Zappos: the world’s best customer service?

November 6, 2009

Photo credit: Ad Store

Most companies believe in customer service, right? “It’s at the heart of our business”. Pointy haired bosses nod in agreement. I don’t feel this though when I call a company and get this message which has become the hallmark of poor customer service:

“Thank you for calling. All our representatives are busy right now. Please be assured that your call is important to us”.

I always react in the same way now when I hear this empty phrase: if you really valued me as a customer I wouldn’t have to listen to this; you would ensure that you had enough people answering the phones!

This is exactly what US based Zappos does – they ensure everyone in the company is trained up to take customer service calls, that includes departments such as legal and finance, and in the busiest periods even the CEO will join in. Their call centre is known as the “customer loyalty team” the first clue that things are done differently here.

Zappos is a $1Bn turnover online clothing retailer and has become famous for its quirky style, fantastically loyal staff and customers and most recently its purchase by Amazon for around $1.2Bn.

There’s a whole host of things that set Zappos apart from the competition. First of all, they don’t regard themselves as just a retailer of clothing, shoes, or whatever; one of their core values is to “deliver wow through service”. Above all they are delivering a customer experience. By the way, it’s a customer experience that is rated ridiculously highly, with net promoter scores of 92%.

“Wow” translates into happy, loyal customers who come back again and again. While Zappos does carry out some traditional above the line marketing, they reinvest the millions of dollars saved here by putting it back into the customer experience. The service is market leading, and that provides them with their unique edge. Someone could always spend more on advertising, but Zappos have instead earned the trust and loyalty of their customers and created customers who are “raving fans”, the title of a Ken Blanchard book which is made available to all employees. The transaction cost drops significantly when you have loyal customers seeking you out and buying from you again and again. The protective moat that has been built around the Zappos brand is significant and on a typical day 75% of orders are from repeat customers.

Here’s just a few things Zappos does to create wow for their customers:

  • a free phone number to their customer loyalty team
  • a call centre that’s open 24 hours a day, 7 days a week and 365 days a year
  • free shipping anywhere in the US
  • random surprise upgrades to next day shipping (Something which their VIP customers get all the time)
  • 365 day return policy
  • all calls answered by a human being, usually in well under one minute

Yes these things are expensive, particularly the call centre, but Zappos is seeking to create a “personal and emotional connection” with their customers. The extra expense of all of the above appears as a line item in their marketing spend and it’s paid for by saving money on traditional advertising, which is reinvested to create something remarkable. Consumers don’t buy things any more because you have the most advertising, we’re way too sophisticated now; we’re looking for companies who deliver real value and something special.

Here is the catch though: while you could copy all these tactics, what you can’t copy is what truly sets them apart, and that is their unique DNA, their core values and the culture they have built. That culture is now so important that their CEO, Tony Hsieh considers developing and nurturing that culture as everyone’s number 1 priority.

That culture, and core values means that Zappos empowers the members of its Customer Loyalty Team with unprecendented freedom and autonomy. Once you’ve set the parameters then everyone knows how to behave appropriately. That means staff take it upon themselves to send hand made cards through the mail to their favourite customer of the day. Another often mentioned example was when someone called to return a pair of shoes bought for her now departed husband. The Zappos rep sent a bouquet of flowers to the grieving widow; a story recounted in front of the entire congregation at the funeral. It’s difficult how you could get more personal and emotional than that.

I hope this has left you intrigued to find out more about this unique company. This is the first in a series of posts I will be writing following my two day immersion into Zappos at their headquarters in Las Vegas. I will be writing about their unique culture and what can be learnt from it shortly; if you have questions so far please post comments below and I will address these in future blogs. Thanks, Scott.

Part 2 of my blogs on Zappos: Culture at Zappos and how everyone benefits


Angel investing in Silicon Valley

November 4, 2009

silicon valley mapAs part of Edinburgh University’s continuing Silicon Valley Speaker Series, supported and organised by Informatics Ventures and the Entrepreneur Club, Jim Papp gave a talk tonight entitled “Angel Investing in Silicon Valley today”. This followed on nicely from last week’s talk by Sean Ellis on how to gauge whether you have product/market fit. Assuming you do then you need to get some angel money to get things moving!

Jim Papp is the CEO of Podaddies, an angel funded online video advertising company, and he is an active angel investor in high tech companies. He is a member of the Band of Angels where he has served on the deal screening committee and has made about a half dozen investments in start-ups in the past several years with a focus on software and internet services, medical devices, and wireless technologies.

Jim started by giving a brief history of Silicon Valley, mentioning that although HP was founded in 1937 in a garage in Palo Alto it wasn’t until 1956 the first “silicon” business started in the valley. In 1968 Intel was founded, and in 1976, the same year I was born, so too was Apple in Steve Jobs’ garage in Los Altos.

The first angel group, the Band of Angels, was formed in 1994. Since then Angel groups have flourished world-wide, including Scotland. Of all the angel groups operating in the USA, 82% of them report making investments into software companies and 48% into telecoms companies. However, they do invest in a range of different industries but the failure rate is consistent, it doesn’t vary from industry-to-industry. More detailed facts and statistics available here.

ROI

  • 52% of angel deals return nothing, or less than the initial amount invested
  • 32% return between 1 and 5 times the original amount invested
  • 15% Return greater than 5 times the amount invested

It’s for that reason that angels and VCs look for outsize returns, usually a minimum of 10 times amount invested; simply put, there are a lot of duds that need to be paid for.

The record year for investments by VCs was, unsurprisingly 2000, when an enormous $100Bn was invested. In a telling sign of that overheated period the average amount invested per deal increased significantly. In most years before or after 2000 the average amount invested has been between $20 or $30Bn. Sadly, 2009 has been significantly lower than this amount and shows there is still some way to go before confidence and level of investment returns to normality.

I asked Jim to explain why Silicon Valley still has an advantage for technology startups and he replied by quoting the famous crook who, when asked, “Why do you rob banks?”, sensibly responded, “Because that’s where the money is”. Out of all the VC money invested in the US, 38% is invested into Silicon Valley. As angels and VCs the world over tend to stick to their local area for investing, mainly out of practicality, startups continue to arrive. The odds are stacked against you though. Out of perhaps 70 pitches a month submitted to the Band of Angels, only 3 will get in front of the entire angel group, and only one of these will get funded.

The talk concluded with a summary of what investors look for in their investees:

  • Something that solves a big or complex problem
  • Something unique; a competitive advantage
  • Large and growing market for your product or service
  • Great team
  • Capital efficient and scalable
  • Exit strategy


Find out about the upcoming events in the Silicon Valley Speaker Series, including Alexis Ohanian, founder, Reddit. (I saw Alexis speaking a few weeks ago at MIT and I can definitely recommend attending to hear him!)


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