Zappos.com is an online shoe and apparel retailer that has built a strong brand and has shown impressive sales growth since its founding. It’s based in Henderson, Nevada, just outside Las Vegas. The company had zero sales in 1990, $370 million in 2005, and over $1 billion in 2008. In 2009, Amazon.com acquired Zappos for $1.2 billion with the agreement that it could operate autonomously and maintain its unique culture. Zappos’s formula for success is seemingly simple. It acquires customers through word-of-mouth and search engine marketing (SEM) and then wows them with customer service that keeps them coming back. The popular press often touts Zappos as the classic example of what can be accomplished through exemplary customer service.
But what’s really behind Zappos’s extraordinary success? Its prices are slightly on the high end. Its Web site isn’t fancy. And it sells shoes and clothing for crying out loud! How does Zappos consistently deliver such a high level of customer service that people are willing to buy shoes, clothing, and a variety of other items to the tune of $1 billion plus per year? Read on.

Why Shoes?
Zappos was founded by Nick Swinmurn. Swinmurn had such a hard time finding shoes that he started an e-commerce company to help people just like himself.
He was turned away by investors who thought it was crazy to think that people would buy shoes online.
Seriously—who buys shoes without trying them on first?
Swinmurn persevered, heartened by the fact that over $2 billion in shoes are sold via mail order catalogs every year—so people do buy shoes without trying them on.
Selling shoes is also a fundamentally good business. You don’t need to educate people about the product—people know shoes. The brands are strong, and the margins are good. The average order on Zappos.com is over $100, and the margin is 50 percent. That leaves a lot of room for profit. It’s also possible to run an effective SEM campaign for shoes. Try this: Search Google for “Nike shoes,” “New Balance shoes,” and “soccer shoes,”
one by one. How many times do you see search engine ads for Zappos to the right of the results? Many, right?

Customer Service
According to reliable reports, customer service is what makes Zappos special. Call center employees don’t use scripts and aren’t pressed to keep calls short. The longest recorded call was over five hours. Shipping and returns are free. The warehouse is open 24/7 so customers can place an order as late as 11 P.M. and still receive quick delivery. Behind the scenes, most orders are upgraded to next-day delivery so customers are pleasantly surprised when their order arrives before expected. Normally, the early arrival is accompanied by an e-mail message from Zappos saying that the order was upgraded to next-day delivery because you are a “valued customer.”
Zappos also has a very liberal return policy. It will take returns for up to 365 days no questions asked.
When a customer is on the phone with a Zappos employee and is struggling with which pair of shoes to buy, the Zappos employees will suggest that the customer buy both pairs, and simply return the less desirable shoes. If Zappos’s warehouse is out of a pair of shoes a customer wants, Zappos will e-mail the customer links to other Web sites where the shoes are for sale. Zappos also does little things to help its customers out. For example, its toll-free phone number is listed at the top of every page on its Web site.
Employees are given sufficient autonomy so they can do what they believe is “right” for the customer. For example, on one occasion a woman called Zappos to return a pair of boots for her husband because he died in a car accident. The next day she received a flower delivery, which the call center employee had billed to Zappos without checking with her supervisor.
What all this effort has gotten Zappos is a loyal customer base and word-of-mouth advertising.
Approximately 75 percent of Zappos’s orders come from existing customers.

Tony Hsieh
CEO Tony Hsieh is at the center of everything Zappos does. In his early 20s, Hsieh started a company called LinkExchange, which let small companies barter for banner ads. Hsieh insisted that every e-mail coming into the company was answered promptly and politely. In college, Hsieh made money by selling pizzas out of his Harvard dorm room. A classmate, Alfred Lin, bought whole pizzas from Hsieh and resold them piece by piece, making more money. Hsieh sold LinkExchange to Microsoft for $265 million in 1998 and he and Lin started an angel investment fund. Zappos’s founder Nick Swinmurn pitched Hsieh and Lin, trying to raise money.
Hsieh was so impressed with Zappos’s market opportunity that he invested in the firm and briefly served as Zappos’s co-CEO with Swinmurn. It wasn’t long before Hsieh and Lin were running Zappos. Hsieh became Zappos’s CEO and Lin became the CFO in the early 2000s.
Hsieh isn’t the typical CEO, and his values, personality, and approach to doing business have clearly shaped Zappos’s culture. Hsieh works in an open space amid a cluster of employee cubicles. He hosts employee parties and barbecues at his home, encourages employees to hang out after work, and spends his spare time studying the science of happiness. Zappos employees are encouraged to decorate their work spaces. Hsieh’s desk features jungle vines and an inflatable monkey.

Discussion Questions
1. What are some key points/traits that make Tony Hsieh and Zappos so successful?
2. How would you describe Zappos’s approach to human resource management? Do you think Zappos’s approach to human resource management is unique to Zappos, or do you think many of the policies Zappos has adopted could be used successfully in other firms?
3. To what extent do you believe the story that Zappos excels because of customer service and its customer service excels because of savvy human resource management?
If you believe the story, what can other entrepreneurs learn from Zappos’s experiences?
4. Reflect on the two primary challenges facing Zappos identified at the end of the case. How do you think Zappos should respond to these challenges? In your opinion, what is Zappos’s third primary challenge?

Application Questions
1. What can start-ups learn about building a successful company culture by familiarizing themselves with Zappos and Zappos’s story?
2. Spend several days following Tony Hsieh’s Twitter account. Describe your reaction to what you read.
Also, access Zappos’s YouTube channel at www.youtube.com/zappos. What seems to be the purpose of this initiative? Watch several of the videos that Zappos has posted. What did you learn about Zappos by watching these videos?