Penny forwarded me this article on Zappos in the September 14, 2009 New Yorker. I recommend it as an interesting read, but as with most New Yorker articles, it’s in-depth and long, so don’t short-change yourself and just skim – there’s a lot here to interest you.
With so much praise being heaped on the company and their commitment to customer service I’m left with questions that fall beyond them hanging onto their culture. I have to wonder if their approach to service can scale up to being part of a much larger company with a very different sales-and-service approach. And in a larger sense, is what they’re doing transferable to other companies or even desirable?
Amazon has become a leading hard goods retailer online by building a market that is beautifully designed to make searching for and purchasing of goods simple and easy. And Amazon is profitable by making the sales transaction all online. With no human interaction, the cost of sales can be kept low. But have you ever tried to CALL Amazon? I dare you to find a phone number on their site. No cheating – try to find it on Amazon, not by searching using Google. I finally gave up and tried Google myself (I finally tracked down a “Call Back” Feature, but it wasn’t easy.). Frankly, I’ve never needed to call them; their site is that easy to use and I’ve never had a service issue. And I’ve bought a LOT of books and other things from them.
On the other hand, it’s clear that Zappos’ approach works for them, as it might work for some other retailers selling specific categories of goods, but I’m not sure it can work where what the customer wants and needs is availability, great price, and fast, simple checkout. That’s why Amazon works so well for its customers. The same thing works for the iTunes Store. If Zappos were to grow and expand, they would be need to add more staff to keep up with their additional customers, on the phone and by email. Couple that with encouraging customers to order products (shoes and clothes) and return them with shipping free each way, and I foresee a problem with escalating shipping and staffing costs, let alone the inventory carrying costs. Their model works well at their current size, but can it work well at twice the size? Ten times the size?
Zappos makes fanatically faithful repeat customers by going to extraordinary lengths with customer service and direct contact. Amazon retains loyal repeat customers by having terrific prices and smooth, cool, efficient processes. It’s easy to buy from Amazon, but, as their customer, I don’t jump up and down about it. Apparently Zappos customers do, when they shop at Zappos’ online store. That’s terrific, but would they stay customers if the transaction was more like Amazon’s cool but efficient (and low cost) method?
The New Yorker article gives us a peak inside Zappos and the employees’ fears at “selling out” to Amazon. I wouldn’t be concerned about that. If they’d been purchased by Dell or IBM there might be more to worry about on that front. The bigger issue that remains is this: can any company continue to make money when they have nearly a nearly 40% return rate and net profits of only $10.8 million on $1 billion in sales? And a culture that celebrates spending HOURS on the phone with a customer? I’m torn by this. I love great service, but the business side of me wonders if it’s sustainable. Ventures like this work well as small, private companies, but rarely can they grow significantly or transfer their approach to an acquiring company.
Is this a good investment for Amazon? I’ll be interested to see and I’ll be following this story. I plan on posting again in a few months.
