A Business Model With Legs (Or should I say “feet”?)
We were having an “around the water cooler” chat the other day about great business models. That night I went home and decided I was never going to make it to the mall for a pair of new shoes like I had been planning on doing for about the past four weeks (mainly because I hate shopping). So I pulled out the computer and the first website to jump to mind?
Zappos.
If you haven’t heard of Zappos you probably don’t do much online shopping. Founded in 1999 by Nick Swinmurn and early partner and now CEO, Tony Hsieh, it was almost ahead of its time even in Internet years. Consider that there was no such thing as search engine marketing and pay per click advertising in 1999. The only thing that they knew for sure was that shoes were a $40 billion industry, that there were no great online shoe stores at that time, and that they aimed to be the first.
Zappos is known as one of the bellweathers for outstanding customer service and much of their success is attributed to their extreme, almost maniacal passion for pleasing the customer. And while nobody denies that customer service played a role in their early success (and continues to play a role today), there were a lot of fortuitous events and great decisions as well.
What Nick & Tony did not foresee initially was that the shoe customer was a unique breed. They were very brand loyal, and they most often searched by brand name. And because of this brand loyalty, they were preeducated on the brand and didn’t need to be sold on it. The result was that Zappos didn’t need to spend a ton of money on advertising the Zappos brand (except to try to impress the shoe companies who were reticent to do business with the young start up), they could spend that money advertising the brands they carried, which gave them an immediate ROI on their advertising dollars.
When Search Engine Marketing was introduced shortly after Zappos start, they took early advantage of the ability to advertise shoe brands as key words. This made their marketing efforts truly pay off and the growth boom began.
But Zappos growth wasn’t all just fortuitous timing. Tony made a couple of key decisions along the way that paid big dividends. One is the insane return policy: 365 days! and free return shipping! Another was the idea of randomly upgrading shipping for returning customers to 2nd day air or even overnight. They realized that they were competing against the instant gratification of shoe shopping at the mall. In that same vein, they also made the decision that they had to warehouse all of the product themselves in order to better control fulfillment and handle returns. In other words, to be able to control the customer’s experience.
Whatever it is that has made Zappos great, I personally admire their core values and think any company would do well to adopt them as a core for a great business model.
1. Deliver WOW Through Service
2. Embrace and Drive Change
3. Create Fun And A Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Honest Relationships With Communication
7. Build a Positive Team and Family Spirit
8. Do More With Less
9. Be Passionate and Determined
10. Be Humble
Most people that are familiar with the Zappos story know that Amazon bought them only recently after competing with them directly for years, never able to get much of a foothold against them.
Another great business model I suppose; if you can’t beat them, buy them.