in online retail. But that’s exactly what Zappos has done.

Today they are worth billions of dollars, and have become one of the most recognizable brands in the world.

By 2009 Zappos had grown revenue to over $1 billion in gross merchandise sales. Jeff Bezos and Amazon were such big admirers of their culture, operating model and dedication to customer experience, they acquired the business for $1.2bn. What’s even more unique is that Amazon let Zappos operate under their own brand, keep the same management team, and retain its staff.

But it hasn’t always been plain sailing for Zappos.

In the early stages of the company's history, as Zappos was growing, it was haemorrhaging money. Tony Hsieh ended up one by one selling off all of his apartments to fund the growth of Zappos. All this was happening at a bad time. The year was 2000, and it was pretty much impossible for Zappos to raise any money from VCs.

The dot com bubble had just popped and even if someone wanted to raise money as an internet company. The last thing anyone wanted to do was to invest in an online shoe company. Who would want to buy shoes online people thought?

Zappos was burning cash and running out of money, and they quickly needed to turn round their fortunes and find a way to get to profitability fast. By 2002, Zappos was running out of runway. Zappos had to worry about short profitability and long term growth. Tony Hsieh decided they needed a bigger purpose than just making money.

In a conversation with Zappos Executive, Fred Mossler, Tony was brainstorming ideas about the company’s mission and purpose.

“We had a customer email us the other day. He ordered a pair of shoes that we had in our warehouse, and we surprised him with a shipping upgrade, so he got his order in two days instead of our original promise of a week. He said he loved our customer service and would tell his family and friends about us. He even said we should one day start Zappos Airlines.”

It was later decided that the Zappos brand should be about the very best customer service. Contrary to most brands, it wasn’t all talk. For the next decade, they lived and breathed customer experience.

So how did they become the most customer-obsessed brand in the world? Surprisingly, it had nothing to do with shoes.

Why is Zappos Customer Service So Good?Culture

“We focus on making sure we have a great service-focused culture. If you get the culture right, then a lot of really amazing things happen on their own.” - Tony Hsieh, CEO @ Zappos

Today Zappos is world renowned for its culture. It’s known for being a little bit weird and they are always looking for ways to improve company culture, no matter how unconventional or counterintuitive the approach may be.

Zappos offers tours of their headquarters in Las Vegas to the general public. People who study company culture come from all over the world to visit the Zappos offices to see how the company operates.

To provide the best customer service, Tony Hsieh knew the culture was paramount to success. Each Zappos employee needed to understand that customer experience is a priority for the whole company, not just a department.

Before Zappos, Tony Hsieh learnt a hard lesson. At his first company he sold he began to hate the culture and didn’t want to get out of bed. After 2.5 years he sold Link Exchange sold to Microsoft in 1998 for 268 million dollars. What a lot of people don’t know is that the real reason Tony and his founder ended up selling the company was because company culture had completely gone downhill.

To maintain focus on the customer, they laid a few initiatives to ensure customer service was central to what they did as they scaled.

1. Culture Book

Zappos releases a culture book every year. A culture book is a powerful way to focus the company on the core values. The original idea for the book was simple. They would ask each employee to write in a few paragraphs, the answer to the question: What does Zappos culture mean to you? Craziest part is that they would leave it completely unedited.

It acts as a medium for the employees to freely express themselves, and a way everyone can get a pulse of where the company’s culture and core values stand. Above all, because the company believes culture is an essential part of the business, it has become the brand book.

Check it out here .

2. 10 Core Values:

Tony reached out to all Zappos employees, asking for their input on core values. Thirty-seven beliefs were refined, and on February 14, 2006, Zappos’ 10 core values were born.

• Deliver WOW Through Service
• Embrace and Drive Change
• Create Fun and a Little Weirdness
• Be Adventurous, Creative, and Open Minded
• Pursue Growth and Learning
• Build Open and Honest Relationships with Communication
• Build a Positive Team and Family Spirit
• Do More with Less
• Be Passionate and Determined

Those values are set up to reflect everything Zappos does, including how they interact with customers, how they interact with each other, how they interact with vendors and business partners.

3. Dual Interview

At Zappos, they believe if you get culture right, most of the things - like great customer service, or building a great brand will happen naturally on its own. So how do you maintain the culture that you want as you grow? It starts with a great hiring process.

Zappos provides potential employees with two sets of interviews. The first interview is looking for technical ability and relevant experience, etc. But that’s followed by a second interview based purely on cultural fit. Candidates have to pass both sets of meetings to be hired.

“We’ve actually said no to a lot of very talented people that we know can make an immediate impact on our top or bottom line. But because we felt they weren’t a culture fit, we were willing to sacrifice the short term benefits to protect our culture (and therefore our brand) for the long term.” - Tony Hsieh, CEO @ Zappos

4. New Hire Bootcamp

Zappos designed a 4 week program, in which they go over company history, the importance of customer service, the long term vision of the company. They’re even on the phone for two weeks in the call centre, taking calls from customers. Keeping very much in tune with the belief that customer service shouldn’t just be about the department, it should be the entire company.

But what’s even more unique about the training course is that after the first week they make an offer to the class. Not an offer to skip the course, or take some additional holiday. They offer everyone $2,000 to quit. Yes you read that correctly.

“We make sure that employees are here for more than just a paycheck. We want employees that believe in our long term vision, and want to be part of our culture. As it turns out, on average, less than 1% of people end up taking the offer.” - Tony Hseih, CEO @ Zappos

Zappos Customer Service: Strategy & Tactics

Zappos strategy comes down to staying true to one key principle. To live and deliver WOW. Company-wide, it is a daily quest for every employee to “WOW” customers in new and wonderful ways.

“To WOW, you must differentiate yourself, which means do something a little unconventional and innovative. You must do something that’s above and beyond what’s expected. And whatever you do must have an emotional impact on the receiver. We are not an average company, our service is not average, and we don't want our people to be average. We expect every employee to deliver WOW.” - Tony Hsieh, CEO @ Zappos

Free Shipping & Returns

In a world where most consumer products spend most of their marketing on paid advertising, Zappos does the complete opposite. All the profits they make they reinvest back into the customer experience. Where most companies see expenses and costs, Zappos see’s opportunities.

For example, Zappos offers free shipping both ways to make transaction as easy as possible and risk free for customers.

“A lot of customers will order five different pairs of shoes, try them on with five different outfits in the comfort of their living rooms, and then send back the ones that don’t fit or they simply don’t like - free of charge. The additional shipping costs are expensive for us, but really we view those costs as a marketing expense.” - Tony Hsieh, CEO @ Zappos

Generous return policies

Generous may be an understatement. Zappos offer a 365-day return policy for people who have trouble committing or making up their minds. Now you don’t have to put those $90 Nikes on Craigslist.

Easy-to-find contact info

Zappos doesn’t make it hard for customers to get in contact. A lot of websites bury customer service numbers five links deep, and even when you find it, it’s a form or e-mail address that you can only contact once.

Zappos takes a completely different approach. They put the contact information at the top of every single page of their website, because they actually want to talk to customers. And they staff their contact centre 24/7.

“As unsexy and low tech as it may sound, our belief is that the telephone is one of the best branding devices out there. You have the customers undivided attention for five to ten minutes, and if you get the interaction right, what we’ve found is that the customer remembers the experience for a very long time and tells his or her friends about it. Too many companies think of their call centers as an expense to minimise.” - Tony Hsieh, CEO @ Zappos

Unlimited Call Times

At Zappos, they don't measure call time, they’re longest call was almost six hours long! They don’t use scripts because they trust employees to use their best judgement when dealing with each and every customer.

“We want our reps to let their true personalities shine during each phone call so they can develop a personal emotional connection with the customer.” - Tony Hsieh, CEO @ Zappos

24/7 Warehouse

Running a warehouse 24/7 isn’t a cost effective strategy when it comes to running a delivery business. They try to maximise for customer experience, which means getting orders out to their customers as quickly as possible. They also have their warehouse conveniently located just 15 minutes away from the UPS Worldport hub. Which means they can get orders out to customers in super quick time.

“A lot of customers order as late as midnight EST, and are surprised when their orders show up on their doorstep eight hours later. This creates a WOW experience, which customers remember for a very long time and tell their friends and family about.” - Tony Hsieh, CEO @ Zappos

3 Ways Zappos is at the Technological Forefront

What differentiates Zappos from traditional brick-and-mortar business, and even most of its online competitors, is the technological innovation culture that Zappos fosters internally. Since its founding in 1999, Zappos has leveraged cutting-edge technology, social media presence, and excellent customer service practices to sell its products in a way that follows the ever-changing lifestyles of its consumers.

A clear manifestation of the company’s vision is its philosophy around technology.

The pillars of technology that have helped Zappos blitzscale growth are advanced supply chain management, their social media strategy and the use of Chattermill’s customer insights.

1. Supply Chain Management:

Zappos supply chain infrastructure is a secret weapon that gives the brand an edge.

24/7 operating warehouses, equipped with the most advanced systems and robotics infrastructure ensure speed, organization and overall efficiency.

This capital intensive initiative is a testament to Zappos’ culture-centred culture. The company understands how much speed and accuracy matter for customers, and are prepared to invest dearly to ensure that the customer experience is improved every day.

Very few companies are able to stick to this long-term vision. But Zappos is different. They had the foresight to invest in what was at the forefront, for the long-term; something we can all learn from and apply in our own organizations!

2. Social Media Strategy

The Zappos leadership team has been contrarian since the beginning and have pioneered the use of social media to gather customer feedback, at a time when most other companies weren't doing that.

When other companies were using Facebook, Twitter, and YouTube for promotion, Zappos was using these social media platforms to gather comments from customers and employees and do “word-of-mouth” marketing.

Zappos employees were always encouraged to participate on social media platforms to share their experiences about working at the company and their experiences with customers. These personal posts served to spread the culture and mission, and was able to magnify the customer-centric philosophy that governed not only Zappos’ strategy, but the entire company’s purpose.

3. Chattermill’s Platform

The new hidden asset of Zappos is Chattermill’s platform.

Like all exceptional companies know that you can’t build great products without genuinely understanding the voice of the customer. It’s vital you have the technology and text analytics systems capable of analysing customer feedback at scale.

AI-powered text analytics has allowed Zappos to better understand the customer experience from start to finish. Chattermill’s technology ensures that no piece of feedback remains unseen and unheard.

Thanks to our AI-backed sentiment tracker, Zappos is able to pinpoint the parts of the customer journey that users take issue with and uncover hidden insights. These insights can be used by the entire team to allocate resources more efficiently and hone in on the priorities behind logistical, product, and marketing strategies which drive the company’s value generation.

That’s how Zappos sustains and widens their competitive advantages. Try a limited version of our AI powered insight tagger for yourself below!

How Zappos Went From Good to Great

The benefit of customer-centricity is that it creates a flywheel. A concept coined by the business strategy guru, Jim Collins, Zappos’s exceptional service would translate into lots of repeat customers, which in turn, would require less marketing expenses for future customer acquisitions, leading to increase in long-term profits, and thus, exponential growth.

The cycle feeds itself - like a snowball that grows bigger and bigger. With markets being efficient, this value did not go unnoticed for long.

In 2009, Amazon bought Zappos for $1.2B.

However, Zappos sale came at a time of dire straits. In Tony’s words:

“At the time, Zappos relied on a revolving line of credit of $100 million to buy inventory. But our lending agreements required us to hit projected revenue and profitability targets each month. If we missed our numbers even by a small amount, the banks had the right to walk away from the loans, creating a possible cash-flow crisis that might theoretically bankrupt us. In early 2009, there weren't a lot of banks eager to give out $100 million to a business in our situation.”

Out of that stressful situation came a silver lining. They found a true, congruent partner that would not only safeguard the business, but exponentially increase its value.

This whole transaction set precedent of what a ‘smart’ acquisition is for the rest of the market.

In his letter, the CEO summed up his thoughts:

We are excited about doing this for 3 main reasons:

• We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster.
• Amazon supports us in continuing to grow our vision as an independent entity, under the Zappos brand and with our unique culture.
• We want to align ourselves with a shareholder and partner that thinks really long term (like we do at Zappos), as well as do what’s in the best interest of our existing shareholders and investors.

In hindsight, it’s logical to assume that Amazon bought Zappos customer-centricity flywheel, which displayed the company’s growth potential and its legendary customer service culture, all built by Zappos exceptional talent base.

Intelligently, and in the interest of keeping their customers happy, Zappos made sure that the deal remained governed by a contract that formally recognized the uniqueness of Zappos’s culture and Amazon’s duty to protect it.

“We think of Amazon as a giant consulting company that we can hire if we want—for instance, if we need help redesigning our warehouse systems.” - Tony Hsieh

P.S - We'll be publishing a bi-weekly column here on Chattermill.com presenting a brief CX analysis of thought-provoking companies and events in tech.

Our hope is that this is something fun and interesting that you can read while on your commute or in between heavy lifting at work.

If you enjoyed the blog why don't you check out our previous company profile on Zoom .

We welcome your comments on the format at [email protected] or message us on LinkedIn .

Related Articles

What to do if you are number 2 in the market

We look at what to do if you are the number 2 brand in the market...and provide a word of caution to market leaders.

Available Now: CX Intelligence Academy from Chattermill

We’re launching a brand new set of resources built to help you prove the value of CX, and become a better, more data-driven CX expert.

Want AI to make your breakfast for you?

AI can do everything, right? In this post, we explore how even the most sophisticated technology alone, won't solve everything - especially the challenges faced by CX and customer insights professionals.

See Chattermill in action

Understand the voice of your customers in realtime with Customer Feedback Analytics from Chattermill.