Offering top-notch service and not trying to compete on price are two important lessons chief executive officer Tony Hsieh learned while taking Zappos.com Inc. from an Internet start-up to a $600 million firm.
Oh, and never, ever underestimate the power of word of mouth, Hsieh said during a keynote speech.
One of Hsieh’s (pronounced SHAY) first business ventures was selling pizza out of his dorm room at Harvard. It didn’t take long for him to move on to bigger things. Once out of school, he launched Venture Frogs, which funded Internet start-ups, before taking on a leading role at Zappos, described as “a service company that happens to sell shoes.”
“Really, it’s a ‘service company that happens to sell BLANK,'” Hsieh said, explaining that the company offers accessories and apparel, among other items.
When discussing the launch of Zappos, the world’s largest Web retailer of footwear, Hsieh said, “I’d love to tell that seven years ago we had an amazing master plan. But we didn’t. We didn’t even have a regular plan.”
The ceo said the company made mistakes but learned from them. “We may have stumbled along the way, but we recovered from those mistakes and learned from them, which has made Zappos a better company,” he said.
Lessons learned include understanding that “e-commerce is a business built on repeat business.”
Hsieh said he did what others did at the time of launch, which was to pour money into heavy advertising. As a result, Zappos grabbed a lot of first-time sales. “You can get anyone to buy from you once,” he said. “The hard part is getting people to buy from you again and again and again.”
Zappos’ service model now results in increased repeat customers as well as higher average ticket sales, he said. Another important lesson learned is to leverage word of mouth. “With the click of the mouse, one customer can let 50 people know of a great experience had from a Web site.”
Those 50 can also share what a terrible shopping experience they had. Another key lesson that relates to word of mouth is not to compete on price.
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A company can drive short-term sales growth on low price, but the customer is not loyal in the long term. After one failed attempt at low pricing, Zappos decided to “become a full-margin retailer with great service and selection,” the ceo said.
Another tip: “Make sure your inventory is 100 percent accurate,” Hsieh said, explaining that Zappos initially relied on drop-ship partners. But the inventory was not accurate. Hsieh said he realized that “you need to be more than 98 percent accurate,” especially when negative word of mouth can spread like a virus on the Internet.
Zappos now has a new distribution system with a warehouse located in Kentucky, “which is two days shipping for 70 percent of our customers.”
Another critical lesson is understanding that “customer service is an investment, not an expense.” Poor service directly results in softer top-line growth, he said. As a result, Zappos’ call center is run 24/7, and service has high visibility on the Web site. Hsieh said the customer service number is on “the top left corner of every Web page. We want to have customers call us.”
“Don’t be secretive and don’t worry about the competitors,” Hsieh added. “The more eyes looking at our business, the better our business will be.”
Regarding competition, Hsieh said obsessing over it only diverts energy from serving customers.