To distinguish its service from the one of its competitors, Zappos made up a strategy of differentiation: Deliver WOW Through Service became the first point in its culture. WOW delivery means three main things in Zappos’ strategy: one-day delivery, free shipping and free return within 365 days from the order’s date. Actually, Zappos guarantees five-day delivery, even if, it is going to delivery in only one day, unless there is any trouble with shipping company or with orders from suppliers.
That is the main point of the WOW effect. Free shipping, and free return are offered to customers as a part of the service for orders of any dimension in the United States and in Canada, while in Europe shipping fees are charged on customers. Through this strategy we can identify Zappos philosophy: reproduce online a buying experience matching both advantages from ecommerce and retailer commerce.
For example, customers are attracted from the opportunity to order several pair of shoes, trying them at home, as if they are in retail shop, and buying some of them, returning the others for free, without loosing the comfort of online purchasing, such as home delivery, or a wide choice. Nevertheless, Zappos’ strategy is very tough and constraining, because if on one hand they aim at impressing customers through their service, on the other hand, they cannot charge too high prices on products, making appreciably thin their markup.
As it is explained in the case, the economical crisis has made consumers more price oriented than in the past period, searching shoes directly from Google instead of going right on Zappos. Increasing prices, for Zappos, could only mean loosing market-share towards their competitors, because their offers will became more convenient than the Zappos one. Customers could renounce to buy on Zappos, preferring physical retailer shops; or they simply can save their money buying shoes online from competitors, paying orders delivery on their own, due to the elevated price gap. Thus, for all these reasons, Zappos growth opportunities are focused on reductions of costs, shipping costs in particular.
As explained in the case, for the purpose of delivering orders in only one day Zappos operates all of this orders with Overnight delivery provided from UPS. As we know from the case, Zappos only have one warehouse, which is located in Shepherdville, Kentucky, less than 30 minutes from the UPS hub in Louisville. That warehouse has managed all orders of Zappos. Zappos bought that warehouse for several reasons.Firstly, because of to meet the high-SKU needs for its business, in fact the new warehouse is 832,000 square feet instead of 265,000 of the initial one. Secondly, Sheperville is really close to the UPS hub in Louisville, allowing it in delivering orders faster and cheaper than from the old one. Thirdly, it was inexpensive, compared to other solutions.
Alternatives for Problem 3: 3. A) Multiple warehouses allow Zappos doing one-day delivery through the cheap UPS Ground. Having multiple distributed warehouses will also allow Zappos to have a better products’ distribution over the country, both in term of efficiency than efficacy, allowing an important reduction of shipping costs. In fact, Zappos can plan with UPS a cheaper way than overnight delivery, to reach each customer in one-day delivery time. Clearly, it depends on the location of UPS’ hub and on how it is close to the warehouse. However, Zappos will reach its customers easier than now, significantly decreasing shipping costs.
Zappos may develop 5 warehouses in the 5 site of the US (the East, West, North, South, and central US) , each warehouse will manage orders of the respective area. Having multiple warehouses will bring to Zappos an other advantage. Through separation of the demand by area, Zappos can lead a more focused and precise study of customers needs, and better understand demand’s periodicity. It means that each warehouse will be more oriented toward the particular customers of the area that it covers, in order to better match different necessities.
3. B) Partial replace of Overnight delivery with UPS Ground delivery. Maintaining the original warehouse, Zappos should decide to back of from its desire to ship all orders for overnight delivery and using Ground delivery for customers closer from its warehouse. As estimated from UPS, using UPS Ground delivery could mean significant savings for Zappos. UPS Ground could be able to reach 11 percent of its customers within one day, 49 percent within two days, 18 percent within three days, 21 percent within four days, and the remaining 1 percent would take five days.
Thus, a good compromise would be to use UPS Ground delivery for all customers that are within two-day delivery, 60 percent, and overnight shipping for the others, 40 percent, with an average shipping time around one day and a half. Additionally, even more of the country could be served overnight by less expensive ground shipment over weekends, where overnight was considered to be the next business day.
Problem 4: High Customer Service fees As stated more than once in the text, Zappos.com has been able to elaborate and pursue a detail and client oriented strategy, focusing mainly on the customers’ experience. Its policies regarding shipping, returns and assistance contributed to built the company’s source for competitive advantage. One of the components of this competitive advantage is surely the customer service: Zappos offers phone and mail assistance to its clients, making possible for them to have an immediate comeback on any issue they may experience during their shopping on the site, after the purchase and during the eventual return phases.
As stated in the text: “Telephone support was essential for maximizing the customer experience”. Zappos employees are instructed to go deep on the problem, trying to solve it more than dismiss it. This outstanding experience constitutes a high fee for the company, which should reduce the expenditures but at the same time shouldn’t settle for a lower level customer service in order not to lose its competitive advantage.
Alternatives for Problem 4: 4. A) Implementation of a Customer Relationship Management (CRM) system. As mentioned before in the problem analysis, the company relies on the customer service and mainly on the phone support in order to be able to provide a complete customer experience and assistance for any issue that may arise. In order to manage such a wide pool of customers that every day approaches the company, Zappos may organize its customer service to be a suitable part of a broader Customer Relationship Management (CRM) system.
By definition, CRM systems capture and integrate customers’ data from all over the organization, consolidate the data, analyze it and distribute it to various systems across all the company. Regarding the phone support system, the implementation of a CRM software system may be responsible for the streamlining of the amount of data arriving to the company. The usage of these systems may lead to the gathering of all data regarding percentages of return of customers, fidelity, shopping habits, and also preferred products, categories or styles. The aggregation of all this data would provide the company with a personal file for every returning customer (75% according to text), making possible to personalize the offer and “own” the customer.
Together with the Customer Service module, Sales and Marketing would be involved in this restructuring process. Sales module would provide detailed information on clients’ profitability, impact on revenues and return rate. This information can be used to provide ad hoc offerings, discounts and recommendations. Also these data can be used to answer customer specific inquiries, recording and storing past issues in order to provide an up-to-date, focused response to new issues that may arise. Zappos can also use marketing module to boost the parallel offerings; as mentioned before, the company enlarged its offer by selling a series of articles, from luggage to sportswear, related to shoe business. Marketing module can trace and analyze spending habits and provide a detailed and customized offer for every returning customer.
4. B) Creation of SOPs in response to call center reported issues. Due to the extensive support provided by the customer center, Zappos.com has to manage almost singularly every issue that may arise from the phone call of any customer around the US. This may be reflected in a very broad range of topic or problems. Nevertheless, another important source of expenditure is the time that call centers employees use to solve the issue of the customer. Zappos commitment is to use all the time needed to solve the problem, assuring an outstanding experience and making the buyer feel special. This may be reflected in an increased expenditure for the company.
A possible strategy that the company may put in place to lower down the costs of answering long calls and issue personally all problems without giving up the quality of the customer service may be an indexing of the exceptions. The company, relying on the work of the Customer Service, may index and classify lists of problems that occurred in the past, in order to be easily searchable every time they occur again. Associated with the problem there should be the adopted solution to that specific issue. This process would permit to store a wide range of solutions for the same problem, and it could be the first step to the creation of a Standard Operating Procedures manual.
Indexing all SOP would permit the Call Center operators to address the problem personally as they would have done before but at the same time have an efficient and fully functional archive of working and tested solutions. This would save time for consultation and still maintain an above the average level of service. Zappos would keep the employees operative but address more issues in the same amount of time. In the end, the average quality would be enhanced, as all solutions would be the result of years of recordings and experiences. Nevertheless, the most common issues would give the hint to the company to permanently address the problems which are registered more often.
Problem 5: Security and Privacy breaches As an online company, Zappos relies its transaction and manages information of customers, such as personal information and credit card accounts on the Internet. This way has two sides of effects. On the one hand, it is convenient to manage and arrange whole information on the Internet. The company can save some costs on hiring labor and file management. On the other hand, there are some Security and Privacy problems. In the modern society, these problems should be taken seriously.
Although this problem was not mentioned in the case, you can find there was a hacking incident. On January 16, 2012, the company announced that its computer system was hacked, compromising the personal information of 24 million customers. In response, the company required all of its customers to change their passwords on the site. The company also shut down its customer service phone lines, requiring its customers to email questions instead.
Despite the follow-up procedure, the brand of Zappos still affected. Also, it was considered the compensation, which Zappos had done was not enough. Maybe its customers cannot identify this solution and Zappos loses some. As the study on the textbook indicted, when the security of a large firm is compromised, the company loses approximately 2.1 percent of its market value within two days of the security breach, which translates into an average loss of $1.65 billion in stock market value per incident. (Cavusoglu, Mishra, and Raghunathan, 2004) Due to an event happened recently and the study estimated, Zappos has to pay attention on its information security.
Alternatives to problem 5: 5. A) Establish a good IT branch inside of the company to manage the IT platform and crisis. Zappos can imitate the way of some large firms, which establish an Information technology branch. The IT branch has professional skills and knowledge to develop the protective firewalls. Also, the branch can deal with computer and Internet problems effectively and speedily. Last but not least, it can monitor threats periodically. However, owning the IT branch also means that Zappos should restructure its company. Potentially, the costs on human resource and training increase, then the consumer service may affect.
5. B) Outsource security management to a professional company. If Zappos doesn`t want to own its IT branch, it can outsource security management to a professional company. This way can cut costs on human resource and training, and maintain its original structure. Nevertheless, Zappos still need to spend money on the security problem. maybe the fee of professional company isn`t adorable.
As explained in the case, Zappos’ supply chain contained some inefficiency. Firstly, inbound freight was difficult to be coordinated and resulted in uneven deliveries. Causes of the issue are the limited visibility of Zappos in the manufacturer supply chains and the high degree of uncertainty as to the actual day that a shipment will arrive at the warehouse. As a result, there were days in which traffic at the warehouse was backed up waiting to be unloaded, and other days in which relatively few shipments arrived.
Secondly, shipping all the shoes destined for Zappos to the shoe companies, instead of to Zappos directly, affected the overall supply chain efficiency. Thirdly, many of the deliveries to Zappos were made with partial truckloads (LTL), resulting in a large than necessary number of trucks arriving at the Zappos distribution center, as well as the economic inefficiency of transporting partially full trucks.