ABSTRACT

Zappos is an online retail store with a

unique corporate structure and
customer-focused marketing strategy.
This case analyzes the ways in which
this strategy has worked in regards to
the success of Zappos and how

ZAPPOS:
Zappos can continue to attract
potential customers while maintaining
long term customer relationships.

DELIVERING
Raechel Brand

HAPPINESS
 I. EXECUTIVE SUMMARY
Zappos is an online retail store with a unique corporate structure and customer-
focused marketing strategy. This case analyzes the ways in which this strategy has
worked in regards to the success of Zappos and how Zappos can continue to attract
potential customers while maintaining long term customer relationships.

II. SITUATION ANALYSIS

A. Internal Environment
Zappos has a strong corporate image that focuses on their ten core values:
 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.
 Be humble.
These core values make Zappos stand out as a company that cares about the well-
being of its customers and employees. They strive to provide the best customer
service experience and ensure that the customer has an enjoyable experience when
they shop at Zappos.
Zappos uses word of mouth advertising primarily, recognizing that if customers are
satisfied they will recommend to others. As such, their business model is customer
focused and is built around developing long term relationships with customers.
However, this also means that Zappos is not reaching their profit capabilities. The
generous shipping and returns policies mean that customers are satisfied and likely
to return to shop again (in fact, 75% of purchases are made by repeat customers),
however Zappos loses some profit in the process.
Zappos strives to make the corporate culture enriching for employees, paying 100%
of employee medical benefits and on average 85% for employee dependents. The
culture is one of learning and striving to develop professionally. Employees must
attend 200 hours of training sessions and must read nine business books a year.
Employees are encouraged to socialize at work and outside of work which serves to
build friendships and enhances communication and team building. There are many
morale-boosting activities at Zappos such as ‘ugly sweater day’ or office parades.

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Zappos promotes the importance of their unique culture by having employees
compile an annual ‘culture book’ that features essays on Zappos culture and reviews.
Employees that fail to fit into this laid back culture are fired.
B. The Customer Environment
The target customer for Zappos is 25-49 years old, female, with a median income of
$75,000 or more. This customer is likely to be educated, married, and a parent. She
is referred to by the company as the ‘happy hunter’.
This is a very broad demographic and Zappos recognizes that it needs to pinpoint
additional sub-segments in order to develop a more thorough marketing strategy.
Because most of Zappos’ business comes from shoes, the majority of customers are
ordering shoes. Customers are encouraged to purchase additional shoes citing the
free ship-back return policy. In fact, the industry standard for return rates is 35% but
Zappos has quite a large return rate of 50%. This policy may seem counter-intuitive
to running a successful business, Zappos considers the satisfaction of the customer
top priority and acknowledging they could not have become the successful business
they are today without their loyal customers.
Zappos does not have a brick-and-mortar store and their business is conducted
online only. This eliminates the problem of limited sizes and inventory that make
shopping for shoes in person frustrating. The Zappos website allows the customer to
quickly find exactly what they are looking for and even to order a few pairs of shoes
in different styles or sizes and ship back any shoes they find unsatisfying.
Part of what makes Zappos so convenient is their excellent shipping times. Their
warehouses are always operating so that the items get to the customers faster. There
have even been instances where Zappos has hand delivered items to customers, as
was the case with a groom who needed shoes for his wedding.
There are, however, potential deterrents of shopping with Zappos. They are not the
cheapest option, which they acknowledge. Zappos CEO, Tony Hsieh believes that
the customer service adds enough value that customers won’t mind paying a little
more.

C. The External Environment

The major competitor for Zappos is Virgin Group Limited, a UK based conglomerate.
Zappos strives to drive inspiration from this company, appreciating their successful
business model.
Another major competitor is J.C. Penney. J.C. Penney sells many shoes, handbags,
and accessories online and while Zappos is still the number one online seller of
shoes, J.C. Penney is right behind them.

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ShoeBuy.com is another major competitor offering more than 800,000 footwear
products from thousands of brands. This company also operates the websites
BagsBuy.com and a sister site ProductExpress.com.
Many of these competitors offer similar perks however, online reviews show that
Zappos is still ahead of them all with excellent customer service.
The economy has affected the success of Zappos as well; due to the recession the
company found itself in the position of needing to lay off 8% of its employees.
However, when this happened they were completely transparent about the reasons
why and offered the laid-off employees generous severance packages.
Shortly after this, Zappos was acquired by Amazon, which has allowed Zappos to
retain its unique corporate culture and operate independently.
The economy of online retailers is one of the fastest growing sales channels in the US
and for the past decade has grown at an exceptional rate and out performs most
brick and mortar stores. It is expected that within the next five years, online retail
sales will increase at an average annual rate of 9.4%.
Politically, consumers have recently become wary of large corporations, fearing that
large corporations may not have their best interests at heart. When Zappos was
acquired by Amazon, there was a lot of concern that was voiced by both employees
and consumers.
Additionally, with the rise of cyber-crimes and hacking, online retailers are at a
higher risk of security breaches. This is exactly what happened to Zappos in 2012,
damaging customer service relationships that had taken over a decade to cultivate.
Moving forward, this is a huge concern for companies and security should be a top
priority for any web-based business.
Zappos target market is ideal in that they have disposable income and prefer online
shopping. However, this same broad target market enjoys buying other things
besides shoes and accessories. Home goods is a growing market that is this
demographic in particular participates in. Additionally, many in this market are
parents and expanding items to home goods and child specific items is a great way
to keep this target market engaged with Zappos.

III. SWOT ANALYSIS

A. Strengths
Excellent customer service is Zappos’ most obvious strength. Through their
dedication to providing the best experience possible for their customers, Zappos
has built up a favorable reputation as one of the best online retailers. Customer
service is the value-add that keeps customers returning and justifies the prices on
their website.

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Additional strengths include having a strong brand identity, the backing of Amazon,
and the unique corporate culture which contributes to their favorable brand identity
and reputation for customer service.
Zappos has also recently began focusing on environmental issues, showing that it is
an ethical and environmentally conscious company. This is something that
consumers are looking for when choosing a brand.
B. Weaknesses
The strengths that contribute to Zappos success also contribute to its weaknesses,
which include low profit margins. Zappos could be making much more profit but it
would have to compromise some of its core values. However, this weakness can be
overcome in other ways.
Another major weakness is advertising. Zappos traditionally does not do much
advertising, choosing instead to rely on word of mouth and social media. However,
when launching their ‘more than shoes’ campaign, the advertising they did do fell
flat. Many were displeased with the provocative nature of the advertisements which
featured implied nudity. Zappos should focus on creating ads that will speak to their
target market, not alienate them.
Having lax security was a huge blow to Zappos’ reputation. Security is a major issue
with online shopping that most consumers are very sensitive to. The ramifications of
having sensitive customer data stolen is devastating. Zappos should spend a
significant amount of resources improving their online security.
C. Opportunities
Expanding product lines is a great opportunity for Zappos. They have worked to
expand to product lines such as home goods and accessories, however shoe sales
still generate about 80% of their total sales. Focusing on expanding these product
lines will generate more revenue as people tend to buy home good items more often
than shoes.
Zappos is currently US focused. Allowing for international delivery could prove to be
a beneficial opportunity.
Zappos has a large online following as they are very transparent and open with their
customers, responding to customer concerns and even ordering pizza for customers
that tweet that they are hungry. Promoting more customer involvement through
crowd-sourcing is a wonderful opportunity to encourage customers to become more
invested in the company. It is an opportunity for Zappos to repair some of the
damage done with the poorly-received advertisements of its past and contribute to
future successful advertisement.

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 D. Threats
Competition is a threat to the continued success of Zappos. Other companies are
starting to see the benefit of a customer service oriented business model and putting
more focus on value-added benefits. Without doing more to set itself apart, these
competitors could drastically impact Zappos.
The aforementioned rise in cyber-crimes is another threat that Zappos should be
particularly sensitive to. Taking preventative measures and making security a top
priority should be a major and continuing concern for Zappos.

IV. MARKETING GOALS AND OBJECTIVES

Moving forward, Zappos should continue to expand its advertising efforts while
focusing on the value added benefits offered. The company should concentrate on
expanding product lines and promoting more customer involvement.
Producing a memorable advertisement that is still family friendly is possible and
Zappos should strive to do just that. A great way to gain insight into the needs and
desires of their target market is to ask for their input and what they find appealing in
a commercial. Starting an interactive campaign that involves the customer is a great
way to get people invested and excited.
Promoting all the benefits of Zappos should be the priority. They have a fantastic
reputation for good customer service, but if you’re not familiar with the brand you
may not know their reputation. Therefore highlighting these benefits can bring new
customers to the website. This can also tie into crowdsourcing advertisements.
Asking customers to record videos of their best customer service experiences, for
example, and promoting a large online campaign and a smaller-scale TV advertising
campaign could be a great way to achieve this.
Zappos should also look into the benefits of international shipping. To keep the same
value-added benefits it may not be feasible right away, but with increased
advertising and therefore, increased revenue it may be a good long-term objective.

V. MARKETING STRATEGY
The primary market for Zappos is married women who are parents, educated, with a
median household income of $75,000+. This demographic cares about saving money
or finding good deals, prefers the convenience of online shopping, and has a higher
interest in home good items.
Heavily promoting other product lines to this market is ideal. They may purchase
shoes and accessories at Zappos, but if while they are there they see that Zappos
also sells comforters, crock pots, or children’s clothes, they will continue to fill their
shopping carts.
Zappos should then keep the customer involved by asking them to participate in
surveys and to submit video testimonials of positive experiences. The surveys
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ensure that the consumers’ needs and concerns are being addressed and the
testimonials ask customers to revisit a time when Zappos made them feel happy,
which encourages the customer to have positive feelings about the company, and to
spread that joy to new potential customers.
The thing that was missing from Zappos’ ‘more than shoes’ ad campaign was the
emotional connection. Zappos wants to be known as the company that makes
customers happy, and so focusing on fostering an emotional connection to the
company is key.
Being more vocal about their environmental impact is another way to achieve this
goal. Making a promise to continue to find ways to improve on reducing their
environmental impact and being transparent about their efforts is a great way to
promote a favorable brand image and keep customers feeling good about
purchasing from this company over other competitive brands.
Zappos also contributes to charities, and using an integrated charity campaign is
another way to spread the word, improve their image, and increase positive
customer perception.

VI. ADDITIONAL QUESTIONS FOR DISCUSSION

A. How would you define Zappos’ target market, and how would you
describe its strategy to service this market?
Zappos has a relatively broad market. They target women age 25-49 who are
married, educated, parents, and make at least $75,000. This target, known as the
‘happy hunter’, prefers online shopping for its convenience. Zappos naturally
appeals to this audience. However, I feel that Zappos does not fully understand their
target market. Some of their advertising efforts have fallen flat and as evidenced by
the many blunders Zappos has endured in the past, relying purely on customer
service as a value-add is not sustainable in the long-term. Zappos is going to have to
get to know the specific segments a little better to more effectively market to them.
B. Has Zappos’ emphasis on customer satisfaction contributed to its
profitability? Explain
There is no denying that the customer satisfaction is responsible for the success of
Zappos today. Many of their sales are made up of repeat buyers. However, the
lengths that they go to in providing that excellent customer service means that they
are not nearly as profitable as they could be. The core values of Zappos tend to
indicate that keeping customers happy takes priority over turning a huge profit, but
eventually Zappos is going to have to find a way to increase profits in other ways.

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 C. Has Zappos developed long-term customer relationships that
provide a competitive advantage in the purchase of shoes and other
products?
Zappos has worked very hard to develop long-term customer relationships. They go
out of their way to make the customer feel important and valued which puts them
ahead of competitors. However, they have also struggled to maintain these customer
relationships.
This was evidenced when Zappos’ ad campaign was poorly received and tarnished
the image of the brand. We can also see this relationship damaged by the security
breach of 2012; it is very hard to win people back when their security is at risk.
Other technical difficulties such as the delays and issues in 2011 and the price errors
of 2010 have damaged customer relationships.
Furthermore, relying too heavily on customer relationships for the success of the
business means that if a customer has a bad experience with a customer service
representative, it can be difficult to win them over.
So while Zappos still retains its competitive edge as far as customer service is
concerned, history has shown that this relationship can waver and Zappos must be
very careful when cultivating customer relationships.

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