Question

Case Study 4: Zappos

Tony Hsieh’s first entrepreneurial effort began at the age of 12 when he started his own custom button business. Realizing the importance of advertising, Hsieh began marketing his business to other kids through directories, and soon his profits soared to a few hundred dollars a month. Throughout his adolescence, Hsieh started several businesses, and by the time he was in college he was making money selling pizzas out of his Harvard dorm room. Another entrepreneurial student, Alfred Lin,bought pizzas from Hsieh and resold them by the slice, making a nice profit. Hsieh and Lin quickly became friends. After Harvard, Hsieh founded Link Exchange in 1996, a company that helped small businesses exchange banner ads. A mere two years later, Hsieh sold Link Exchange to Microsoft for $265 million. Using the profits from the sale, Hsieh and Lin formed a venture capital company that invested in start-up businesses. One investment that caught their attention was Zappos, an online retailer of shoes. Both entrepreneurs viewed the $40 billion shoe market as an opportunity they could not miss, and in 2000 Hsieh took over as Zappos’ CEO with Lin as his chief financial officer.

Today, Zappos is leading its market and offering an enormous selection of more than 90,000 styles of handbags, clothing, and accessories for more than 500 brands. One reason for Zappos’ incredible success was Hsieh’s decision to use the advertising and marketing budget for customer service, a tactic that would not have worked before the Internet. Zappos’ passionate customer service strategy encourages customers to order as many sizes and styles of products as they want, ships them for free, and offers free return shipping. Zappos encourages customer communication, and its call center receives more than 5,000 calls a day with the longest call to date lasting more than four hours. Zappos’ extensive inventory is stored in a warehouse in Kentucky right next to a UPS shipping center. Only available stock is listed on the website, and orders as late as 11 p.m. are still guaranteed next-day delivery. To facilitate supplier and partner relationships, Zappos built an extranet that provides its vendors with all kinds of product information, such as items sold, times sold, price, customer, and so on. Armed with these kinds of details, suppliers can quickly change manufacturing schedules to meet demand.

Zappos Culture
Along with valuing its partners and suppliers, Zappos also places a great deal of value on its employee relationships. Zappos employees have fun, and walking through the offices you will see all kinds of things not normally seen in business environments—bottle-cap pyramids, cotton-candy machines, and bouncing balls. Building loyal employee relationships is a critical success factor at Zappos, and to facilitate this relationship the corporate headquarters are located in the same building as the call center (where most employees work) in Las Vegas. All employees receive 100 percent company-paid health insurance along with a daily free lunch.
Of course, the Zappos culture does not work for everyone, and the company pays to find the right employees through “The Offer,” which extends to new employees the option of quitting and receiving payment for time worked plus an additional $1,000 bonus. Why the $1,000 bonus for quitting? Zappos management believes that is a small price to pay to find those employees who do not have the sense of commitment Zappos requires. Less than 10 percent of new hires take The Offer.
Zappos’ unique culture stresses the following:
1. Delivering WOW through service
2. Embracing and driving change
3. Creating fun and a little weirdness
4. Being adventurous, creative, and open-minded
5. Pursuing growth and learning
6. Building open and honest relationships with communication
7. Building a positive team and family spirit
8. Doing more with less
9. Being passionate and determined
10. Being humble
Zappos’ Sale to Amazon
Amazon.com purchased Zappos for $880 million. Zappos employees shared $40 million in cash and stock, and the Zappos management team remained in place. Having access to Amazon’s world-class warehouses and supply chain is sure to catapult Zappos’ revenues, though many wonder whether the Zappos culture will remain. It’ll be interesting to watch!19

Case Study 4: Zappos

1)Define SCM and how it can benefit Zappos. (1 Mark)

2)Explain CRM and why Zappos would benefit from the implementation of a CRM system.    (1 Mark)

3)Demonstrate why Zappos would need to implement SCM, CRM, and ERP for a connected corporation. (1 Mark)

4)Analyze the merger between Zappos and Amazon and assess potential issues for Zappos customers. (1 Mark)

5)Propose a plan for how Zappos can use Amazon’s supply chain to increase sales and customer satisfaction. (1 Mark)

Answer 1

1. SCM is Supply Chain Management. SCM is basically the management of interconnected business to facilitate the production and assembly of the final product. At Zappos, SCM can help in streamlining the procurement and manufacturing process to achieve cost effectiveness.

2. CRM is customer relationship management. It aims at enhancing the relationship of a system with its customers

There are basically 2 types of CRM:

• Operational CRM: focused on managing the daily operations of business
• Analytical CRM: facilitates consumer acquisition process and suggests efforts to retain them

The various ways in which Zappos can extend its customer reach by capitalizing on CRM features are:

• Identification on potential customers
• The company can market its products and services by sending newsletters to the potential customers
• The company can study the demographics and plan its product placement strategy

3. The primary objective of enterprise resource planning i.e. ERP is to enhance and streamline the internal operations of a business.

CRM stands for customer relationship management. It aims at enhancing the relationship of a system with its customers

SCM is supply chain management. The chief aim of SCM is to facilitate the interaction and collaboration of the company with its associate partners like manufacturers, suppliers, distributors, etc.

The integration of SCM, CRM and ERP will facilitate the operational efficiency as well as customer responsiveness at Zappos. This will help the company in maintaining its competitive edge in the market.

4. Amazon merged with Zappos and this can prove both advantageous as well as disadvantageous for the company. Zappos can leverage on the wide coverage and brand power of Amazon. This can be the benefit from the merger. The potential issue of the merger can be the subtle difference in leadership of both the companies may lead to clashes in future. Tony Hsieh is the living example of authentic leadership. Authentic leadership runs on the nurturing lines established between the leader and his followers. Tony Hsieh has always been vocal about how much he values his employees. He feels his nurturing attitude motivates the employees to stay productive and creative at the company. He had been successful in aligning the company’s dream with the employee’s dreams, which ultimately led to the success of Zappos. The 3 key mantras of Hsieh leadership are:

• Take pride in being unique – Holocracy
• Leader must connect with his subordinates
• The leadership must be crafted to appeal to the common ideas

Jeff Bezos’ leadership is the best example of no-frill leadership. He has a very practical and business-minded approach. He is known for saying mean things to his employees. He believes in running business in practical, no-frills way. The ultimate objective in his view is to make profits. The key mantras of Bezos’ leadership are:

• Obsess over the customers and make them your priority
• Find commitment among employees through clarifying values
• Recognize the employee’s efforts timely to make his contributions count.

This leadership clash may get reflected in the operational efficiency of the company and the overall quality of the products may get hampered.

5. Zappos can utilize on Amazon Prime services to deliver the order to the customers within 1-2 days of making the order. This will enhance its customer responsiveness as well as overall customer satisfaction. The widely laid distribution centers of Amazon will be of great help to Zappos in this regard.