Weekly Report

Zappos – Growth Strategy

PGDM 2017-19
Submitted By

Group 5
Abhishek Lamba – 17PGDM183

Prabhupreet Singh – 17PGDM207

Rahul Arora - 17PGDM209

TABLE OF CONTENTS
Introduction .............................................................................................................................. 2
Critical Issues ............................................................................................................................ 3
Tackling Issues .......................................................................................................................... 3
Strategies That Changed Zappos ......................................................................................... 4
Customer Retention ............................................................................................................. 5
Testing New Products........................................................................................................... 5
Accurate Inventory .............................................................................................................. 5
Service & Selection over Price............................................................................................ 6
Centrally Located Fulfillment .............................................................................................. 6
Do it Yourself ......................................................................................................................... 6
CRM........................................................................................................................................ 7
Keep Core Values Intact..................................................................................................... 7

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ZAPPOS – GROWTH STRATEGY

INTRODUCTION

Zappos was the idea of a young entrepreneur, Nick swinmurn, who approached Tony
Hsieh in the year 1999 with his idea of selling shoes on the internet. At first, Hsieh was
not confident about this idea, but eventually invested $500,000 after Nick told him that
retail shoe market was $40 billion of which 5% was already through mail order
catalogues. They started by the name ShoeSite.com and soon changed it to Zappos
to not limit itself to selling only footwear.

Zappos’ growth was rapid as it brought in $1.6 million in revenue just after 1 year after
it began and raced to $8.6 million in the subsequent year. It increased its gross sales
to $184 million in the year 2004, and received its first round of venture capital of $35
million. By 2007, they expanded to different verticals such as handbags, eyewear,
clothing, watches, and kids’ merchandise.

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CRITICAL ISSUES

In the beginning, Zappos faced a critical issue with its delivery system, which directly
had an adverse impact on customer service. Zappos fulfilled orders with drop
shipments, i.e., they did not carry any inventory and instead, relied on the
manufacturers to ship products directly to the customers. This system did not work well.
They did not have full information about their vendor’s inventory; the vendors’
warehouses were all over the country so the delivery times were not predictable. They
soon realized that it never makes sense to outsource your core competency if you are
maniacal about customer service. Therefore, they stopped drop shipping and began
buying inventory from the vendors. They outsourced warehousing and shipping to one
other company but that did not work well either. They realized their mistake at the
right time and corrected it. Hsieh realized that if they had not reacted quickly by
starting their own warehousing, that mistake could have eventually destroyed Zappos.

Similar problem arose in 2004 with finding the right employees to staff their call center.
They observed that on average, a customer calls them at least once at some point,
and if they handle the call well, they have an opportunity to create an emotional
impact and a lasting memory with the customer. They received thousands of phone
calls and e-mails every day, and viewed each one as an opportunity to build the
Zappos brand into being about the very best in customer service. Their philosophy had
been that most of the money they might ordinarily have spent on advertising should
be invested in customer service, so that the customers will do the marketing for them
through word of mouth. But it was hard to find the right people for the job. Zappos
was headquartered in the valley, and it was hard to find people in the area who
would want to make a career in customer service. So most of the current staff were
temporary and were unable to provide the “wow” experience to the customers. They
were reluctant to outsource the call center because of their experiences with
outsourcing. They also wanted to keep the call center with the headquarters as they
thought that customer service had to be the whole company, not just a single
department. Therefore, they decided to move their headquarters from Henderson,
Nevada to Las Vegas.

TACKLING ISSUES

In the United States, they offered free shipping both ways to make transactions risk
free and as easy as possible for the customers. A lot of them ordered five different
pairs of shoes and then send back the ones that don’t fit or that they simply didn’t
like—free of charge. The additional shipping costs were considerable for them, but
they viewed them as a marketing expense. They also offered a 365-day returns policy
for people who have trouble making up their minds. (Originally, the returns policy was

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only 30 days, but they kept increasing it at the urging of the customers, who became
more loyal as they lengthened the returns period.) Their returns were as high as more
than a third of their gross revenue, but they believed that customers would buy more
and be happier in the end if they could remove most of the risk from shopping at
Zappos.

Their customer service orientation was also apparent on their website. On many
websites the contact information is buried at least, five links deep, because the
company does not really want to hear from the customer. And when the customer
finds it, it is a form or an e-mail address. Zappos took the exact opposite approach.
They put their phone number at the top of every single page of their website, because
they actually wanted to talk to their customers. And they staffed their call center 24/7.

In the year 2009, Zappos debuted at No. 23 in Fortune’s Top 100 Companies to Work
for. They had always cared about their employees as much as they did for the
customers. After they announced the relocation to Vegas, they also decided that
they would pay the moving costs for the employees who came along and also help
them find new homes. Their company culture, which had always been strong,
became even more so. As they grew, they made sure they hired only people who
they would enjoy hanging out with after hours. As it happened, many of their best
ideas arose while they were having drinks at a local bar.

STRATEGIES THAT CHANGED ZAPPOS

By 2007, Zappos was number one online shoe retailer in US and it was merely done by
focusing on following two main things

• Low-key marketing programs

• Customer Retention

And this has made them achieve earning six$ for every one$ spend on marketing. It
can only be seen their workforce structure. They had 1200+ employees but only nine
people marketing personnel.

Following ten things are the major strategies that were followed by Zappos to make
their expansion successful

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CUSTOMER RETENTION

Instead of putting major share in advertising, Zappos focused on allocated funds to

retain existing customers. They keep on increasing investment in customer retention in
following three tactics

 Free overnight shipping

 Free return shipping
 24/7 fulfillment operations (including order processing and customer care)

Their main motive was to build a brand that could be termed as customer centric,
which in turn helped increasing their profitability. As per their CEO, instead of putting
resources in advertisement they wanted work on getting people back. “We believe
that the way to build a long-term, growing business is to focus on how to get repeat
customers back to your site and purchase more often.”

TESTING NEW PRODUCTS

Initially to spread brand awareness they went with expensive marketing campaign
buying mass ads, sports stadium signage. But it did not work, as they were not able to
create enough conversions as per their initial forecasts. And this resulted in lack of
fulfilling of ROI that was promised.

Now they have started rolling new features in order to test the market how they
respond and what will be the catchment.

“There’s still a temptation to come out in a big way and waste a lot of money like we
did in the early days,” he says. “It’s better to start small because, until you are actually
doing it, you cannot predict the thousand little things that will inevitably happen.”

ACCURATE INVENTORY

Maintaining accurate inventories helped them a lot in avoiding negative word of

mouth. In the past, most of the time only 80-90% products showing on the website
were in stock, which made some customers unhappy which created lot of bad word
of mouth

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SERVICE & SELECTION OVER PRICE

Zappos main focused on creating service value because they knew that these things
work better in creating brand loyalty rather than announcing e-coupons and
discounts, which attracts one-time customers.

“In terms of the three major areas -- service, selection and price -- you can really only
offer two of them at the same time,” he says. “Our brand [niche] was in service and
selection.” said by their CEO

CENTRALLY LOCATED FULFILLMENT

For in-house fulfillment, Hsieh and his team used to operate a warehouse facility in
California, using ground shipping to all corners of the United States. This hurt not only
the timing of their deliveries, but also the price points because of regular cost on
ground shipments.

In 2002, Hsieh moved their fulfillment operations to a Shepherdsville, KY, facility,

creating more expeditious delivery, as the United Parcel Service’s largest domestic
shipping hub was just 20 miles away. And, the new fulfillment spot fell within 600 miles
of two-thirds of the nation’s population. The relocation was crucial in allowing them to
trot out an ongoing free next-day shipping offer.

DO IT YOURSELF

Initially Zappos used to outsource all consultancy work to outside firms. But in time,
they have shifted all of this in house. According to Zappos, doing all of this in-house
has increased their ROI.

They had a belief that consultants lure their customers telling them to spend large
amount of money with them and all of the problems will be solved. But all they do is
use some other firms perspective and try to sell it to you. Therefore, they avoid
consultancy work from then on.

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CRM

Zappos saw CRM as an investment not an expense. It was stair to retaining more and
more customers.

“We no longer believe that customer service is something that we should make into a
smaller number. We should make it into a bigger number. I am sure that our call center
and warehouse costs are much higher than most organizations, but that’s due to the
fact that we view them as customer retention and word-of-mouth investments rather
than operational costs,” said CEO of Zappos.

KEEP CORE VALUES INTACT

Hsieh knew that brand identity is going to be the most vital factor so they created ten
core values that would assist them to hire all personnel that would be coming into their
organization. Following were the 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

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 Assignment
Future Global Companies

PGDM 2017-19
Submitted By

Group 5
Abhishek Lamba – 17PGDM183

Prabhupreet Singh – 17PGDM207

Rahul Arora - 17PGDM209

TABLE OF CONTENTS
café Coffee Day ..................................................................................................................... 2
Teabox ...................................................................................................................................... 2
Druva ......................................................................................................................................... 3

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FUTURE GLOBAL COMPANIES

CAFÉ COFFEE DAY

Café Coffee Day has experienced a lot over the last

two decades. Having its own coffee plantations &
nearly 1500+ sit-down stores, 900+ Express counters
for take-away and 16000+ vending machines in
corporates, CCD enjoys approximately 65% market-
share in domestic market. Entry of Starbucks in India
has already forced CCD to come up with new
innovative formats like the Lounge and Square for
targeting premium segment of coffee-lovers. It is
being accepted widely by the youth at home for its
inviting colorful attractive store layouts, its affordable
& varied range and prompt service, CCD brings a
deep understanding of the service industry and
coffee preferences across the world from its export-
oriented insights. With stores having been already
launched outside India, CCD is beginning to take its
first major steps towards its global growth story.

TEABOX

Teabox’s business is shipping of fresh teas all over the world. They have a vast selection
of over 150 fresh tea varieties from around 75 different plantations in Darjeeling,
Assam, other parts of Eastern
India and Nepal. The
company claims to provide
the largest selection of single
estate and premium fresh
teas available online.

The Teabox team say that

they have shipped 30 million+
cups of teas to 90+ countries
and generate over 95 per
cent of their total revenue
from customers outside India.

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The company is eyeing the global customer as its most profitable customer. The
company raised about 6 million USD in Series a funding, which was led by JAFCO Asia
and with participation of companies like Accel Partners, Keystone Group LP and
Dragoneer Investment Group.

DRUVA

Druva is an exemplary model of a global

technology company from India. It was in
2008 that Milind Borate, Jaspreet Singh
and Ramani Kothandaraman had set out
to create a new kind of data protection
solution for the enterprises. The trio had
worked with the corporates and knew
the gaps & irregularities that existed in the
corporate data and security domain. This
is what gave them the idea to come up
with Druva.

After their first exposure the feedback

was that, the product was too complex.
Jaspreet was the sales in charge and he
came back hearing the similar complaints when he went out to talk to the respective
customers. They took in the feedback positively and made the product really simpler
with a clearly defined value proposition. After this change, product found
acceptance and found clients all over. Until 2010 itself, Druva had about 400+
customers spread across 26 countries

Series-D funding is only 9 months after Druva raised series-C of $25M, which is a
significant amount of money in such a short period. Talking about the future, in the last
year, the Druva growth story has been stronger than many had expected from them.
They have had some great customer wins, like Pfizer, Dell & many others

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