CASE #1 – Zappos.

com 2009: Clothing, Customer Service, and Company Culture

COMM 3410 – Service Marketing

Section #1

Professor: Hélène “LN” Deval

Fabio John Pacheco – B00633431

Nana Fujimoto – B00642795

Brittney Chalk – B00594272

 MEMORANDUM

DATE: July 17, 2009

TO: Tony Hsieh (CEO), Nick Swinmurn (Chairman), and Alfred Lin (COO & CFO)

FROM:

SUBJECT: Recommendation and Implementation Strategies for Zappos

______________________________________________________________________________

Zappos, a privately held online retailer, focuses their growth strategy on the company’s three C’s
policy – company culture, customer service, and clothing. Zappos wants to continue its success
in growth and enhance their customer values to obtain maximum customer satisfaction.

PROBLEM
Zappos is company with a strong set of core values and strong culture. Through a strategic
framework, known as the service triangle, we see that Zappos has successfully implemented
interactive marketing. We believe that the best solution for Zappos is to continue expanding on
their company culture, continue the high standard of customer service, and develop the growth
for clothing. The major problem, as they try and grow with adding apparel to their site, for
Zappos is their external marketing. As Zappos begins to provide a new service for their existing
market segments Zappos should develop its customers’ expectations and ensure that the promises
made will be kept, while backing their new products with their brand reputation. We also believe
that as the company grows it needs to ensure it remains focused on maintaining the companies
unique culture. Despite these concern, we are confident that Zappos should remain independent
and not merge with Amazon. We will recommend as to why the merger to Zappos will cause
disadvantages for the company and its stakeholders.

RECOMMENDATION
The three recommendations below will help build on Zappos external marketing and continue to
penetrate on its customer market base as the company grows. It will also help cultivate customer
relationships, help develop the company’s strategic plan, and improve its external marketing.

Recommendation #1:
The first recommendation will help Zappos successfully transition into an apparel supplier
minimizing growth pains while ensuring to keep customer service a top priority. Currently
Zappos has a warehouse in Kentucky, but we believe that this online retail organization should
expand to be able to keep their reputation of fast and courteous service. We recommend using
the extra capital that was provided from Venture Frogs. By adding another warehouse, it will
provide future room for the company grow, as well as provide the space for inventory that
Zappos desperately needs. The additional warehouse will also allow Zappos to put to use the old
inventory technology, utilizing efficiency. All these changes will enhance a positive customer
service experience. This capital expansion will help Zappos in providing service-line extensions
and this will support growth in its clothing line and gain a stronger relationship with the 300
apparel brands that Zappos signed up with. Furthermore, Zappos should use some of the
investment capital in hiring more CLT employees. As you expand your product, you will be
expanding your market share. Keeping the three C focus is important to Zappos, therefore it is
necessary to add more employees if you do not want the customer service section to decline.

Recommendation #2:
The second recommendation that we propose is to continue maintaining their core values
internally and ensuring the culture is present in all parts of the company. We recommend placing
the second warehouse in Las Vegas, relatively close to Zappos Headquarters. It was been made
evident that there is a disconnect between the culture present in the warehouse, and the one seen
in Headquarters. By locating the warehouse close by, senior management will be able to visit,
observe and understand the issue and begin to repair the disconnect in the culture. Clarifying to
senior management to understand what is visible and invisible in employee actions and what
support processes are needed. Ultimately, if Zappos has strengthened internal marketing, then
employee satisfaction will lead to both employee retention and employee productivity. This will
ensure that the interactive marketing between the employee and the customer is a positive
experience. Maintaining its company culture and enhancing internal core values will allow
Zappos to differentiate itself against their competitors which will give the organization a
competitive advantage.

Recommendation #3:
The third and final recommendation that we have will prove to Zappos senior management that
the merger should not take place. This recommendation involves improving the additional line of
clothing. Zappos currently has a very friendly user face, that provides 9 angles of all shoes, and a
wide variety of sizes. The research and innovation put into the shoe interface should be repeated
when constructing the clothing interface. Many customers want their clothes to fit their body
type, therefore it is crucial to have research for the clothing sector. Going beyond the generic 4-5
body types, being able to customize an avatar to your unique body figure will help eliminate the
uncertainty present when online shopping. Develop its interfaces, will ultimately give customers
a better experience when shopping online for shoes clothing, handbags, or accessories This will
help grow future sales in clothes and help Zappos have profitability by listening to customer
values. This could help reduce the listening gap.

IMPLEMENTATION
Through these three recommendations, implementation strategies have also been considered.
These implementation strategies are noted below:

Implementation #1
We believe that the location of the new warehouse should be in Las Vegas since their company
headquarters is located in the same area. This implementation strategy revolved around the fact
that senior management could actually visit the warehouse more and incorporate any values that
they believe are significant. In picking a location, it should be within a 60 km range, looking for
a place with a low rental price. The timeline that we pictured for the warehouse to be completed
was in a year. We expect the hiring for both the new warehouse to be completed 4 months before
the completion of the warehouse. In those 4 months, employees will undertake training and
programs educating them on their core values and the three C policy. By not merging Zappos can
continue to grow its inventories and allow for successful expansion into new customer segment.
Building the company culture would allow Zappos to offer positive customer experience and
ensure that the promise and reputation of Zappos does not waiver.

Implementation #2
As Zappos expands, the priority is to focus on the three C’s. We believe that improving the call
center will help maintain core values from company to customer. The customer-contact service
employees are the service, the brand, and the marketers in the customer’s eyes. Therefore, it is
crucial for Call Center employees to have a strong connection to the core values. Improving the
call center will require hiring more employees, which should be completed within the first four
months of warehouse construction, the last four months will again be used to train the new
employees, offering the training (with pay) to all current employees as well.

Implementation #3
One of the most effective competitive advantages Zappos can have is a user-friendly
customizable avatar for clothes shopping. By tailoring clothing to fit the body of our customers
will ensure that customers are satisfied and it will help gain customer loyalty. Customer feedback
methods, such as surveys or focus groups, will help the senior management to understand what
the customers’ needs and values are. Similar feedback methods used to evaluate Zappos
employees, will be sent out to Zappos’ current customers, asking for their advice on what they
would like to see on the interface. 8 months will be spent prior to the beginning of the warehouse
construction, in creating a survey. These will then go out into circulation for 4 months, with the
last 4 months being used to develop the interface itself. At this stage, rigorous testing should be
completed. Customers love Zappos for how hassle free and easy their service is, technical
problems would affect their reputation.