1. Explain how customer service fulfills a significant portion of Zappos’ production function.

2. What kind of firm might Zappos use for benchmarking? Why?

If you like shoes, you’ve heard of Zappos. Perhaps you’ve ordered a pair (or two or three) from the popular Web site, taking advantage of the free shipping and free returns. Tony Hsieh, CEO of Zappos, wants you to be happy. He wants to you be happy with your shoes, and if you’re not, he wants to make returns easy for you. This is because he wants you to come back and order more shoes—which you probably will. Hsieh believes that the best way to attract and keep customers is to “wow” them with customer service. It’s a formula that works—Zappos reports that nearly 75 percent of its business comes from repeat customers.

Although Zappos is now owned by Amazon, and has also grown to offer apparel, accessories, and other products, the company’s commitment to customer service has not changed. Delivering top service, which includes fulfilling and shipping orders as quickly as possible, is a significant part of Zappos’ production function. While Internet and other computer technology helps speed delivery and turnaround time, it also sets the bar higher than ever before. One survey recently revealed that consumers would be willing to pay nearly 11 percent more for superior customer service at online shopping sites. “Due to the seemingly distant and remote nature of online shopping, it makes sense that consumers would pay a higher premiumto have the comfort and peace of mind that they will be taken care of in the case of a serious question, concern or problem,” concluded the survey.

Customer service is also an investment in quality. Zappos currently has a Customer Loyalty department staffed by 380 employees whose job it is to communicate among the different departments of the company and with customers. The customer loyalty team interfaces with the resource desk, order verification (anti-fraud team), quality assurance, kaizen (continuous training), and e-mail/ live chat, along with other departments as necessary. Customer loyalty team members have the authority to send individual customers personal notes or request flowers for a wedding or anniversary celebration. They don’t need to ask permission to issue refunds or coupons or to give out their contact information. At Zappos, the outlook is that everyone is a customer and should be treated with respect.

Constant improvement is also part of the company culture. “Let’s take our learnings and improve, constantly,” says marketing chief Aaron Magness. “If we rest, we’ll be passed by the next more hungry business.” Tony Hsieh agrees, adding that it is necessary to embrace change, recognizing opportunities in the industry and the marketplace. The formula must work—Zappos rakes in more than $1 billion each year selling shoes online to customers who haven’t even tried them on to see if they can wiggle their toes.