Company Background
Zappos is an online business that specializes in the sale of clothes and shoes. The company was established in 1999 by Nick Swinmurn after a local mall failed to satisfy his needs. Nick was in need of a pair of brown Airwalks, but he could not get them from any of the nearest shopping malls. The inspiration to establish an online business that sold shoes led to Nick approaching Lin and Hsieh who embraced his vision (Staley 14). In June 1999, the three launched the business under the name ShoeSite.com, and a few months later, changed the name to Zappos. The primary objective of changing the company’s name was to enable it to diversify its product portfolio. In 2001, the company’s annual sales grew tremendously. Staley claims that Zappos recorded annual sales of $8.6 million. In 2004, “Zappos did $184 million in gross sales and received their first round of venture capital, a $35 million investment from Sequoia Capital” (Staley 19). The company relocated its head office from San Francisco to Henderson, Nevada. Between 2004 and 2007, Zappos doubled its yearly sales volume and introduced other products, which included eyewear, watches, clothing, handbags, and children merchandise.
In 2008, the company made $1 billion in sales and a year later featured in the Fortune’s top 100 companies. The desire to increase profit led to some company’s board of directors contemplating selling Zappos to Amazon. However, Lin and Hsieh were concerned that the move would result in Zappos losing its corporate culture. Unfortunately, the majority of the board members were ready to sell the corporation. In July 2009, Amazon.com purchased Zappos at $1.2 billion and assumed full control of the business’ operations (Staley 23). In 2013, the company relocated its headquarters back to Las Vegas. Currently, Zappos specializes in selling shoes and clothing. At least 80% of Zappos’ revenue comes from shoes. The company sells over 50,000 brands of shoes, which include ALDO, Ugg boots, Steve Madden heels, and Nike among others (Staley 26). It sells various types of footwear, among them soccer cleats, dress shoes, running shoes, high heels, sandals, Crocs, basketball shoes, and slippers. Today, Zappos has invested in multiple ventures, which include Zappos Insights and 6pm.com. Zappos Insight assists entrepreneurs to enhance their customer service and corporate culture. The company runs a subscription video service that allows entrepreneurs to interact with its employees and ask them questions. It also organizes workshops where entrepreneurs get a chance to visit Zappos’ command center and intermingle with the company’s executives.
Mission, Goals, and Values
According to Zappos’ chief executive officer, Tony Hsieh, the company was not established with the sole objective of selling shoes but to offer excellent customer services. Thus, the company’s mission is to “provide the best customer service possible” (Staley 32). The mission corresponds to ten core values that drive the daily operations of the business. The primary goal of Zappos’ leadership is to position the company as a leader in online services. Their objective is to “get customers to associate the Zappos brand with utter best services” (Staley 37). According to Staley, Zappos endeavors to deliver “wow” through excellent services (38). The company strives to offer innovative and unconventional services. The corporation also encourages employees to embrace and promote change as a way to boost competitiveness. Zappos emphasizes the importance of operating in an environment that accommodates fun and modest weirdness. It allows employees to express their personality as a way to promote diversity. The firm encourages workers to be intrepid and audacious. Additionally, it inspires creativity, adventure, and open-mindedness.
The leadership of Zappos acknowledges the importance of encouraging employee growth and development. The company advocates openness and honesty to promote a healthy relationship with clients, suppliers, co-workers, and business associates (Staley 41). It also encourages employees to establish a strong team and uphold the family spirit. Zappos is dedicated to offering quality services. Thus, it encourages employees to do more with the limited resources at their disposal. An organization cannot provide excellent services if its employees are not passionate about their work. Thus, Zappos inspires its workers to be zealous and determined. It also requires employees to be humble always and to treat others with respect.
External Analysis
Porter’s Five Forces
Zappos falls under the apparel industry as it sells shoes, clothing, and accessories. Porter’s five forces help to determine the nature of an industry and its profitability. The framework focuses on five essential factors that influence organizational performance (Magretta 23). They are customer power, competitive rivalry, supplier power, the threat of new entrants, and substitution.
Customer Power
Customer bargaining power influences the success of the apparel industry. Clients may decline to purchase merchandise, impact the prices of products, or opt to do business with other companies. In the case of the apparel industry, customer power is relatively high. Even though the majority of the customers buy clothes in small quantities and do not have direct bargaining power, they can choose from numerous companies that specialize in this business. According to Magretta, customers have indirect bargaining power as apparel companies offer them limited incentives to remain loyal (31). Most clients are price sensitive and purchase products based on their costs. The absence of brand loyalty in the apparel industry gives customers a significant influence over the companies.
Supplier Power
In the apparel industry, supplier power is relatively insignificant. The majority of the apparel businesses get their products from foreign manufacturers at low prices. The suppliers have limited influence on the garment industry as they are not indispensable. Clothing companies can always source their products from alternative vendors.
Competitive Rivalry
Competitive rivalry is lofty in the apparel industry due to the high number of companies that sell similar products. Organizations leverage differentiation and branding strategies to overcome competition. According to Su, there is limited innovation in the apparel industry, leading to the market being flooded with identical products (24).
The threat of New Entrants
The threat of new entrants is moderate in this industry as companies have nothing new to introduce into the market. Nonetheless, new entrants may come up with unique ways of marketing their brands, thus waging competition on existing businesses (Su 27). The industry has huge opportunities and risks for new entrants.
Threat of Substitution
The threat of substitution is low because clothes and shoes cannot be substituted. People will always require buying clothes and shoes. Nonetheless, the introduction of online businesses is gradually replacing retail outlets that deal with apparel.
Macro-Environment
Legal and political factors are among the macro-environmental factors that affect the garment industry. Child labor and employee rights issues impact the performance of the apparel industry. Employee strikes affect the productivity of the industry. Consumer factors like culture, lifestyles, norms, and demographics also affect the garment industry (Pelletier and Mujtaba 227). The industry requires investing in new models of shoes and clothes to suit the changing lifestyles of the target market. The shortage of raw materials like leather compels the industry to look for alternative ways of manufacturing the products.
Opportunities and Threats
Demographic and lifestyle changes pose immense opportunities to the sector as companies can produce innovative products to satisfy new consumer demands. On the other hand, political factors like child labor and employee rights may result in industrial actions, which can affect the productivity of the industry. Little supplier power gives companies an opportunity to source raw materials and finished goods at low costs. It can help to boost the profit of an organization. Competitive rivalry in the apparel industry may threaten the survival of the business. The low threat of new entrants in the industry gives existing companies an opportunity to concentrate on product or service differentiation to overcome competition.
Internal Analysis
Value Chain Activities
Zappos engages in value chain activities that enable it to compete with rival companies. The activities can be grouped into primary and supporting actions. According to Pelletier and Mujtaba, one of the main goals of Zappos is the dedication to daze customers through quality service delivery (228). Therefore, customer service is one of the principal activities that contribute to Zappos’ competitive advantage. The business trains employees on how to handle customers. Consequently, the workers offer excellent services, which help to boost consumer experience. The determination to provide quality services has led to Zappos empowering its employees. Employees are encouraged to do their best despite limited resources. Zappos has efficient shipping and delivery arrangements. The company has efficient inbound logistics that enable it to acquire products from suppliers on time (Shima and Shirasaka 114). Moreover, it ensures that products are shipped to subsidiaries on time. The company’s outlets never run out of stock, and customers can purchase almost all the products that they require. Zappos’ competitive advantages originate from its brand. The company has worked hard to enhance its culture. Zappos uses a unique recruitment approach that enables it to hire employees who fit in its culture. The company is renowned for turning down experienced applicants who do not meet its cultural requirements.
Resources and Capabilities
One of Zappos’ invaluable resources is its workforce. The company comprises a team of employees with vast knowledge about Zappos’ culture, mission, vision, and core values. Consequently, the employees can quickly come up with strategic decisions and initiate programs aimed at helping the firm to realize its long-term goals. Kopelman et al. allege that Zappos can design the precise shade, style, and size of shoes that the customers desire (24). The majority of apparel companies cannot give exact details of the sizes and shades of the shoes that they need to stock. The ability to identify the features of shoes enables Zappos to stock a high number of products in its stores. Indeed, the company can meet the tastes and preferences of almost every client. Zappos has a call center that operates at all times. Thus, the company receives consumers’ complaints and responds to them promptly, thus safeguarding its brand image. Moreover, the call center helps to collect customer feedback, which is invaluable in determining the kind of products to stock.
Strengths and Weaknesses
One of the primary advantages of Zappos is the ability to observe a customer-centric culture and offer quality services. Clients prefer to relate to a business that is conscious of their needs. Zappos appreciates the significance of service delivery in promoting organizational success and sustainability. As a result, the company gathers consumer feedback and uses it to source products and streamline service delivery (Kopelman et al. 27). The company does not follow scripted rules to guide service delivery. Instead, employees have the liberty to tailor their services to the needs of individual customers. Consequently, they ensure that the clients come back to Zappos’ stores by making shopping experience unforgettable. Zappos uses a clear recruitment strategy that enables it to hire the best employees who match its culture (Kopelman et al. 29). The major weakness of Zappos is that other companies can emulate their services. Rival businesses may copy what Zappos does, thus waging stiff competition. Hence, Zappos requires coming up with innovative service delivery techniques on a regular basis to mitigate risks attributed to imitation by competitors.
Business-Level Strategy
Zappos uses a differentiation strategy at the corporate level. According to Banker et al., “differentiation strategy calls for the development of a product or service, which offers unique attributes that are valued by customers and perceived to be better than or different from those of the competition” (879). Zappos has come up with effective service policies to distinguish itself from competitors. The company offers free shipping services to clients. Hence, customers have an opportunity to try on shoes until they are satisfied as they do not incur shipping costs. Moreover, the company gives the duration of one year to customers to return shoes or clothes that do not meet their interests. The business’ call center operates around the clock and helps to resolve customer complaints. Even though the company incurs operations costs in offering the services, it believes that they contribute to its success.
The determination to provide excellent services has resulted in Zappos investing in employee development. Additionally, the company has established a friendly culture with the objectives of nurturing and retaining its staff. The firm’s leadership invites employees to rate the business and share ideas on what ought to be done to enhance service delivery. The intention is to make sure that workers help to formulate service delivery strategies that suit their capabilities. Additionally, the participation of employees in decision-making enables Zappos to offer consistent services.
Zappos leverages face-to-face interaction with customers to differentiate itself from competitors. The company spends little on advertising or conventional marketing strategies. Instead, employees interact with their clients and use the opportunity to establish a lasting relationship. The company appreciates that one-to-one communication has the power to build strong relationships. The employees do not only endeavor to offer a “wow experience” but also address the needs that customers may fail to mention during their interactions. According to Banker et al., the company makes an effort to understand what customers want and formulate ways to fulfill those needs (883). Zappos spends significant time monitoring and assessing consumer behaviors to enable employees to establish an emotional connection with customers. The workers are trained to use all means possible to assist customers. Unlike most companies, Zappos endeavors to use its time and financial resources to create lasting relationships with their clients.
Side-Effects
Differentiation has helped Zappos to build a strong brand image and enhance customer loyalty. Nevertheless, the strategy is associated with various costs. The company incurs huge operations costs as it requires spending a lot of money to equip employees with skills in service delivery. Additionally, the strategy is costly due to the duration it takes to bear fruits. Banker et al. claim that an organization may take years to build its brand and stand out from rivals (889). Stiff competition in the apparel industry cannot allow Zappos to rely on differentiation for an indefinite period.
Ethics and Corporate Social Responsibility
Zappos’ dedication to offering quality services to customers prompts employees to discharge their duties with integrity. Human resources are discouraged from manipulating clients or vendors. Additionally, they are supposed to disclose material facts and shun bad deals. The company ensures that employees get value for their money. The employees have come up with a program designed to make sure that Zappos partakes in environmental conservation. The move has given them an opportunity to contribute to mitigating global warming. Furthermore, the program ensures that the society lives in a healthy environment.
Recommendations
The costs associated with a differentiation strategy make it unsustainable (Banker et al. 892). Even though Zappos has managed to enhance customer services through differentiation, the company cannot use the strategy forever. Other companies will learn from it and copy its operations leading to stiff competition. The company requires striking a balance by competing on quality, price, or a blend of features that it finds appealing to customers. Rather than exclusively investing in differentiation, Zappos should use other strategies like the promotion to attract customers. The company manages to meet the needs of most customers. However, it should expand its inventory to satisfy all customers. The majority of clients own smartphones. Thus, Zappos should invest in smartphone applications that the clients can use to access its website and order products. It will go a long way towards helping the company to grow its market share.
Works Cited
Banker, Rajiv, et al. “Does a Differentiation Strategy Lead to More Sustainable Financial Performance than a Cost Leadership Strategy?” Management Decision, vol. 52, no. 5, 2014, pp. 872-896.
Kopelman, Richard, et al. “Interpreting the Success of Zappos.com, Four Seasons, and Nordstrom: Customer Centricity is but One-Third of the Job.” Global Business and Organizational Excellence, vol. 31, no. 5, 2012, pp. 20-35.
Magretta, Joan. Understanding Michael Porter: The Essential Guide to Competition and Strategy, Harvard Business Review Press, 2012.
Pelletier, Roger and Mujtaba Bahaudin. “Maximizing Employee Happiness and Well-Being: An Examination of Value Creation and Competitive Advantage at Zappos.” Advances in Social Sciences Research Journal, vol. 2, no. 4, 2015, pp. 220-232.
Shima, Seiji and Shirasaka Seiko. “Corporate Management Architectural Framework Utilizing Maslow’s Pyramid and Multi-Layer Customer Value Chain Analysis.” INCOSE International Symposium, vol. 26, 2016, pp. 109-123.
Staley, Erin. Nick Swinmurn, Toney Hsieh, and Zappos, The Rosen Publishing Group, Inc., 2014.
Su, Jin. “Strategic Sourcing in the Textile and Apparel Industry.” Industrial Management & Data Systems, vol. 113, no. 1, 2013, pp. 23-38.