Case Study 4: Zappos Tony Hsieh’s first entrepreneurial effort began at the age
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Question
Case Study 4: Zappos
Tony Hsieh’s first entrepreneurial effort began at the age of 12 when he started his own custom button business. Realizing the importance of advertising, Hsieh began marketing his business to other kids through directories, and soon his profits soared to a few hundred dollars a month. Throughout his adolescence, Hsieh started several businesses, and by the time he was in college he was making money selling pizzas out of his Harvard dorm room. Another entrepreneurial student, Alfred Lin,bought pizzas from Hsieh and resold them by the slice, making a nice profit. Hsieh and Lin quickly became friends. After Harvard, Hsieh founded Link Exchange in 1996, a company that helped small businesses exchange banner ads. A mere two years later, Hsieh sold Link Exchange to Microsoft for $265 million. Using the profits from the sale, Hsieh and Lin formed a venture capital company that invested in start-up businesses. One investment that caught their attention was Zappos, an online retailer of shoes. Both entrepreneurs viewed the $40 billion shoe market as an opportunity they could not miss, and in 2000 Hsieh took over as Zappos’ CEO with Lin as his chief financial officer.
Today, Zappos is leading its market and offering an enormous selection of more than 90,000 styles of handbags, clothing, and accessories for more than 500 brands. One reason for Zappos’ incredible success was Hsieh’s decision to use the advertising and marketing budget for customer service, a tactic that would not have worked before the Internet. Zappos’ passionate customer service strategy encourages customers to order as many sizes and styles of products as they want, ships them for free, and offers free return shipping. Zappos encourages customer communication, and its call center receives more than 5,000 calls a day with the longest call to date lasting more than four hours. Zappos’ extensive inventory is stored in a warehouse in Kentucky right next to a UPS shipping center. Only available stock is listed on the website, and orders as late as 11 p.m. are still guaranteed next-day delivery. To facilitate supplier and partner relationships, Zappos built an extranet that provides its vendors with all kinds of product information, such as items sold, times sold, price, customer, and so on. Armed with these kinds of details, suppliers can quickly change manufacturingschedules to meet demand.
Zappos Culture
Along with valuing its partners and suppliers, Zappos also places a great deal of value on its employee relationships. Zappos employees have fun, and walking through the offices you will see all kinds of things not normally seen in business environments—bottle-cap pyramids, cotton-candy machines, and bouncing balls. Building loyal employee relationships is a critical success factor at Zappos, and to facilitate this relationship the corporate headquarters are located in the same building as the call center (where most employees work) in Las Vegas. All employees receive 100 percent company-paid health insurance along with a daily free lunch.
Of course, the Zappos culture does not work for everyone, and the company pays to find the right employees through “The Offer,” which extends to new employees the option of quitting and receiving payment for time worked plus an additional $1,000 bonus. Why the $1,000 bonus for quitting? Zappos management believes that is a small price to pay to find those employees who do not have the sense of commitment Zappos requires. Less than 10 percent of new hires take The Offer.
Zappos’ unique culture stresses the following:
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 employees shared $40 million in cash and stock, and the Zappos management team remained in place. Having access to Amazon’s world-class warehouses and supply chain is sure to catapult Zappos’ revenues, though many wonder whether the Zappos culture will remain. It’ll be interesting 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 from the implementation of a CRM system. (1 Mark)
3) Demonstrate why Zappos would need to implement SCM, CRM, and ERP for a connected corporation. (1 Mark)
4) Analyze the merger between Zappos and Amazon and assess potential issues for Zappos customers. (1 Mark)
5) Propose a plan for how Zappos can use Amazon’s supply chain to increase sales and customer satisfaction. (1 Mark
Explanation / Answer
1) Supply Chain Management (SCM) is the process of flow of manufactured products or services of an organization defining each and every step of flow from the point of manufacture to the point of consumption. The raw material movement, the spare parts movement for assembly and the finished goods movement are all instances of supply chain management.
Zappos management will be able track the status and position of their products and also take actions accordingly. Raw materials required for a high demand product can be easily tracked through SCM and if needed actions can be taken which increase efficiency and service.
2) Customer Relationship Management (CRM) is a data analysis process through which an organization can manage and maintain customer relation by enhancing communication and interaction resulting in retention of the client. The objective here is sales growth through communication.
Zappos is a popular and reliable brand existing in the industry for quite some years, therefore quality of service expectation is high from such organizations and through CRM Zappos can communicate with clients and keep a track of them and through this communication the customer will accept Zappos easily.
3) Enterprise Resource Planning (ERP), SCM and CRM are the basic mandatory amenities each and every business organization should possess in today's world in order to keep track of each and everything from a single location. The competition level in every field of business is very high today and without these amenities each and every task will take more time and effort along with more expense.
4) The merger of Zappos and Amazon will have a positive impact on the potential and existing customers of Zappos because the brand value and popularity of Amazon cannot be denied and this will add to the quality Zappos was already providing. The employees of Zappos enjoyed various privileges and a healthy relationship which can be expected from Amazon as well because Amazon is a giant in the industry and believes in employee well being.
5) The efficiency and quality of the SCM of Amazon is quite popular and Zappos can utilize the facilities. The service can be optimized through proper planning of deliverables and the time required for a delivery will be lowered. Customer service is the most important quality for such organizations and Zappos will attract more customers. Consumers will now expect the service quality like Amazon which Zappos has to maintain and which is not tough, thanks to first class facilities of Amazon.