Live from eTail: Zappos CEO Shares Top 10 List

Aug 08, 2007 6:08 AM  By

Washington—Apparel and shoes marketer Zappos.com is renown for its customer service—particularly its free overnight shipping. But Zappos made its fair share of missteps in its eight years of existence. CEO Tony Hsieh detailed the merchant’s top 10 lessons learned in e-commerce during his Aug. 7 session at the eTail conference.

“There was no master plan” for success, Hsieh said; “There wasn’t even a regular plan.” Yet Zappos.com grew from $1.6 million in 2000 to $597 million last year. Here’s what it’s learned so far:

1) The e-commerce business is built upon repeat customers. Like most Web merchants in the early days of online, Zappos spend a fortune on high-profile ads to acquire customers. It’s since learned that it pays off to focus on repeat buyers.

2) Word-of-mouth really works online. Unfortunately, WOM can work against you as well as for you, as Zappos realized when customers would CC their friends on complaint e-mails to the merchant.

3) Don’t compete on price. Early on Zappos offered a $10 coupon to anyone who made a purchase. This worked wonders at increasing conversion rates, but did not attract loyal buyers. Once its competitors came out with $15 coupons these customers jumped ship.

4) Make sure your Website is 100% accurate. The company ran into trouble when it used to have the manufacturers drop-ship orders, because their inventory was often off and created backorders and unhappy customers. Even 99% is not good enough, Hsieh said, because that 1% out-of-stock rate can make a big difference” when doing significant volumes.

5) Centrally locate your distribution. Originally based in San Francisco, Zappos started out with a California distribution center. But it took too long for customers on the East Coast to get their order, Hsieh said. Now headquartered in Las Vegas, Zappos fulfills out of a DC in Kentucky.

6) Customer service is an investment, not an expense. The goal is to create lifelong relationships with customers, Hsieh said. That’s why Zappos doesn’t measure call times; it’s also why the merchant will even refer customers to a competitor when it’s out of an item. Sounds risky, “but when they need another pair of shoes, they’ll go to Zappos,” he said.

7) Start small, stay focused. You’re never going to get a situation exactly right, Hsieh noted; “lots of weird little things will come up.” When Zappos made the move from shoes to selling apparel as well, “we didn’t promote it heavily—we’re slowly learning over time how customers by clothing online.”

8) Don’t be secretive. Don’t worry about competitors. “We believe in sharing as much information as possible with vendors,” Hsieh said, including reposts on sales, inventory, and profitability. “There’s a benefit to having 1,200 pairs of eyes looking at our business trying to help it grow” What’s more, “we don’t worry too much about what our competitors are doing—it takes the focus off our customers.”

9) You need to actively manage your company culture. Hire people based on how they will fit into the culture, Hsieh said. Zappos is all about customer service, so employees need to understand that and be willing to do what it takes to provide excellent service. “If you get the culture right, a lot of the other stuff will take care of itself,” he said.

10) Be wary of so-called experts, “including me,” Hsieh said. Zappos spent a lot of money on consultants in the beginning only to find that “we really should have trusted ourselves more.” Remember, he told the audience: “No one knows your customers better than you.”