Why Zappos Works

So I won this free conference pass to Online Market World thanks to the folks at Get Elastic, the E-commerce Blog. (Thanks, Linda and Jason!)

Tony Hsieh, CEO of Zappos, was the keynote speaker on morning #2.

So here he is, a regular guy in t-shirt and jeans. Here’s what he had to say:
Tony Hsieh

“What led me to Zappos-it started out in college with pizza. I bought some pizza ovens and started selling pizzas to the kids in the dorm. There was a guy named Alfred who would come in every night and buy a large pizza. Sometimes he would come down 3 hours later and buy another pizza. He was taking them upstairs and selling them buy the slice. So now he’s our CFO.


  • 1994- 1995: pizza
  • 1996 – 1998: LinkExchange (online advertising)–sold it to Microsoft. Didn’t pay attention to company culture. It grew to 100 people, and suddenly wasn’t fun anymore.
  • 1999: Venture Frogs
  • 1999: Zappos.com

We want Zappos to be about the very best customer service, the very best customer experience. We’ve had people call us and ask us would we please start an airline or run the IRS.

Some stats:

  • 2.9% of the US population is a customer of Zappos.
  • 75% are repeat customers.
  • Repeat customers spend more with us and buy more and more frequently.
  • Almost $1B in online sales.

Rather than spend a lot of money into advertising, we put the money into the customer experience, and let our customers spread the word for us.

We operate 24/7 and we have the 1-800 number on EVERY PAGE. We don’t look at customers calling us as something we want to avoid–we actually WANT to talk to our customers. This is an opportunity to brand ourselves and create an experience that the customer will remember for the rest of their lives.

Zappos policies: Free shipping both ways. 365-day return policy.

It’s not just policies that make great customer service. It’s what the customers experience afterwards. We designed our fulfillment system to display only things we actually have in our warehouse.

Fast, accurate fulfillment.

We surprise our customers by upgrading them to upgraded shipping. Customers order and are surprised to have the shoes on their doorstep the next morning–that creates an emotional impact on the customers that they share.

We run our customer loyalty center differently. We don’t have scripts and we don’t upsell. We don’t track call times. We encourage our customer service people to go above and beyond. If a customer is looking for a specific style to look at a competitor’s web site. We’re more interested in a lifelong relationship with the customer than a specific transaction. We’re not just trying to get sales.

We maximize for the customer experience. We run our warehouse 24/7 and it’s not the most efficient way to run a warehouse, but it makes sure we can do things like deliver shoes that the customer ordered at midnight the very next day.

Our #1 priority is company culture. Why? #1 is because of LinkExchange. I want to be at a place that I look forward to every day. All companies are becoming more and more transparent. All it takes is one unhappy customer or one disgruntled employee and it’s all over the web and twitter. But the reverse is true too–if someone has a great experience, they’re going to share it. Your company culture is reflected in your customer experience.

At Zappos, everyone that’s hired goes through the same training in our Las Vegas office. It’s a 4-week program–we go over company culture, core values–then you’re actually on the phone with customers for 2 weeks. Then you’re at the warehouse for 2 weeks. You can’t possibly go through that 5 weeks and not be on the same page as the rest of us. There are some people that don’t make it through the training. But because we want our brand to be about the best customer service, it should be not just a department, it’s the whole company. Many of our employees jump on the phone during the holiday season. 

We pay people $2,000 to quit. We do that because we don’t want people at Zappos just to collect a paycheck. Before we did this, we could predict which people wouldn’t work out for the long term, but it took them 6-9 months to leave, and by then they’d sucked up a lot of company resources. We keep upping the offer until more people end up taking it. It’s the people that stay that make a difference because they have to go home and think about whether they really want to stay with this company. They know this is a company they want to be with for the long term. We want our employees to be with the company for life.

We have a Culture Book–it has entries from employees in all departments.

Our HR department does a separate set of interviews purely for culture fit. We’ve actually passed on a lot of great people because they didn’t fit with our culture. We’re willing to make that sacrifice to protect our culture.

How does culture impact the customer experience?

A woman found the perfect pair of shoes for her husband and she was waiting for her husband to come home so she could surprise him with the shoes and he unfortunately died in a car accident on the way home. So she called the company for help with the return process, and the rep she talked to sent her flowers. She was so touched, she told the story to everyone at the funeral. This type of situation doesn’t happen very often–we don’t have a process or procedure for that. But because we hire for culture, the rep just took it upon herself to send the flowers. She didn’t have to ask for approval–she was empowered to do that. She wasn’t thinking about what is the impact on our profits. She just knew this was the right thing to do.

One woman returned a wallet, but didn’t realize she’d left $150 in the wallet. A couple days later she got an envelope with a letter. We noticed there was $150 in the wallet and thought you would like it back. That was from an employee in the warehouse who could really have used that extra money, but he didn’t keep it because of the company culture.

If you get the culture right, most of the other stuff just happens. Stories like this are happening every single day. We’re building our brand one customer story at a time.

4 things to build a brand that matters:

  1. Vision: whatever you’re thinking, think bigger. Does the vision have meaning? Chase the vision, not the money … The employees are more engaged. It’s a higher purpose. Don’t think of it in terms of market size. What’s your passion? That’s what you should go after. If you’re doing something that you’re passionate about and you’re not trying to make money, the money ends up finding you. A great example of that is Craig’s list.
  2. Repeat customers: we spent $75,000 at the Giants stadium to get a billboard and discovered we only got 3 new customers from that. Then we tried giving customers $10 off, but we found they weren’t loyal. As soon as we stopped offering $10 off, they stopped ordering. Trying to win on price isn’t a winning game. We decided we were going to differentiate ourselves through great customer service. We focused on getting the % of repeat customers higher and higher. Every time we improved the customer experience, the numbers went up.
  3. Transparency: be real and you have nothing to fear. Be open about it. If you’re always trying to hide what the company is really like, people will find out. One of our core values is honesty. We have a newsletter that comes out every month called Ask Anything. We publish it once a month and answer every question any employee has. We don’t hide anything. We share as much as possible. Each of our brands can log into our extranet and they can see everything our internal buyers can see. We have an extra 1500 pairs of eyes monitoring our business for us. They notice which styles are selling and which aren’t. It makes everyone feel like Zappos is this huge partnership. It’s not “us vs. them”. We have blogs. We put up 10 – 15 blogs / day. We also use twitter quite a bit (twitter.zappos.com). A lot of companies are afraid of twitter, but because we’re transparent we thought it was perfect for our company. There’s a link that shows you the 400 employees that are using twitter, and a link to each employee. You can see how friendly they are to each other; how family-oriented we are. I started using twitter and found it was a great way to facilitate serendipity. Employees find out when other employees have similar interests and start hanging out with people they might not have known about. Through each employee tweet, they get a feel for the Zappos brand. We’re not using Twitter to get more sales–we’re using it to build a more personal connection with the customer. We have 1600 employees, but we still have that personal, small-company feel.
  4. Culture: committable core values. We formalized our definition of culture. It was a year-long process that we involved all our employees in. We came up with a list of 10 core values. They can’t be lofty and remote. Committable means you’re willing to hire for them, and you’re willing to fire for them, even if they’re doing their job. The problem with lofty core values is you end up making compromises for them. That’s how the company culture ends up going downhill.

Zappos Core Values:

  1. Deliver WOW through service.
  2. Embrace and drive change.
  3. Create fun and a little weirdness. We put this in our job ads and ask it on our application ( on a scale of 1 to 10 )
  4. Be adventurous, creative, and open-minded. On our app form “on a scale of 1 to 10, how lucky do you feel you are?” We look for not just the number, but the reason behind the number. The question came from a study. You make your own luck.
  5. Pursue Growth and Learning
  6. Build open and honest relationships with communication

10. Be humble. We’ve not hired people just because they were egotistical.

Tony ended his talk with another pizza story. He went bar-hopping with some shoe vendors. The Skechers gal really wanted some pizza, but they couldn’t find a place that was open. Someone joked, “Why don’t you call zappos and order pizza from them?” The gal from Skechers took the dare and called Zappos. The rep said “You know we don’t sell pizza, we sell shoes,” but he put her on hold and then got her a list of the 5 closest places that sell pizza at that time of night.

Zappos is a lifestyle. The trend is that when employees hanging out with each other, inevitably they end up talking about Zappos. We encourage dating. Do people want to sign up for the Zappos lifestyle? We tell managers they should spend 10 – 20% of your time outside of Zappos hanging out with Zappos employees. It makes the team more efficient because employees think of it as “I’m helping out a friend” when something outside their job description is asked of them.”

That’s Tony’s story. Hearing it was awesome: it really helped me understand why Zappos is so successful. They’re commitment to customer service and company culture is something very unique in the marketplace, something customers really appreciate–and talk about. And so the word spreads and Zappos gets more and more business.

I’ve bought shoes from Zappos, and wow, did they make an impact on me that I’ll never forget!

14 Responses to “Why Zappos Works”

  1. 1 DJ Waldow October 10, 2008 at 1:11 pm

    One of the most inspiring blog posts I’ve read in some time…

    Thanks for sharing.

    DJ Waldow

  2. 2 Ryan Buchanan October 12, 2008 at 2:15 pm

    I hope this is the new generation of all 20 and 30-something year old entrepreneurs running their businesses where employees come first and customer evangelists come from that. Life is boring if you play it safe. Dare to delight customers and be a little different.

  3. 3 Lee Steele November 3, 2008 at 4:44 pm

    Zappos’ success – another great example of “doing well by doing good.” Excellent article. A company I’d like to work for!

  4. 4 Michael J Fox November 10, 2009 at 8:21 pm

    This is by far the most amazing ecommerce success story I know of. Its more and more amazing every time I learn something from Tony.He has to be one of the best Word of Mouth advertisers I know of.

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