Case Study 4: Zappos
Tony Hsieh’s first entrepreneurial effort began at the age of 12when he started his own custom button business. Realizing theimportance of advertising, Hsieh began marketing his business toother kids through directories, and soon his profits soared to afew hundred dollars a month. Throughout his adolescence, Hsiehstarted several businesses, and by the time he was in college hewas making money selling pizzas out of his Harvard dorm room.Another entrepreneurial student, Alfred Lin,bought pizzas fromHsieh and resold them by the slice, making a nice profit. Hsieh andLin quickly became friends. After Harvard, Hsieh founded LinkExchange in 1996, a company that helped small businesses exchangebanner ads. A mere two years later, Hsieh sold Link Exchange toMicrosoft for $265 million. Using the profits from the sale, Hsiehand Lin formed a venture capital company that invested in start-upbusinesses. One investment that caught their attention was Zappos,an online retailer of shoes. Both entrepreneurs viewed the $40billion shoe market as an opportunity they could not miss, and in2000 Hsieh took over as Zappos’ CEO with Lin as his chief financialofficer.
Today, Zappos is leading its market and offering an enormousselection of more than 90,000 styles of handbags, clothing, andaccessories for more than 500 brands. One reason for Zappos’incredible success was Hsieh’s decision to use the advertising andmarketing budget for customer service, a tactic that would not haveworked before the Internet. Zappos’ passionate customer servicestrategy encourages customers to order as many sizes and styles ofproducts as they want, ships them for free, and offers free returnshipping. Zappos encourages customer communication, and its callcenter receives more than 5,000 calls a day with the longest callto date lasting more than four hours. Zappos’ extensive inventoryis stored in a warehouse in Kentucky right next to a UPS shippingcenter. Only available stock is listed on the website, and ordersas late as 11 p.m. are still guaranteed next-day delivery. Tofacilitate supplier and partner relationships, Zappos built anextranet that provides its vendors with all kinds of productinformation, such as items sold, times sold, price, customer, andso on. Armed with these kinds of details, suppliers can quicklychange manufacturing schedules to meet demand.
Zappos Culture
Along with valuing its partners and suppliers, Zappos also places agreat deal of value on its employee relationships. Zappos employeeshave fun, and walking through the offices you will see all kinds ofthings not normally seen in business environments—bottle-cappyramids, cotton-candy machines, and bouncing balls. Building loyalemployee relationships is a critical success factor at Zappos, andto facilitate this relationship the corporate headquarters arelocated in the same building as the call center (where mostemployees work) in Las Vegas. All employees receive 100 percentcompany-paid health insurance along with a daily free lunch.
Of course, the Zappos culture does not work for everyone, and thecompany pays to find the right employees through “The Offer,†whichextends to new employees the option of quitting and receivingpayment for time worked plus an additional $1,000 bonus. Why the$1,000 bonus for quitting? Zappos management believes that is asmall price to pay to find those employees who do not have thesense of commitment Zappos requires. Less than 10 percent of newhires take The Offer.
Zappos’ unique culture stresses thefollowing:
1. Delivering WOW through service
2. Embracing and driving change
3. Creating fun and a little weirdness
4. Being adventurous, creative, and open-minded
5. Pursuing growth and learning
6. Building open and honest relationships with communication
7. Building a positive team and family spirit
8. Doing more with less
9. Being passionate and determined
10. Being humble
Zappos’ Sale to Amazon
Amazon.com purchased Zappos for $880 million. Zappos employeesshared $40 million in cash and stock, and the Zappos managementteam remained in place. Having access to Amazon’s world-classwarehouses and supply chain is sure to catapult Zappos’ revenues,though many wonder whether the Zappos culture will remain. It’ll beinteresting to watch!19
Case Study 4: Zappos
1)Define SCM and how it can benefit Zappos.(1 Mark)
2)Explain CRM and why Zappos would benefit fromthe implementation of a CRM system.   (1Mark)
3)Demonstrate why Zappos would need toimplement SCM, CRM, and ERP for a connected corporation. (1Mark)
4)Analyze the merger between Zappos and Amazonand assess potential issues for Zappos customers. (1Mark)
5)Propose a plan for how Zappos can useAmazon’s supply chain to increase sales and customer satisfaction.(1 Mark)
