Zappos’; CASE: GS-65

Zappos’; CASE: GS-65

Our decision was always to focus on service because we got instant feedback whenever we
upgraded delivery. Customers were wowed by the experience, and then they told a bunch of
people. And word of mouth works a lot faster on the Internet than it does person-to-person
because you can just e-mail out a bunch of your fliends and say, ’hey I just had this amazing
experience.’ That was one of the reasons that we wanted to keep upgrading shipping.
-Alfred Lin, Chairman, COo, and CFO of Zapposl
In late 2008, less than 10 years after its founding, Zappos anticipated reaching annual gross sales
of $1 billion. When its founder first proposed the idea of selling shoes online, the concept was
greeted with intense skepticism. Despite the challenges, the company had achieved dramatic
success. It was the world’s largest online retailer of shoes, was profitable, growing rapidly, and
had an outstanding reputation for customer service. Its employees were passionately, engaged in
their work. While shoes still provided the vast majority of revenues, Zappos had expanded its
product offerings based on feedback from customers and the enthusiasm of employees. There
was still a huge untapped customer base-only 3 percent of the U.S. population were Zappos
customers-suggesting that the company was not close to saturating its opportunities in the U.S.,
let alone other international regions.
However, the collapse of the financial markets, and the prospect of a prolonged recession,
created new challenges. Zappos had never been lavishly funded-it had always been intensely
conscious of cash. Unlike most retailers, it was continuing to grow, but early signs were that the
rate of growth was slowing. As the company’s leadership looked forward, it considered ways
that Zappos could sustain the high quality experience that it was known for-to deliver “wow” to
its customers, suppliers, and other affiliates. The company’s supply chain management had
evolved as Zappos had grown, and was one of its sources of excellence. Yet, perhaps there were
opportunities for continued improvement.
1 Quotations are from interviews with the author, unless otherwise specified.
David Hoyt prepared this case under the supervision of Michael Marks, Lecturer in Operations, Information, and
Technology, and Professor Hau Lee as the basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.
Copyright © 201] by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order
copies or request permission to reproduce materials, e-mail the Case Writing Ofice at: [email protected] edu or
write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University,
Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a
spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or
otherwise – without the permission of the Stanford Graduate School of Business.

Case study questions;

1. What are Zappos’ core competencies and sources of competitive advantages? How sustainable are they? What role does corporate culture plays in this question.

2. How important in the next day air shipment to the customer experience? Is it worth the cost? How might you change it in the cost-concious environment facing the company in the late 2008?

3. How wouldnyou expand the business? Would you add more products, more geographies,or by selling private lebels? As you expand the business, how can the company become more profitable,particulary in light of the cost associated with the forcus on service.

4. How would you expect the environment of a more cost- concious consumer to affect Zappos, business? What can Zappos do in such an environment to maintain sales growth?

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