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


How to measure product/market fit and the implication for external finance

October 31, 2009

The Startup Pyramid

Earlier this week I attended one of many excellent talks organised by the Informatics Ventures and Edinburgh University Entrepreneurship Club. This week’s talk was by Sean Ellis of 12in6. Sean has worked in marketing roles at web companies LogMeIn, Xobni and Dropbox; amongst others. He is known for his metrics driven approach to customer development and in this talk he shared with us how you evaluate whether or not you’re at that critical moment in a startup’s life: product/market fit. I want to share with you the implication this moment has on raising and spending capital. I have seen that too many startups are obsessed with raising finance, but don’t appreciate the negative cost of this if taken at the wrong stage.

Although it was made famous by Marc Andreesen, I believe it was Andy Rachleff, co-founder of Benchmark Capital who coined the phrase product/market fit.

Product/market fit is being able to satisfy a good market with a good product.

But how do you determine you are there? According to Sean the key question to ask users is “how would you feel it you could no longer use our product?” If you achieve product/market fit you are looking for greater than 40% of respondents answering “very disappointed” to this question.  If less than that you need to keep working on your product until you have something people really need. Sean’s made available a free survey tool and all the necessary questions pre-populated at Survey.io; if you have a product right now and you’re not sure where you are then start with this.

If you have P/M Fit you probably know it already; the sales are already piling up, the phones are ringing and there is press interest in your product. If you don’t know you are there yet then you’re probably not there yet. Assuming you’re not there and still struggling then a way to measure it will help you get there (and stop you from kidding yourself that things are going well).

Assuming you hit the jackpot and achieve over the 40% benchmark what comes next? Life after product/market fit is very different. It becomes all about the race to scale up; if you have found a successful formula speed is critical and you must go for growth and make the most of your advantage. Before product/market fit you focused on conserving cash, but now you need to change your mindset, you want to spend, spend, spend; assuming you can demonstrate the return. This is where Sean’s metrics driven approach to marketing pays off: relentlessly measure and optimise for ever greater conversion rates. Simply put, spend more on the areas that deliver the biggest ROI.

Spending money is only possible if you have it to spend, so you don’t want to get to this stage and discover you have a fantastic product, loved by the market but due to a lack of cash you cannot scale up and take advantage of your fortunate position. It is at the crucial point of P/M Fit where external capital comes in very handy, and it’s also the point VCs get interested as you have removed a lot of the risk and guesswork by proving you’ve got a valuable product. Luckily as you can demonstrate you have P/M Fit it’s also cheaper for you to fund raise at this time.

Much of success in business is about timing and external capital acts as a magnifier; it magnifies all the good and bad things in your business. I would caution that if you are not at P/M Fit you probably are not ready for that injection of steroids.

Matt Mullenweg, founder of WordPress explains it by likening VC finance to rocket fuel, put it in your car and it will do one of two things: it makes you go very fast or it makes explode. The magnification effect of VC finance acts on all aspects of your business good and bad. Once you have P/M Fit that is the right time to be going fast, before then you want to extend the time it takes till you fail, not speed it up.

The point of all this is… raising money is not what matters, focus instead on building a good product and getting early traction with sales.


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