CMO Choice Award Winner, Third Place


Customer Service First -- and a Daily Obsession

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Imagine a retailer with service so good its customers wish it would take over the Internal Revenue Service or start up an airline. It might sound like a marketing fantasy, but this scenario is reality for 9-year-old

Photo: Bryan Haraway
ON THE RIGHT FOOT: CEO Tony Hsieh is seeing repeat customers accounting for 75% of sales.
Early on, the scrappy footwear retailer made customer service a cornerstone of its marketing, preferring to rely on word-of-mouth recommendations from happy customers rather than glitzy ad campaigns, a brave strategy that's paid off. Zappos is poised to hit the $1 billion sales mark this year.

But rather than shove that money into a media budget to fuel fast growth, Zappos is trying a different tack. It's eschewing ads for service so good that customers not only come back but also tell their friends.

Number of customers buying Zappos items annually
Number of calls that come into Zappos' customer-service center every day
Amount Zappos spent on measured media last year
"We actually take a lot of the money that we would have normally spent on paid advertising and put it back into customer experience," says Tony Hsieh, Zappos' CEO. "We've always stuck with customer service, even when it was not a sexy thing to do."

The approach is producing results, as customers keep coming back. Mr. Hsieh says some 75% of Zappos' sales come from repeat customers. This year, the number of paying customers has grown to 8.2 million, which, Mr. Hsieh notes, means that 3% of the U.S. population is shopping at Zappos.

Free delivery, free returns and a 365-day return policy have been the cornerstone of Zappos' customer-centric approach. It even quietly upgrades the experience, from four-to-five-day shipping to second-day or next-day shipping, to wow customers. Its customer-service center is staffed 24/7 with 500 employees -- about a third of the company's payroll -- answering 5,000 calls a day.

"Those things are all pretty expensive, but we view that as our marketing dollars," Mr. Hsieh says. "It's just a lot cheaper to get existing customers to buy from you again than it is to try to convince someone [new]."

Avoiding distractions
Zappos has been steadfast in its focus on customer service even as it's grown, says Scott Silverman, executive director of, a division of the National Retail Federation.

"They have an amazing reputation both among their customers and within the online retail industry," he says. "They've focused on customer service and haven't allowed themselves to be distracted by other things, whether it's traditional marketing or something else. If you stray, [that's] when things start to get diluted."

Zappos does engage in paid advertising. The combined brand and online direct-marketing teams total between 10 and 15 employees. Zappos spent just $18 million on measured media last year, according to TNS Media Intelligence, up significantly from $373,000 in 2003. TNS doesn't track search advertising, where Mr. Hsieh says Zappos spends a large chunk of its marketing budget.

Zappos runs print ads in magazines such as Lucky and The New Yorker. And it's occasionally dabbled in TV. Many of those ads focus on branding, with little or no mention of the products the retailer sells. "It's more about getting the Zappos name out there," says Mr. Hsieh. "We've found that when we have those ads out there, the ROI actually improves online. So it makes sense for us to do a little bit of offline to support our online efforts."

Zappos' agency is the Ad Store, New York; Gotham handles media. Boxcat, San Francisco, handles public relations. However, Mr. Hsieh says that despite employing a PR agency, most of those efforts are inbound, not outbound. "I guess in the PR world, it just becomes a snowball effect," Mr. Hsieh says of the news coverage Zappos receives.

Customer service matters
Still, it's easy to see why Zappos is garnering so much attention. In a down economy, retailers especially should be focusing on customer service. But Mr. Hsieh points out it's often the first thing to go.

"It's definitely a lot harder to measure, and the payoff isn't as immediate," he says. "The payoff for great customer service might be a year or two down the line. And the payoff for having a great company culture might be three or four years down the line."

To make sure Zappos' customer obsession permeates the entire organization, each new hire -- everyone from the chief financial officer to the children's footwear buyer -- is required to go through four weeks of customer-loyalty training.

Zappos also pays people to quit. During the four weeks of customer-service training, employees are offered $2,000 cash, plus payment for the time worked, if they leave the company. The theory goes that those willing to take the money and run aren't right for Zappos' culture. Mr. Hsieh says originally the incentive was $100, but the amount keeps rising because not enough people take it. On average, between 2% and 3% take the offer, and Mr. Hsieh believes that's too low. "A lot of the training is actually getting people into the mind-set of our culture," he says, noting employees have been released for not living up to Zappos' core values. "We've actually passed on a lot of really talented people, who we know would have made an immediate impact on our top or bottom line, because they didn't fit the culture."

Zappos employees must check egos and competitiveness. Customer-service reps are trained to look on at least three rival websites if a shopper asks for specific shoes that Zappos doesn't have in stock.

"My guess is that other companies don't do that," Mr. Hsieh says. "For us, we're willing to lose that sale, that transaction in the short term. We're focused on building the lifelong loyalty and relationship with the customer."

New type of company
Zappos has set new standards in the industry, raising the bar in areas such as free shipping, free returns and customer experience, Mr. Silverman says, adding that the e-tailer is leading the way for a new type of consumer-focused company.

"There's something about these young internet companies. ... I'm not sure exactly why -- if it was because they were born in a different era, the leadership has a different worldview or if they just have amazing access to customer data and see firsthand what customers are thinking," he says. "It seems that Zappos is really the poster child for this new age of consumer companies that truly are customer focused. A lot of companies like to say they are, but none of them is as serious as Zappos."

It's that intense focus that has set the stage for growth, as Zappos branches out into categories including apparel, accessories, electronics and home goods.

"Hopefully, 10 years from now, people won't even realize we started out selling shoes online. ... We've actually had customers ask us if we would please start an airline or run the IRS," Mr. Hsieh says, adding, "30 years from now I wouldn't rule out a Zappos airline that's about the very best service."
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