Philip Dackweiler <p.dackweiler@gm.x.de>. Ingen de1 af nogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtreder servicevilkärene, er forbudt. De personer, der foretager en sädan overtrredelse, vil bliveretsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darf ohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Schritte eingeleitet.

Zappos.com: Dqveloping a Supply Chain to Deliver WOW!

STANFORDGRADUATE SCHOOL OF BUSINESS

"^'*:bff:,3;Zeppos.coM: DevnloprNc A SuFpLy CHArN To DELTvER

wow!Our rleckion r**s a/r+'erys to focur on ser"r,ir:s bet*tuse we gal instunl feet{be& whenever we

delivery. Customers were wawed by the experienrc, and rhxn they told a banch ofpeaple. Änd u'ord of mouth *'arh.s u lat faster on the Internel than it dots persfln'to-pr:rscnbecause you cün jus! e-ft?üi{ out a bunclr af your friends and say, 'hey I just hatl lhis ilmüzingexpericnte.' That wan ene ofthe re^qons that we wanted ta fteep upgrading shipping.

-Alted Lin. Chairman. CüO. and CFO of Zaonas'

In late 2008, iess than tr0 years after its founding, Zappas anticipated reashing annual gross sälesof Sl billion, When its founder first proposed the idea of selling shoes online, the coücept wasgreetcd with intense skcpticism. Despite the chailengos, the c$mpany had achieved dramatiesuccess. It was the world's largest online retailer of shoes, was profitable, growing rapidly, andhad an outstanding reputation for customer service. Its employees were passioüately. engäged intheir work. While shoes still provided the vast üajüriry of reyenues, Zappos had expanded itsproduct offerings based on feedback &om custcmers and the enthusiasm of employees. Therewas still a huge untapp€d sustomer base*cnly 3 percent sf the U.$, population were Zapposcustomers-suggesting that the cornpany was not close to saturätirg its lpportunitics in the u.S.,lel alone other international regions.

However, the c*llapse of the financial markets, and the prospeüt of a prolonged re*ession.created new chaileng*s. Zappos had never been lavishly funded-it had always been intcnsclyconscious of cash. Unlike most relailers, il was continuing to grow, but early signs were that therate sf grCIwth was slowing. As rhe eompany's leadership looked forward, it considered waysthat Zappos could sustain the high quality expcrience that it was known for-to deiiver "w-ow" roits customers. supplitrs, and othqr affrliates. The cornpany's supply chain management hädcvolved as Zappos had grown, and was one of its sources of excellsnce. Yet, perhaps therc wereopporhrnities fur continued irnprovement.

' Qrotations are from interviews with the auihor. unless orherwise specified.

David Hoyt prepared this case uader the suprrvision sf Michael Marks, Lecnrrer in Operarions, Information, andTechnology, and Professor Hau Lee as the basis fsr class discussion rathcr than to iilüEtxare eithrr effective orineffective handling of an administrative *ituation.

Copyright Q 2AÜ9 by the Eoard olTruslees of the Letand Stan{ord Juniar Unive.rsig,. All rights resen'ed. To ordercopies or requesl Feftnission ta repraduce nurt$rißls, e-mail the Cue Writing A"ffiee at: r*.o@gsö.slanlord.etfu arwrite: Case Wriling Affirc, Stüttford Grüduttle Sthoal af Business, 5I8 Memorial lllay, Stanlard University,Stünford, CA 9#A5-SAI5. Na part of this publieatian may be repraduced, stored in d rrtrievül system, used in asprudslseet, ar transmilted in any form ar by any means * alecffanic, meehanical, pfuttotopying recording, orolherwise - wirhaut the permission af ths Stürlford Gruduate Schaal af Business.

Philip Dackweiler <p.dackweiler@gmx.de>. Ingen del af nogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtreder servicevilkärene, er forbudt. De personer, der foretager en sädan overtredelse, vil bliveretsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darf ohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Schritte eingeleitet.

Case Studies in lnternatisnal Marketiog Management

Zappos,caa: Developing a SapplS Chain ta üeliver lf0l$!: 6,3-65

Zarpos.con

In 1999, Nick Swinmurn was frusffated in linding the right size, color, and style of shae. Aftertrying several stores, he felt there must be a better way. Stores carried e relativeiy smailselection of styles. and usually did nol have a full compiemsnt of colors and sizes eveil fi:r thestyles they did stock. This was not surprisiüg considering the physical constraints of shae storesrthe lirnited number of shoes that an ayerage store could stock, änd the small lac*l populationsened by individual storcs.

But this was 1999, and the Intemet bosm was in full swing. lf Swinmura, who was an ordinary$hoe customer (not a shoe fanatic), was frustrateq it seemed likcly that many others rnust befeeling the same way. What consumcrs nseded was a way to access a huge selection of stylcs,cülors, and sizes. Since nsne existed, Swinmurn decided tü create one, using the Internct toaddrsss the selection problems faeed by traditional shoe retailers--despite having no experiencein retail, let alone the shoe industry.

Raising Capital

Swinmum raised 5150.000 frorn family and friends and recruited Fred Mossler, a senior shocbuyer at Nordstrom, to join him. Swinmun tried to raise venture capital, but had difficuityfinding investors willing to put in large arnounts of money.

Onc of the venturc firms that he approached was Venture Frogs, foundcd by Tony F{sieh andAlfred Lin. Hsieh was a young Harvard graduate, rvho had cofounded an laternet advertisingfirrn ealied Link Exchange with Sanjay Madan, a college roornmat€. They sold the company toMicrosofl for $?65 million in 1998, when Hsieh was 24. Lin hadbeen a friend üf Hsieh's atHarvard {and a custümer of Hsieh and Madan's college pizza-making business}, who left a PhDprogram at Stanford University to join Hsieh at l-ink Exchange. Hsieh änd Lin then foundedVenture Frogs, which funded Internet siart-ups, including companies sueh as AskJeeves. TellneNetworks, and Zappos.

ln 1999, at the height of the Intcrnet bcor'.1 Swinmum leli a voicemail with Venturc F?ogs,explaining *rat he had started a cümpany to sell shoes on the lntemet. As Hsieh and Lia wereabout to hit the delete button, thinking that this "sounded like the posrer chiid for bad lntemctbusiness ideas,"' Swinmum said that the shoe market in the United States was S40 billion, andthat 5 percant of this business was being done by mail order. Hsieh and Lin realized th-at ifpeople bought $2 billion of shoes from catalags, tbe lnternet-with its capacity to rcach largesections of thö population and to provide detailed information vastly better than a catalogcould-was going to be a substantially larger market. They decided to invest, putting about $2miliion into the cümpany over the next fcw years. Hsieh also invested pcrsonally in Zappos{whose näme was an adaptation of thc Spanish word for shces, "zapatos"}. Latcr, SequoiaCapital, a premier Silicon Valley vsnture firm, also invested in the company.

While Hsieh, Venture Frogs. and Sequoia put money into the company, Zappos was neverfunded on the lavish scale of lnternet start-ups such as WebVan*the total investment in the

p.2

' Hsich quoted in Duff McDonald, "Sole Purposc," CIO /nsr'gÄ1, November ?006, p. 45

Philip Dackweiler <p.dackweiler@gmx.de>. Ingen del afnogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvaliltceret og rimelig anvendelse), som er ulovlig eller overtreder servicevilkärene, er forbudt. De personer, der foretager en sädan overtredelse, vil bliveretsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darf ohne die vorherige Zustimmung des Verlags kopiert oder überragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen lestgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Schitte eingeleitet.

Zappos,cor*: Developing a 9uppiy Chain tü treliver WOW!

Zappos"ro*: D*eloping a Sappty Chain to Daliver lf0l*!: GS-65

c$mpany was less than Sl0 million for the first five years of the company's existence. SequoiaCapitai would later lead an investrnent round r:f $54 million, ssme of whirh was used to buy outearly inve$tors. In tire long run, the lack of sub$tsntial funding was a benefit-Zappos wasforced tö focus on those factars which were essential to success, operate effrcienfiy, and avoidthe excesses that led to {bilure for many other Internet srart-ups, The difücult challenge ofcr€ating I sucffssful online shoe retailer, which inhibited access to large-scale investment, hadanother advantage-lack tf competition. As Lin said, "It was act$lly tsmpting to invcst in acompany where everyone thought this couldn't be done, bccause you knew that in the earlystages, ycu were no1 going to have a lot of competition."

However, in the shsrt run the relalively low funding raised by the company was painful-thüewere times when employees worked for months without paychecks in ordcr to help thc companysurvive.

Financisl Success

Aftcr investing, I{sieh began to work closely with Swinmum, and in ?ü00 they became co=CEOs. Lin joined as CFO in 2005, later adding the roles of COO and chairman. Swinmurn leftZappos in 2ü06, and Hsieh became the sole CEü. Zappos had strcng growth from its first salesthrougb 2008, when it expected grcss merchandise saies of S I billion {Exhibil l).

This strong growth was largely depcndent an a happy, loyal custorncr base. As thc compauydeveloped, the percentage of repeat customers grew-from 40 percenl in 20043 to 75 percent in2008." Hsieh viewed this as essential for sustained sucüess, saying, o'Yüu can get arryon€ to buyftom you once.... The hard part is getting people to buy from you again and again."'

Zappos became profitable in 2006. but did not have an objective af maximizing profit, preferringto invest in grcwing the cornpany. That year, Zappcs wss able to achieve gross margins of 31percsnt, even after shipping and returns (with more than one in four orders returned).b Shipplng,both sutbomd a*d for return$, was a substantiai part of the company's cost sBucture, at abüutS100 rnillisn.? or almost 17 pcrcent of the company's gross sales of i:g: *iltioo in 2006. Thispercentage had remained relatively constant over time, despite increasing return ievsis anddeueasing delivery times.

In latc 2008, Zappos had about 9 million eustomsrs*_a iarge aumber, but just 3 percent of theU.S. population, leaving plenty of roorn lbr continued growth. It had about 1,5üü employees,half in its Nevada headquarters and call certer, and half in its Kenrucky fulfillment c€nt€r. Thecolnpany was still private, with no immediate plans for an IPO.

' Richard Waters, "Trial and Enor Shows the Fath to Success," The Financial ?'imes, March 9, 2005, p. 9. Zapposdelined repeat custömers Es eny cuslomer that had prcviously purchascd from tbe cömpary.*

Jeff Morris, "service a 'Shoe-In' for Zappos.com," Maltichannel Merchant. April 2008, p. 7.5

Anhur Zaczkiewicz, "Zappos Sells Service," Itomen's lfr.ar Oaily, November trS, 2{S6. p. 24.u

Watsrs, loc. cit.t

Sidru Pu.rt "Shoe In,'" Blsin*"r,r 2.ü, Decenber ?ü06, p. 54.

p. -l

Philip Dackweiler <p.dackweiler@grnx.de>. Ingen del afnogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtrpder servicevilkärene, er forbudt. De personer, der foretager en sädan overtradelse, vil bliveretsforfulgt, i det omfang ioven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopie* oder übertragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Scfuitte eingeleitet.

Eoppos,tam: D*elaping a S*ppty Chein ta Dcli*er WtlW!: GS-öf p.4

Ccrporate Culture and VflIues

Zappos had a strong company eulturo, which was dcveloped and nuitured by managemant. Thiscultsre, together with company valües, was a srong influencc on all aspccts of the business,including the supply chain. Hsieh and Lin recalled that the srong cuitwe rhat existed in the earlydays of their firsr start-up, Link Exehange, had disappeared as rhe colnpany grcw. As Linexplaiücd, "At the end of the day, one af the reasons we sold the company was because it was nolonger a fun place to work." They were determined that this would not happen at Zappos.

As a result, when Zappos leadership considcred what it needed in order to meet the next year'sbusiness objectives, the queslion "How are we gCIing to grow the culture',)" was as important asissues such as "How many people do we need to hire, how many more servers, or how muchüore office space do we need?"

Hsieh described \Mhat the culture rxeant to him in 2ü08:

To mc, the Zappos culture embodies many diffcrent elements, It's about atrwayslooking for nerv ways to WOW everyone we come in contact with. It's abcutbuilding relationships where we trsat each other like family. It's about teamworkand having fun and not taking ourseives toa seriously. It's about gpowth, borhpersonal and professional. It's about achieving the impossible with fswer peoplc.It's about opeflness! uking risks, and not being afraid to make mistakes. But mostof all, it's about having faith that if we do the right thing, then in rhe long nrn wewill succeed and build something great.o

Hiring and training werc particularly important in maintaining and gowing the culture and thecompany's values. Hsieh said, "We want people who are p,assionate about what Zappos isabout--*ervice" I don't care ifthey're passionatc about shoes."o (Zappos' cultrire and values arediscussed in dekil in the Appendix.)

Tns Zlrpos SHopprxc Exprnmxcn

From the beginning, Zappos set out to provide an exceptional shapping experience for itscustomers. It wanted customsrs! after any interaction with the cr)mpany, to say "'Wow!" Toillustrate the priority placed on serving its customers, Hsieh reftrred to Zappos as "ä servicecompany that sells shses," which he later amended to inelndc the wide range of other productssold by the company. Hsieh elabcrated on the impartance of customer service: "It's no1 rcally aseffet., .. Peopie have known. _for a long time that companies that provide good service do realiywell. Yet no one does it."10 Hsieh saw custom€r service as an investment rather than anexpsnse.

-'20S8 üulture Back," Zappos.com, p. 12.' Christopher Gergen and Gregg Vanourek, "Zappos Culture Sows Spirit,'" I&e Wrchingtan limes, July 16, 20Sf,, p.ß2.1o waters. loc. cit.

philip Dackweiler <p.dackweiler@gmx.de>. Ingen del af nogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (ud

over kvalificeret og rimelig anvendelse), som er ulovlig eller overtrader servicevilkärene, er forbudt. De personer, der foretager en sädan overFedelse' vil blive

retsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopien oder übertragen werden, ganz gleich, mit

welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen t-estgelegte Verwendung ist verboten. Bei

Zuwiderhandlung werden gerichtliche Schritte eingeleitet.

,- , I'- : .... 1

Zappos.com: Developing a Supply Chain to Eellver WOW! ' d*' ''

Zaryos.eam; ü*slapinr a Sappb Chain to Delimr WAW!: GS'65 p' S

The drive to provide a "wow €xperienüc" infsrmed every aspect of the company. The Zappos

website loaded faster than any other retaii website. While most orders were made online,

telephone support was essential for maximieing the custromcr experience. Unlike other popular

retäil sites, he company's tcll-free phone number was prominently displayed on all its web

pages, the average phone call was answered in less than 20 seconds, and call center operators had

the authority to resolve virtually any issue'

Zappos knew that its primary competition in the shas business was brick-and-rnortar slores, and

that in order to be successful" customers needed to bE comfortable buying shoes snline. The

company addressed this challenge in ä number of rvays, including ftee returnsn providing

extensive online product information. maintaining a tall eenter, and free overnight shipping.

Fit" and the Return Policy

A key aspect of making customers willing to buy shoes anlhe wäs dealing with the issue of fit-eustomers needed to feel comfürtable that they would receive products that fit, and that they

rould rerurn thsse that did nst. Zappcs quickly realized that this cüuld bc best addresscd byproviding frce retums, initially for 6ü days, latsr extended to 365 days {although most returns

came back within 60 days). Customers could thus pr.uchase several pain of shoes, of different

styles and fits, keeping those they wanted while retuming thüse that did not fit.

Zappos closely monitored cu$tomcr behavior. It found that the rnost profitable customcrs were

not those that returned the fewest products. Customers who rnade use of the free return policy

rended to experiment with different brands and styles-while they had a higher rehtm rate, they

also made more net purchases" Overall, retüns were about 35 percent af gross sales.

Online Product lnformetisn

It was also essential to provide as much information as possible to customers as they made theirpurchasing decisions, This was done in several ways. Retail websites t)?icälly had smallphotographs of produets, with swatches of the available colors. The pictures were generally

from only a few angles, and often did not show importänt detsils. Zappos provided substantially

better insormation to customers. When new models (or models with new colors) arrived at the

Zappos warehouser a photography team took pictures from several angles {by 2008, eight photos

were taken of eaeh style and color)" Cuslomers interested in a particular item eouid easily see

large picturesn in the desired color, ftoü multiple perspeetives'

The site also included detaiied descriptians of the shoes, as well as information that would

ordinarily be provided by experts at a brick-and-mortar shoe company. For instance, a person's

gait (the way that they ran or walked) was important in Iinding the proper running shoe. The

lappos site had a detailed discussicn of gait. and how ctrstomers could detcrminc which rype ofshoe was appropriäte for ihem.

The site also provided customer feedbaek. Customers could write comm€nts on the shcles they

purchased, which Zappos did nst edit (except to remove profanity). The rnost rscent customsr

comments were displayed for each type of shoe.

genbogmäreproduceresellergengivespänogenmädeudenudgiverenSforudgäendeti1iadelse.Brug(ud

over kvalificeret og rimelig anvendelse), som er ulovlig elleiovertraeder servicevilkärene, er forbudt De personer' *t::i:t1-,::::,:i*":"*t":St";"t"lt"Ttli. **

:.äffäiT::l:ilffi',:ä;ffiää; ä .?*, "u.n,

darr ohne die vorherige zustimmuns des verlags kopiert oder übertrasen werden' ganz gleich' mit

welchen Mitteln dies geschieht. Eine andere verwendung als die geseulich oder in den servicebedingungen festgelegte verwendung ist verboten' Bei

Zuwiderhandlung werden gerichtliche Schritte eingeleitet'

Cöse Studie5 in lflternational Marketing Management

The Zappos Call Center (*Customer Loyalty")

Mosl customer interactiüns were through the website, which handled about 95 percent of c,rders'

The rest of the orders, piu, qrr**tions äborrt ptoducts, rettrns, or other issues, were handled by

rhe call center. tn zbgg, ihi, *u, staffed 241? by about 40ü people il the Las vegas

headquarters.

As described in the Appendix on company culture and vaiues, all Las Vcgas cmployecs went

through the same C-*"*t new-hire training sourse. At the end of ths cour$e' regardless of the

:"U äT* lhry **r* frireJ ior, they spent ät least two week* in the call center working with

custoüers.

Zappos rneasüred mosl evcry aspcct of its business. including the call center {or "cuslomer

loyalty', in Zappos ,*ttori. ti*Ät**A how long it took n9m !h1 time a cuslomer ealled to the

ti,ne the call was answeied by a call center op;rator-in 2008 this number was astonishingly

low, consistently averaging less than 20 seccnds' lt did nat' however, measure call center

;t;;";;-or, **ti*, or""ffi*i*"y, such as.how nulny calls they took' Thc objective was to

provide the customer with the best possible experience' If that meant having an extensive

tonuersation with a custoiler about his interest in running, the call cefter operatsr was

encütuaged to have the conversation. If tbe customer was looking for a specific shoe that was

not available at Zappos, the call center üpsratsr \tras trained to look on at least thrce othcr

lntemet websites ta find what the customer wanted, and then talk the customer througlr finding

the product on the "o*p.-tG websita .{*ppos would lose that ord€r, but the custorner would

likely retum to Zappos in the futur*. Hsieh iommented, "We scorc lüäll center operators] based

on whether or not they **ot uUout and beyond for the custÜmer' " " We don't cars if +*y,.ltud*the sale cr how .cfficient' they were.... ro, us, *rery interaction is a branding oppor-tunity'"l

j

one widely cited example of a call center operatol gCIirg äbove and beyond tustomel

expectations took place in "tuty zoo;. A eall center opffator was following uF on shoes that

ehould have been returned, anä c-mailed the custorner' The custsrncr replied ftat she :v.as

vcry

,**__rO. had boughrthe shoes for her sick mother, who had since passed away' and had not

gotten arorllld to retuming the shoes. The call center opeRtor an'anged for UFS to go to the

custoffier's hcuse to pickip the shoes, then sent a {lower arrangem€nt and condolence card to

the customsr. Needless to sayr the customer $'as overwhelmed 6y this concern on the part of a

cümpany! *nd postcd *o**"nt, about her **p*d*t"" on a biog, wiich were widely cireulated'l?

Call center operators were trained to handle mort any situation by themselves' They were given

the authority to do so using their best judgment without nesding to escalete the matter to a

supcrvisor or manager. For quality, "onttot

purposes' calls were monitored by Zappos

ernployees, not by an"outside ug*"V. i4onitor* listened to ensure that the operator had exceeded

,o*to*., expectatioils, and thaithe custofier's experience had been exeeilent'

;'-*ffi:Zappos.eomBelievesHappierStaffersLeadtoHaFpycu5,tonüfs,,'ärrecr.October 2ü0?, P. 35.itnJ.n Uoitt*v, "Th*se Brands Build Community"'ldoeeÄ'carn' May l?' 2008'

ChaintoDr,liver IFOW!:

philip Dackweiler <p.dachveiler@gmx.de>. Ingen del af nogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (ud

over loralificeret og rimelig anvendelse), som er ulovlig eiler overtrreder servicevilkarene, er forbudt. De personer, der foretager en sädan overtüedelse, vil blive

retsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gleich, mit

welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. Bei

Zuwiderhandlung werden gerichtliche Schritte eingeleitet.

?appos.com: Developing a Supply Chain tö Deliver wOW.

Zsppos.ram: $*elnping a Sd+pt! Cheia to Deliftr WOW!: GS'65

ln late 2008, the eall center received about 5,000 calls daily. Zappos viewed each ofthese as a

rhancs to "wow" a custom€r in a personal way" As Hsieh said, "At that poinl you have the fullattention of thc customsr..." That's the timc *her* you havc a huge appärrrurity .". tü Ehine."l3

A customer that had irn exceptional cxperience was likely to tell friends about it. With the ease

of e-mail communieation, positive or negative tustüm€r experiences could be rapidly spread to

large number$ of peüple. Zappos wanted to ensure that its word-otmouth testimonials were

ovenvheimingly positive.

Free, Rapid Delivery

The hnal asF*cr of providing exceptional service was rapid delivery at rrs additiüryl :harge.Zappos alweys fied to beat customrr exp€ctätions, under-promising and over-delivering.

Utrtimately, this meant opemting the rvarehou$e around the clock, cvery day, with deliveries

rnadc ovemighr by UPS. An order reccived in the evening would usualiy be delivered the nexl

day, even though the standard delivery terms were for UPS Üround, which had a 4-5 day

delivery €xp€ctatioü. Lin elaborated:

I gucss in thc early days we didn't really have a choice; we couidn't afford

anything else except ground shipping. Then we started understanding thät

whatever morrey we had left over we wanted tü rcinyest in the growth of the

rompany. We can either spend it on marketing, rying to g€t ncw csstotrnets' or

we cän spend it on our existing customcrs and lct them drive lhe word of moulh"

and let them drive the *come back." You know these customers are gr:ing to buy

shoes at a later date, sc our decision was always to focus on service because we

got instart feedback whenever we upgraded somesne. They were wa'wtd by the

sxpsrisnce, and thcn they told a bunch of people. And word of mcuth works a lotfaster oa the lntsrnet than it does person-to-person because you caR just e-mailout a bunch of your friends and say. 'trey I just got this amazing experience.' S0

that was on€ of the reasüns that we wanted t$ keep upgrading shipping.

The other rsasün is that we've ahvays thought about our real ccmpetitian as the

instant gptification you can get waiking i:rto a brick-and-mortar store, trying on

some stuff, and walking out with the sruff you like. Our idea was that over time.

\Me werß going to get as elose ts that as po$sible, and that would really bring the

$tofq to your homc.

During tbe 2006 holiday season, Zappos guaranteed aext*day delivery for all orders, and

continued the policy tlgough 20ü?. Howeyer, sinc.e customers expected üexl-day delivery, "they

were no longär as wowsd as before, when it was a 'surprise' upgrade," according to l-in'Furthermore, guarantecing next-day delivery set cuslomers up for disappointment on thosc rare

occasions when the delivery was late due to unavoidable problems such as weather impacting

plane schedules, or if cornmunisations lines were down and Zappos was unable to comnunieate

orders to the warehouse. Overäll customer satisfaction decreased very slightly in 2007, and the

company dccided to uo longer adveßise overnight delivery. It provided the same level ofr.r"ic*, but ünly guaranteed 5-day ground shipping. Zappos fomd that when customers no

Ii Mi.hu"l Bush,,,Cusromcr Servicc a Brarding Oppomlniiy," Tirq Busin*s, May l?,2008, p. 35

philip Dackweiler <p.dackweiler@gmx.de>. Ingen del afnogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (ud

over kvalificeret og rimelig anvendelse), som er ulovlig eller overtreder servicevilkärene, er forbudt. De personer, der foretager en sädan overtrcdeise, vi1 trlive

retsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gleich, mit

welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. Bei

Zuwiderhandlung werden gerichtliche Schdtte eingeleitet

,'t "' T'ft "

Case Studies in lnterilalional Marketing Manag€ment

Zappos.eom: fr*eloping a Sxpply thein to Delivet I$OW!: GS'65

longer expected n€xt-day delivery, they were again $urprised when packages arrived lhe next

day, especially when they had placed their orders late at night.

Äs Zappos continued to increase delivery speed, shipping cost as a percentage ofnet sales (ailerreturns) remain€d constatt, even though ths percentage of returnri increased. By 2008, Zappos

w*s on€ of the tüp three UPS oyemight shipptrs, and worked closely with UPS to increase

efliciency and drivc down shipping cüsts. If Zappcs decided to back off from its desirc to ship

all orders for ovemight delivery, for instance, using ground delivcry for all customers that were

within a two-day deiivery &om its warehouss, it estimated that savings could be signiftcant.

UPS estimat€d UPS Ground coul*l reach l l percent of Zappos customtrs within one day, 49

prrcent within two days, l8 percent within three days, ?l percent within fow days, and the

remaining I pcrccnt would taks five days.

Tnr DrvnxrPMEl\TÄi\D Evolunoti oF ZAPPoS' Opsnnrto*..s

Zappos began in San Franeisco, in the second floor of a Victorian house, with the founder ofCraig's List living downstairs" By 2004, the eompany needed to expand, with particularemphasis on its call centcr. Hsieh and the senior manag€mcnt believed tha: it was important to

have the call cent€r as part of carporate headquarten, rather than outsource sr remotely lccate

this function-a{ter all, the eompany's primary focus was orr providing the very best custorner

experience, and rhe call center was central to achieving this objective" The Bay Area was

cxpensivc, but it alss did not have üc right environm€nt, nor access to suitablc employees to

stsffthe type of call center that they believed was essential to the company's success.

They decided to move Zappos to Henderson, Nevadq ün the out$kifrs of Las Vegas. Las Vegas

u,as a service-oriented city that operated on a 24*7 schedule, was already home to many call

centers, and had exbemeiy good Internet connectivity. Of thc 90 employees in San Francisco, 70

moved to Las Vegas.

Attracting Brands

In the early years of the company. it was difficult to get brands to sign up tbr cnline distriburion.Shoc companies had made huge investments in their brand cquiry. In 1999, Zappos wss an

unknown start-up, and established rctailers viewed the Intemet as, in Mossler's wordso "kind of a

{iea marker.... They saw the lnternet as a place where everghing would be discounte4 and their

brand would be ruined." In addition, the existing retailers prcssured the brands to rssist oniinesales, as they did not welcome the new cornpetition.

An additional complication was that brands were more successful when grouped-athtretic shoe

brands" for instanee, fared better when grr:uped with other athletic shoes. If a retailer offered

only one athletie shoc brand, there would not bc enough selection to attract customür$. Thus, itwas difficuit to collvince companies to be the first brand of a category to be carried by Zappcs.

Once the first brand signed oR, however, subsequent brands were easier ta ättract. ln its firstyear ofoperarion, the eompany signed up 60 to 7ü brands.

Zappos focused its attention on signing brands that customers searched fior or asked for when

taiking to call center operators. The cornpany reviewed logs of customer searches fur brands that

p.8

Philip Dackweiler <p.dackweiler@gmx.de>. Ingen del af nogen bog mä reproduceres eller gengir,'es pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtrader servicevilkärene, er forbudt. De personer, der forerager en sädan overtredelse, vi1 bliveretsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gieich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Schritte eingeleitet.

Zappos.(om: neveloping a Supply Chain to Beliver WOW!

Zappos,com: O*elepinp a Supply Chain to DeliveT \I'OW!: GS-65

w€re nüt on its site, and its buyers investigated those brands and evaluated whether they wouldbe valuable additions to the Zappos offering. As the company grrw and became well knüwnwithin the industry, brands bcgan to contact Zappos about being $old tksugh the sitc. As SteveHill, the company's vice president of merchandising in 2008, said, "flThe buyerl will get in touchwith the brand, talk to them, ätrd look at the product. if there's a compelling reason ro have theproduct, then we'li go ahead and open the brand. ln a lot of cases. it would be duplication ofsornethiüg we already have, so we may not go dswn that road."

High-end brands, initiälly r€luctan1 to parfner with online rclaiiers such as Zappos, eventuallycam€ on board for several reasrlns. First, as con$um€rs became comfortable buying oüline, thisbecame an importänt disribution channel. Second, they began to realiäe that if customers couldnot purchasc authentic high-end brands, it made it casier for counterfeiters--customers searchingfor their brands on the Internet would end up on sites that sold fakes.

A third incentive for high-end brands arose when Zappos began creating '"vertical" sites withinZappos.com. Thc hrst such site, "Couture," was crsated in 2003, and fearured high-end fashionproducts {initially shoes, later expanding to clothing and accessories). By 2008, Zappos hadädded verticals for running, outdoor activities {such as hiking), and a "RideShop" featuringproducts for skiing, skanboarding, surfiRg, and off-road bicyciing. Brands were eager topaftiüipate in vertical sites, since thsse visiting the sites rvould be passionate consumsrs-thetypes of cuslorners that wanted high-cnd brands, and that those brands wantcd most to aü,ract.

As cuslomers wers wou/ed by the compaily's high level of service, they bcgan asking Zappos tocarry products beyond *hoes. Zappos added additional products based on the passion displayedby cusfomers ar emplcyecs. Lin explained:

A iot of companics looh at lproductJ categories from a market point of view, andchase after big markets-they think f, market is strategic and want to go into thatmarket. We have tcnded to lssk at thing* as: 'if we want to get into this productcategory, do we have passionatc people, whether it's a customer, or an cmployce,or s pärmer, that would love for us to be in that product category?' lt's actuallyworked out yery well in those situations. So, if customers want us to get intoh*ndbags ür ac.cessories because we sell shoes, we go into that eategory.

Zappcs began selling electronic entertainment producti begause some of its emplayees werepassionate gamerst and wanted to sell gaming equipment. Lin observed, "We found that peoplewhs are passionate about a product cätegory tend to run it much better and much more efficientlythan pcople who just think, 'this is a big markeq I want to get into thar business."'

By late 2008, some of'the non*shoe products that Zappos soid included: handbags, luggage,clothing, eyewear, clectronics (eameras, csmputers, video games, phones, and CPS devices),watchcs, houseware, and jervelry. Its ouldoor verti*al site also included items such as tent$,stoves, water {iltcrs, lanterns, and other items important for outdgor eilhusiasts*thesecustomers were not just interested in hiking boots, they were passionate about the outdoors, andwanted to be able to get a wide range of products. Other vertical sites included a range af irernsimportant to customers interested in those sites areas of foeus.

p.9

;ä;;il -t" e*i'sd' s'11' 1"e919

,tl,t-. .

, - - t y* ..,t ,. Case Studier in Intetnätional Marketing Mtsnagement

Evolution of the Operational Mode . ,. - .^*#'

:H"#H::ff :ll.::lT[T'-T:}.1"ili ji:|,jiJiff xTH#ll::$lJ'l-*....ä*'-:1ff ffi?

shoes ftom tle zappos'ä*i*irär*o g- "i-"äuld be forwarded to the shoe companles'

which would fulfill the ;;;.' :t*s,.zappo's ä-"fJ""t incur.inventory or tulfillment costs'

Zappos charsed ,u**oä*i*iir* reuil pnce. ,"äo;ä-i;;;;4"1f-tH"llholesalc pricc' over ttme'

this msdsl changed, *iii uv 2001, all z"ppir'rrrip*en$ were notn its own invenmry' This

evolution was primarily driven by ttt" "ompuoys

foeus on customer satisfaction'

{ff 3fJ'JfjäfJ-X;ip"'approach liil::.y';llTi#l; ilTJ;,llJ1l'lii:si,Tfg" *'

websitewasonlyaboutg5perccnt.accuratc..rr,*.ompanyrcceivcdthisinformationfromttsvendorsinrnany*";,:*,ü*'":r*::;lil-l1i;i**ffig:f"5;1.?'i#:-iäö'ö'",

l*iXi;f:r:S"X*:t:&""*'1"?*Jüä;;a;.ation ror custom;;' since thev courd prace

orders for products ,fr-i*J-äiin stock, leading ls cancellation or long delivery ttmes'

The seccnd problem with the drop-ship approach was that Zappos did not know when a customer

order had been shippä"fi-l*ia-, qt6tä;;* *ftip ä orCer withir: a ferv davs' but if it

reeeived a targe *oJi'fro* n *.:* *-p-nä,äää,;ü zuppoi cu$tomer's order might be

delayed. The custo*r ä;"h;öy, *ä Zffi *oufä not know that there was a problcm until

,-i*l*i*** called to inquire about the order'

ß ri*gin6 I nv entarY I n'H o ase

ln response to tirese ä;u'üä in November ?000 Zappos began to stock its own inventory' one

of the requiremenrs ä-J;;;ii , o*ndo.tliäu*iärt*Ja physical store before thev would

sign up to be oniineltppü*"i'li* *u* in'nJi*it +-t: or lntTer retailing' and manufacturers

\r.€re unsure uuo*r rti."5ä*ä;ä "f -*trä-äigl''rt1tg-t: **t tbis requiremenq zappos

had purchasea u *rroä*läin witto**, carifornia irat *as going out cf busirress but c*nied the

aPProPriate brands'

oneoftheaftractionsofWillowswlt}atitwasmuchlersexpensivethantheSanFranctscoBay Area, *o *#ä.-."*p-"V dec;ded i" .-rw it- own inveamf it purchased an abandoned

deparunent *or* uär-rfrä *ii**, fro* ä*'lr'Ä*-i'L**' ano-tr''rnea ii into a wareho"se aüd

distribution "*rrr*r,

- üo*ever, Wiltowr, a;;t*löö äii-t

""nft of Sacrarnento' was not idealiy

located to be an lntemet distribution center. There was 1o rnajor äu?fft nearby, and shipments

were made l, upiääLä ra* *ar*nouse was a manual operation'

Whilebringingsül.lleinventoryin-house,Zapposeontinuedtousct]redrop.shipapproachwithmanY cf its vendon'

fffifi"Jfffi #*rtr1fffr"fffitfiftoü center, which had oniv 30,000 $quare reet' ups

approaclred rfr" *oäp*y re manage i - i;;;;,Y *J'fotf'tmtnt' Under this program' Zappos

,u Th* **puny,s original rvebsitc was shsesile'com' but this was latcr changed to Zappos'com-

" *t'1ri:n

"Ogiverens forudgäende tilladelse t:rus \uu

ver lsralificeret og rimetig anveiolrse), som er ulovlig eller?"*äd", servicevilkärene, .i rot"tua'' ot personer' der foretager en sädan overtredelse' vi1 blive

eßforfulgt, i det omfang rov.n iiiiJo'ä"r.ra"in r.' "ir,., n,i.t . ou.r o*. die vorherige- zustimmung des verlags kopi'ert Jer übertragen werden' ganz gleich' mit

velchen Mittein dies geschieht. Eine andere verw€no"r, "i,

ä* g"r.oran oder in den s"ruicereorngungen festgelegte Verwendung ist verboten' Bei

,"*tlon*Otung werden gerichtliche Schritte eingeleitet'

wouldcontinuet0o\#ntheinventory,butitwouidbestoredinaUFsfacilitynearitshubinLouisvine. Kenrucky. o;ä;äfirffint *ouoäLiur-a uv a thirf parw' The proposal offered

several advantages, the mogt 'iqilt-ry U**g ä;ä;;ui t"vs-thirds"of customers could reccivc

deliveries within two days using ups crouncjula u:t u 1o**' *o*t than shipping from willows'

lnventory and fulflllment woutd be manaBed *ing *'gl"utef tolls' which would be more

efficient than the *r";;;;ih$- u**ä u, rüiii"** ü* withaut zappos having ra make a major

capital investment. t" ääöi, "n* pcrtbrming - au"ii*O analysis' Zappos moved its inventory to

the UPS facilitY.

within 6 to 8 weeks, however, it was clsar that this approach would nÖt wÖIk. The Zappos

business invoived *";;;;-lieepine *l r iilrgrl-lra1*e :v*l:T could handle' since each

shoe stylcisizc/color combination *u* * *"p*ä* sgu' thur. an individual style of shoe could

require many SKUs' "i'üt "*-'

Zappos had about ?0'ü00 to 80'ü00 SKUs'

freueloping the Zeppos Distrtbufion Center in Kent*clE

Zappos decided tt at ln n J., *o provide *-r.pionur sJruicc to--its-customcrs' it would need to

devciop its own o,rrniuiiä"rntäi c*rieo-dä;; irre irieh-sfu necds of its business' Thev

found an irexpensive building in shepherds"ur",ä""i*r.v' less than 3ü minutes frcm the l-iPs

hub in Louisville. Due rü a lack or. "apltai,-iü*

coqpaly needed to build iß warehouse as

inexpensively u, po*riilt*.- Ä*-u r*rult, tit-V^"i-a stati; in;entsry shelving and hand-held bar

code scanners, *fri.h'r]äd infannation that was later uplsaded ta the inventory man, gemeilt

servers-the cost of ;;;i;, communication between scanners and servers was beyond the

comPanY' s budget constraints'

TheZapposteamdidnothavepreviouscxperienceindevelopingcomplcxinvsntorymanagemenr *yr,**J^*rorthermore, tir*y Iia-oot find othcr compäniJs that had addressed

prcblems similar ,o ir.-*;" they develop*J-trr"it systems in-house' As a resultu the company

developed irs own systems and procedures"f;;*ä on a highly SKU-intensive business that

required virtually perfect inventory "."*u.y,

- io-help^bring up the new warehsuse' Hsieh

rnoved ß Kentuchy ät fr"- *"rtrt*l ao;og muc, of tire *äft**" eoding himsclf'

Fromthecompany,searliestdays,{appo.shaddevelopeditsownsoftware,opdrnizedtomeetitsneeds, using open source qrgerams. in ouO*''in *ioi-*ite tosts'. This practice wa$ still in place in

2008. The company's rapid growth ,*q,,o.i"*nntinuJ upgrading oficth h*d*I^:.Tl scftware

in ordel ro keep up *irrr ä* Jscalating volume and to dEliver a supcrior custornsr experience' At

the end of each year,s holiday settingseäson, the lr group {always smatl, ccnsidering the

company revenue. ä;;üig *louigoä*ä;d;itiqü1;;'1ü make plans to provide double

rhe capacity of the just-finished holiduy **ä*o io' the foilowing vear's holiday seasan' They

implemented rhese plans by mid-year, -*;;;;i;ysterns could üe thoroughly testcd beforc the

new caPacitY \ryas requred'

In its new warehouse, stock locations were randomly assigned. A siven stock bin might hold up

to l0 pairs oi rt u**,iut;*,**;,"-ld not be'the samä sryfe, o' *u*'ith* same brand' The random

stoekins approach irä';".;;;", "r "0"ä.äe-r:*hii-,*-:nlig, ali shoes &om a given brand

$gether sounded ril.- g*a organrzation,-it är*"t*d prcbl-eps when they started shipping' and

crearing missing -ö;;;;üilh- U'iogluo6o* *toeking' when a shipmurt arrived' it was

separated inra pairs oi uho**, which were pläed in the nearcst available bins' The stock worker

Choin to Üeliver lfOW!:

es pä nogen mäde_ uden udgiverens forudgäende tiliadelse' Brug (ud

over kvalificeret og rimerig anvendelse), som er ulovlig "tter-o,r"rtäoe,

sewicevilkäreng "?iÄro'' nt pt"ottt'' der foretager en sädan overtredelse' vi1 blive

retsforfulgt, i det omfang toven tillader det.Kein Teil eines Buchs darf ohne die vorherige zustimmung des Verlags kopiert oier übertragen werden' ganz gleich' mit

welchen Mitteln dies geschieht. Eine andere verw".rorng a. ai" gesetzlich oder in den servicebedingungen festgelegte verwendung ist verboten' Bei

Zuwiderhandlung werden gerichtliche Schritte eingeleitet

Case 5tudier in lnlernational Marketing Management

p.li

scännsd the shoe box and location when p}acing the box into 1bin, telling the system the

lacation of that purt *orJJiÄ, -wlr*n

a stocrt ficier went to get a box that had been ordered' it

was eäsy to find rhs appropriarc bax in rh. bT:;;; i;;"1d;- located with different stylcs of

shoes frcm different ***iu"r**rs-.-the *otm äiC not need to distinguish berrveen the size I

shoes stocked next to the Size gH shoes of the same üodei sitting next to it-

Asitsbueines*grelJf'Zappouincrea*editswarehcusingcapacity.Thcinidal265'0üÜsquarefootfacility was frlied ," ;äil;;F6Ftth" ;";p1?v opened a new 832'0ü0 square foot

facility, of which ha1; wäs ,rtio*O for fulure gror*'th-'Wirehouse operations also became more

sophisticated. The initiaiwarehouse consisted;f static shelving and simple co$Yeyors' The new

facility had some static sieiuing, but with uutoäi*O *on'*uyo'i' It also had eutomated car*usels

rhar spun unril they;;;ä"i1" needed iioo,, *u*tt liie syrtems commonly uscd in dry

cleaners--except thät each of the 13t carousel ioops in_place by.2008 contained 32 units per

floor and were stackfi-iou, stories high. In zobt, zäppos icaea müte automatiorl to its

warehouse operations by installing a robotic rystem'in tutti*t' totott picked up shelves that

contained rhe items to bs picked (or cmpty plac*s fsr irems to be stocked)' and brought the

shelves 1o the workers. This $eatly increaseä rvorker effrciency-in the f'st year it was msre

than twice as efhcient as ei*rä me ltatic o, ca'o''s*i methods' it was also more scaiable' since

new shelves anc rouots courJ u. easily added when needed. (see Erhibit 2 for photographs of

thc ZaPPos distribution centcr')

ilHf;f-'{"#f*rä-"-ti,t sending orders to irs vendors for drop-shippins, arthough the

percentäge of snpme.ots from the "o*!uny'*

own inventory increased äs it grew' The source of

rhe delivery, rvhether frorn the Zappos warehouse or drop-shipp"d ry9.m $e v;nd31 was

transpärcnt ta the üustomef. However, cvaluation of customcr satisl'actron showcd that

customersservedbytheZapposwarehousewerehappierthanthosewhoseordcrsweredrop.shipped'

By March2003, about ?5 pcrcenr of orders were bcing shipped from üe zappos warehouse' The

company decided tt *iii "ärrC

not prcvide *utto**t ö*ii* that lived up to its own standards by

cantinuing the drop-ship business- ffr" .o*!*y leadership evaluated the situation' and decided

that it shCIuld tlefine itself not as a shoe *o*p*y' but as a J'seruice comRanl.t.hat happ^ens,tn sell

shoes.,' Hsieh explained,"We decided ttui*i'*unted to stand for somcthing more than just

rnaking money sellürg shces." Thc,service results ät that time were not what Hsieh and the other

leaders wanted thern to be, but thc revised focus helped cÜncentäte atlention on what the

üompany needed to do in order to be recognized for superior service'

Zapposimrnediate}ystoFpcd-$ingdrop.shipments,cuttinglf?5po"*nt0fitsbusincssintheshort tcrm. Zappos Uoiit'i.i* busiäss U-*frö".liirr*r.urid its inventory to include those itEms

that had previously bcen drop-shipped'

Thc dccision to bring all inventory in-house allowed Zappos to tahe those systems and

procedures i*prou.Ä*?ts icquirea to incres$e inventory accufircy to nearly 100 percent' When

the last item of a particular style/color/si1* was sold, thai item no iooget appeared on the website'

Thus, any it*m tf*at"a cu*toäer selecte4 onäu* *as i" stock-the only exception beirg when

there was just on* t*n lo inventary, una wo *urio*em had that item in their shopping ca$s at lhe

:ffi::l"än"' #:äää:'Jl3läl"ol'iq "u o'*'

emfortulgt, i det omfang lov.ririlo.r'*'o"i. r"' "in.,

e,;.rr-;lu,i.tr," oie.rorte.ig" i*Ä**e a"' v*t"gt k";;;;;;er übe(ragen werden'-ganz gleich' mit

velchen Mitteln dies geschieht. Eine andere verw..o"", irär. lo.ou.n oo", ,r o.r ,.*."o"oinä*gtn festgelegte Verwendung ist verboten' Bei

7VZappcs'eom: Developing a Supply Chain to DetiverWOW! :

sametime.The|rf$tÖnetocheckoutwouldreceiveth€it€m.AswithallZapposactlvltle$'oroviding oü$randing ;;-;;;; ;-rvice dro*re ,h* *o*p*y's operations-in this casc' the

iequircment for cxcepuonal inventory accüracy, with an objective of lÜ0 pcrc$nt accuracy.

Zapuüs showed inventüy sutisties on its home paFe'--9-T::**T125' 20ü8' for instance' the

warehouse had l,4t? i*oj;;]ä.oii -,vr--,'t;,i,z'lz uPCs, and 2'851'610 tstal products

uÄruur* for shiPment' 15

SurrlY Cgatni AtL'ulAüE]IElir

Buying

The *aditionat practice followed by shoe manufactursrs wa$ to develop,l-* :1::,1Y1es that

w*u1d be introduced ; ;;1" shoÄ. R-b;;;-;;da ph"" orders for the upcoming selling

season for deiivery throughout the season' - 11." *u"ui'*turers built to these orders' with a

relatively smali surptus uoäifuUf* in case ttre st'tes becllrre -hielr.ly

poaular't* lf a retailer ordered

toü many unitt, it *oold hurr* excess inventCIry that had to b* ditpos*d si generally by selling at

ä stsep discoirnr. However, if a style U**u*J*-ftug* hit, ths manufaclurcr would not bc able to

increase deliveries, as it could not rcstafi prcduetiori, and the retailer would lose potential sales'

Eaeh brand had a monthly *vailability schedule' and retailer$ would place orders for specific

numbers of unirs * u- ä.iit.t*J *urt "*on'tt

Frutdng optimal purchasing decisions ,nas based

on sening the right dciivery scheduls*-botit trt" iu"i5*i of uoits and delivery tirning' These

decisisns required erperience on the pun nf tn* buyers, and a gcod sense ol the m"arker' This

was parricururrr r**Ti'äpä;'äfi"t- -i*ritue

shoes over the lnternet was $Ew' and the

most relevant model *uläuiug *uil oio*t sales. Mossler's experience in the indu*try was

particularly critical d;;g this tiric' U* **pluin*4, "It's about your feel' You g*t a scnsc for thc

brands that werc ,*äät:;lö;;ilili., *i how rhev were.doing. You had a sense for

how big ä potentiel a new"brand Äuld have"" You just made your bets"'

By200E,themgrchandisingdepartmenthadaboutl00empioyees,abouthalfofwhomwcrebuyers and assistanr;ö;: fiir* *.r* ,h" pF"ty points of c.ontact for vsndofs' Zappos had

an Extranet. which vendors cÖuld use ta see'the .Ä* urot*ution thar the Zappos buyers saw'

such as on-hand inventory, sales, pricing, uJ *".dn*. This _enabled zappos to benefit from

having rlousands of buyers (both Zappo* ;t;"d;t personncl) *valuating the inventory' lf a

vcndor saw that " pr""i,i;ä;;dö'**ff-äC tü" u"nOot trad ädditlonal stsch s'tre might cail

rhe appropriat* uoy*, "oä

suggest rhur zuppo* putg** more inventory. on the ather hand' if an

item was selling slowly at zappos' but the tendor needed more produc't for other distribution

channels,s,{remight$uggestthatZapposreducefuturescheduleddeliveries.

;ffi;,ll'iryw.arippr.qa-* s'lovember 25' 2008)'

16 An exccpticn to tiris practi'"c *u, Cro"r, the manufacturer of plasric shoes aüd.sandsls' For a du:scription of the

Crocs supply chain, see rrt"'ir*r*aGSB case' "Ct*;;'R-;;l"tionizing an lndustry's Supply Chain Msdcl for

öL*p"rltit"' a'ovantage"' GSB No' GS-57'

Chainn Ael/l'.er WOWI:

engiveSpänogenmädeudenudgiverenSforudgäendeti1ladeise'Brug(ud

over kvarincerer og rimelig anvenderse), som er urovrig ett"r-o*rtÄoer servicevilkärens;i:i::::i:::;T::::.tilJf:?:l1iliH":fi:äS]:";JLi:iä, ,"t,

::'r#$;:::::1""t *?ru!|ffi:::äffiH1tr".'i ",.n, darr ohne die vorherige Zusrimmung des verlags kopiert oder übertragen werden' ganz gleich' mtt

welchen Mitteln dies geschieht. Eine andere verwendung als die gesetzlich oder in den servicebedingungen festgelegte verwendung is1 verboten' Bei

Zuwiderhandlung werden gerichtiiche Schdtte eingeleitet

i* Case 5tudies in lnlernatiönal Marketing Management

-

e'!a

*Powered by Z*pposo: Operating a Supply \#eb

The Zappos supply chain was nÜt a$ simple as the linear pfocess of placing orders with its

suppliers, stocking roo*iä'y, u"d shippingorders to customers' For instance' in 200?' Zappos

purchased 6pnr, a ai*.ount onfine shoe i*tuit"t {described in rnore detail below)' When 6pm was

integrated inm zappos,--G 6p*.*o* ye$itl sold producl that- was in the Shepherdsville

warehouse, exactly * t}"'t*** *ay as the zuppot.*om-website-lhe ptÜdufts were handled in

exactly the sarne *uy, ":116ffinn"i

on tt *.Opäcom wcbsite mightbe sitting in an inventory bin

rexr ro a product "r ä" Zffir."o* website, even thaugh each website displayed different

products.

ThecapabilitythatZappcscreatedlosellonlinetoindividuaicustomerswasalrovaluabletoirsl,endorsu direct sales lnitiatives. Most rnanufacturers of retail prcducts had distribution systems

thät were built arounä'tüp*""rt of relatively large numbers of goods to retail stores' or tc

distribution centers operated by large ,tot .,*Jiou' For instance' a manufacturer selling $hoes to

Nordstrom,xoulddeliverlargebulkorderstoaNÖrdstromdistributioncenter'Nordstromwouldthen supply a relatively smill numbe, of.rrÄ ftu* tftit distributian center' The transfer of

individual pairs of shoä to custcmers would oücur at the Nordstrom retail store-

As the Internet developed as a credible, pcpular, '*'ay :f selling to the public' some

manufacturers wantcd to te able to scll dirccily to *usto**n' To do this' they needed to develop

websites to sell producls, and a distribution n"iwolk to deliver products directly to customers-in

srnall shipment$ to large uumbers of.destinations' For companies that had previously sent large

shipmenrs to relativeii-f** J"stloa6ons., tlis was a difficult chailenge-tr: say nothing of the

new requirem*n, ,o ir**ss lots .o,f gt{."t*. for single units of the products' handle billing to

individual ronsuners" and deal with individual retuins' Thc companics wouid have lo develop

severai areas of **i*o.*, the technology to desigrr ald.run a retail website' a call center t0

deal with cu'torner questions and problems, and a disribution system optimized for delivery to

retail cust0me$.

These were all areas in which Zappos excciled. ln order to help manufasturers sell directly to

consumerst Zappos developed a progßrn called "Powered by zappos''" under th.is,plotrutl]'

Zappos developed uoJ r-ifr* **U*li* fcr ttese-compa*ies, Än *t* call center' and distributed

directly to custcrners] i;;;;- ;h; ;""uf****, was the hvpothetical "Smilh Shoe Companv'"'

Custcmers would go ;1il company website, smithshoe'com' which would display all the

availablc shoes. rrre s*itb srru* weuiite included a prorninent "Powered by zappos" logo- The

customer orderEd a shoe, and the orde.uas sent to tit* Zappos disu'ibution center' where it was

handled jusr like any other order. customers that hsd a qlestion or problem called the nunber

on ths Süith Shoe website, which was snswered by an operatoT at thc Zäppos eall center' Smith

Shoe paid Zappos h;;;1;p and run the.website,'end to handle its customers at the call centcr'

Zappas purchased i-ät".y tn"r was sold on *re bmitl Shoe'i/ebsite' as it did for ilerns sold on

theZapposwebsite-infact,t}reinventgr-Ywa$thesame'evgnthoughitwasoffered0ntwÜwcbsires. In all eases,;;;lli--; of whicü website a customer ussd to place an ordcr' Zappos

bought producrs e";ä;pplier at whslesalc prices, and sold to the customer at retail prices'

riiipDackweiler.pcu"r*",,J6frll"lie":.:l_":,?:-mm.ff:"?Tllä'iä'Jl"*::lH:';"'ä':'äffi;ä;'viiblivezer kvalincerer og,i-,rie un,",'oilse), som er ulovt'?

"t":,::'ff$'jffXi:Ili#ä"; ä:l':H;:ffi"ä. il$o"o"' oo'*ut"n werden' sanz gleich' mit

:'nT'ff *i*;*'ä:Jäf l**ää'ätrffi ::ä::#ffi ti":"llmffim:"ffi J?iläff'$ffi ffi '

;;;;ilt *'i:n e"'i'hditu stuü' "i

Zai:por'com: Developing a 5upply Chain to Detiver WOWI

Linobservedoneoftlrebenefitsofhavingasingieinventoryservingmultipler:nlinestores:

oneintcrcstingaspsttofolrbusincssfromasupplychainperspectiveis.thatinrhe brick-and-morrar world, *u*ry u*, yoo op*n *:*t ::**

to have lts own

disptayrpu.*,i'*ownshelfspace'andiisowninventoryspace'Thewaywe'veopened up these stores online, vou *rt*u* äiir*t*ot windows t0 access the same

inventsry;youcanjustcreate"n"l*tt''Öurmainsiteh*sacccsstothesaineinventory, ., *;äi,;;liä*a ,*r*"iiäo ;f *t verticals related to running' for

example. Or, I can show ycu * up""in"t Utuod Yo:Uh oI Powered by Zappos

site, or through letting other people sell ; p*d*:lt:,T-t OYerstock or on the

6pm site. It's accessing Fq 1u*t,lnventory' ss-üvet time it will be much' much

rnore effreignr tt'an in thle brict-and-mortar world'

Thus, Zappos created a supply Y11'-i" i.lich the sarne inventory could be accessed through

many websit*s qg*t iuitli' in 2008, ,*uuä;;;;;i-t sold shies through the Pawered bv

ZapPos Program'

Scheduling Praduct DeliverY

one of the challenges facing Zappos was scheduling deliveries from its suppliers tü the

distribution ffinter. In 200g, the company piu*.J orderJwith more than 1'4s0 different brands'

orders typically i"t'nio"ä-äitiplc dciivea' dates' Zappos gävc suppliers dclivcry windows' to

help schedule when prÄ-t- arriuea at 15" Olst'iluticn center' and to try to smooth the recetvtng

schedule. Zappos received products fir. ;;;-; *gerc 1u*o thougtr the warehouse, op:rated

around the clock, **ääö I *är. folshrpping products-to customers*the eompany's pnmary

objective was getringl;;;;*o o" * t***. ttäo iä tlps *itttin four haurs of a customer ordcr'

The large nurnber of shipmenrs frornja vendors led ro tralTic management diffrcultiEs for the

wxehouse. one of the challengr* Z*ppu*"fÄJ *u* that it had ji*lt*C visibility into the

manufachrrers' supply chains, and therp *t;;i;Ä d-gree ofuncerrainty as to the actsal day that

a shipmenr wsuld uäo* u, rhe warehour*-*füi" a*manufactursr might state availability on

Ausust l, and Z*ppos mighr speci$ * q,runtlty ,o-LtLtiu*oa from thaf availability' in practice'

rtre*shipment might ää*äy!i**-io e'ugtt*t'' As a result' there were days in which traffrc at the

warehouse was backed up waiting to ue untcu*ec, and other days in which relatively few

shiPmcnts arrived'

This created ineffrciencies within the warehcuse operation'.but was än issue that was difficult for

Zappos to address. 'än

ot.***a: -"iwe **rl ,o wo* not;ust our custoflers and our ernployees'

but also our pa$ners. we give them a p*'tJ *rä- *inää*, ano't ask thern ta change that' and

ä"t;irt"lO tirem lro specihc rcquiremcntsl'-"

tlealing witb Exctss InventorY

Brick-and-mortaf stores had to clear space to prepere ml th: new products that arrived each

selling seassn. F";;;;;; ä store **"rA rtt"Ji" clear sheif.space used for sandals by August

or Septcmber, in order to make *p*". uuu:il;;i" io, iloo*, which would sell during the fall and

{:hain to [lclivlr WOW!:

)ver kvalificeret og rimelig an rerrdei.e;, som er uiovlig ett"iorr.rt ä0.. servicevilkäreng ri rÄuat' ot p""on"'' der foremger en sädan overtradelse' vil blive

rctsforfurgt, i det omfang roven tiliader det.Kein Te' eines Buchs darf ohne oie vortrerige zustimmung des Verlags kopiert oder übettragen werden' ganz gleich' mtt

werchen Mitrc1n dies geschieht. Eine andere verw..ro*g ur;or" gesetzlich oder in den s"-i."u"oi.,gu"gen festgelegte verwendung ist verboten' Bei

Zuwiderhandlug werden geri:hlliche lchlitte eringeleitel

.

üS , t. Case Studies in lniernätional Marketing Managernent

winter season. To do that, the store would häve t0 drop prices starting in July until the end-of-

$eason inventory was dePleted'

ZapposwasllOtconsrainedbytheneedtoelearspacetomakeloolforeachseäson'sincomingnew i.nventory. lt dü;;i neee to t*eio r.yrog io g.1 rid ol stock until custümers redsced

demand" For instance, it found ,t ", .*,uä*i* io"*grt, sandals well into the fall' when

custornefs slowsd rheir pr,rrchaser, Zappos ;;i; ;u* prices*but thc reductions were based

on customer teha.rrior, nä;; th- o**a ä make rosm for the next sesson's products' Coaversely'

if a model sold slowly, the price could be loi*J *-ff before the end-of-season-agai4 the*

decisions were based'oo .*io*.. demand' A* ffiff explained' "]Yhen we make a decision to

mark something down, it's beeause customers are *ffini us thal they're no longer interested in

this product at tfrar prile, * **ln**'" rhe price ä - p"i"i"i*ftich rhey say, 'Hey' now I'm rcady

to buy it again'"'

In Zappos, early days, decisions tg reduce priee in order to clea' slow-moving stock werc ruade

manuaily. lf a shoe ;d;;;1" r,"rt r.i oo Juyt, and no sales had been nade' they would

lower the price. As the company grew,-this. o;;r; was automated. The Üorupany assigned sell-

rhrough percentages ; ä;;;id;.t . f* instance, ir might expect a given style to sell-thraugh

at 25 percent p*, *on*. -iri.

an initial p*tinO. *o*ft as tie nrst 60 days' it wauid maintain the

price regardless of ,ri**. ano that, if the;ä;-* did not,achieve its target sell-through' tltc

sysrem would aurom",äf'ä*t O";^*.tfy fi"- *,if lt aehieved-thc sell-through plan' If salcs

picked up ro rhe p"*;;ä t;ey exceeded rte ptan, the price might be adjusted back up'

Zapposdidngtwantitssucce$stab*basedondiscountiRg'how€Yer,Thebasicoperatingprinciplc of *r* cs*pun; *** ," J*fir* tn* öUrrt sirvi.cl.1T*' with respccl to dispasing of

excess inventory, the primary bcus wes oo tl'* üu'ittg decjsion' Zaopos wanted to have the right

produüt', in the righi q,ranriti*r, at the right ti#. --ro the extent"tlat it made rhese decisions

[-*-rfv. it would have less slow*moving inventory to deal with'

However, it was inevitabie that there be some excess inventory' and the cÜmpany adoptcd a

numberofapp,ou*hestoaddresstheissue,ltwouldonlydiscounttoalimiteddegreeontheZappos.com *ensite]-as a iull-seruie* .ite,'noitt''Aä tftippi"g änd retums' there was not enou€*l

margin to $uppon deep diseounts. Furthermore. deep'discounts on the site would dilute the

Zappos brand and inhi;ir salcs ofnew *oorr*. -rot

initun"e, ifa runner needed new shoes' and

rhe site had both thit';;;;ä*i uoa d;-;;" model' it would be difficult to se'l the tew

mr:dei if the old one was heavily discounted'

Tosupplem*nttheautomateddiscountingpfogralnforsellingexccssinventory,Zapposopenedseveral outlet storss. The first, adjacent t" ä*?o*p*y's Keituckv warehouse, opened in 20t)4'

Beginning in 2006, tü;-*üi r:pened stand-aläne-otttlet storÄ in four other loeations' ln

200?, Zappos bought the oniine ,t o*. rumlun, op*, a discorinter that sold surplus or end-of-

sea$on shoes to * ilff*r*n, cuitomer base"' Zappos custüm$rs typically viewed service as very

important. *d *;;;;;;;rv lovur'.*r'lt" "toiiPt",T,-'..s wcre toking for the bcst price' thus

rended to shop *"*ä-ioi iir* best deals. wirt tu" 6pm purchase, zappos now had an onlhe

outlgt for siow-moving inventory-it could *u* ttto* products to the 6pm site' where they

couldbediscountedasmuchasnecessarywithoutdamagingtheZapposbrand.6pffcustomers

: : ': :::-f 'l ;: pä nogen mäde uden udgiverens forudgäende tr

rver kvalirrceret og rimerig un r"rio"tr.y, som er ulovlig e'"r?"näoo servicevilkärene' rilot-orot' o" p""on"" der foretager en sädan overtraedelse' vi1 blive

:eßforfulgt, i det omfang iov* iittua..'a.t.t<"h r.' "in", gr;cr,; o*r ou," die vortrerige zustimmung des Vertags kopiert oäer übertra'en werden', ganz gleich' mit

welchen Mitteln dies geschiehr. Eine andere verw.,]a:ig J.'Jä," gesetzlich oder in oen ser.riceueor'g*g.n festgelejte verwendung isr verboten' Bei

Zuwiderhandlung werden gerichtliche Schritte eingeleitet

aisopaidforshipping{bothfordelivcryandreturns).Thus,Zappos.cauldbepreservedasafull.service, fult-margin "p;;;;

while prices ; il;';6 ;i* *oofA be discounted as requircd to

move inventotY'

After6pmwasintegratedinrotheZapposoperation,alltheinventorywasbeldatdreZapposwarehouse in shepireriüiir*. or**o n.* ,i- ääpil;..; and.6pÄ'cr:m sites were handled

idenrically at thc warcilur*, ****p, trtat zappsslrältt *rtipp** in Zappos-branded boxes' and

ö;;#- wcre shipped in ordinary brown comrgatedboxcs'

ln200s,Zapposalsoinitiatedarelationshipwithoverstock,anonlinediscguntretailer,asawayto liquidete exüer$ invsnrory. ln this ur*rrg*;:o*, zuppo* drop-shipped from its shepherdsville

disnibution crlft tor t'o Overstock' s c u$tomers'

Opportunities for ImProvemeüt

Hsieh realized that the suppiy ehain still contained inefüciencies' one' as discussed earlier' was

the problem *r mn*uoä-ää*& which. *as difficult to coordinate and resulted in uneven

deliveries. rn"r* *ul'Jro iri*ia"i*o"y in ttr" o"*r"ü supply chain reaching o-"-:::3*,.tno"

production. t"tor, *nu"r- *rr* **o*ractured in china, then sent to the shoe companies in the

u.s., where they were stored. The shoes were then sent t0 zappos in Kentucky' shipping sorne

or all of those shoes ä;t.-d m* iuppu* diättv to rhe z*ppos Kentucky distribution eenter

woutrd increasc overäIl supply chain effrciency'

Many of the deliveries t0 zappos also were-mäds with partial.trucklcads ("less than truckload"

or LTL). These LTL shipments-ca*: froT trt" *t*rt*.-es of individual suppliers' resulting in a

larger-than*necessary nu*b*, of tnrcks *ti"G ;t4 Zapposdistrib'rrtion center (*eating trafäc

problems). as weli u*"tfl*"**on.*ic inefficieric{ "f ty:p*ttltl,lartiatiV t'ull tn:cks' At some

volume, it might ns moie efficient for Zappos to huu* its own fuck fleet that could make pickups

from supplier *arcr,o,,ses and optimize "u,gu

*up".ity.. There was a high concentration of

supplier *rr*t ou*** in-*.'JuttreL baiiro6".'in*tl*.1ariy in the areas around Ontario and Long

g*u"h, as well as in a few lacations on the East Coast'

There were also passibilities for inereasing the efficiency of outbound freight' even if the

overnight objective was still retained' r,aunf.u*tn**", *ouid receive shipments within cne day'

using ups üround. Eu"n *oro rrr tu* .ounry couid be served ovemight by lcss expcnsive

ground shipment ovcr weekends, where "ou*äidftf was considered to be the next business day'

THE QuEsrIoN oF IrirERriÄTIoliAL ExPANsroN

zappos had a passionate customer base in canada. Initially the company shipped to a freight

forwarder in rhe U.S., who would then shrp1oE1ry-'. 1;111*11V, Zappos set up a Canadian

websire. *hirtr iranäiä ö üadian- ord'*o and sinrplified the customs issues for cuslomers'

Many brand* rr"a uäiJi*iaian cist iaurion rights to other parhlers' so Zappos could not seli

these brands un itrl'C*nuJi* iit*' With an existing customer base' it was pcssible for the

eornpany to establish a-Cana*iun call center and disiribrrtio* center' but to achieve substantial

voturne would r*qrri.*;wäG canadian distribution sgree',ents with m*ny brands'

,::T'#f, :f :;,;n',ffi ',,":3.ffi

retsforfurgt, i det omfang lov* üiruao'ao.raein Teil eines Bu.r.r, a*r om" oi" uort ".ig"

ärti*ru"g a"r vrrlags kopiert Jer tbertlsen 1e^r-11'

ganz gleich' mtt

welchen Mifiein dies geschieht. Eine andere Verwenorru J, är" geseztictr ooer "

o* t.*..*oirr!*g"" festgelegte verwendung ist verboten' Bei

Zuwiderhandlung werden g"titrysddftt gngtlttg

gi, t' CaseStudiesinlnterilationalMn*etingManagement

Thecompanyperiodicaliyconsidered|urtherinternationalexpansion,buttheopporilrnitiesintheu.s.. and rhe cosrs of moving into other .";;;;;h;J nevär favored expansion outside North

Amcrica. Lin cxPlained:

Thedebatehasalwaysbeen,oeanwebesonsiste[t10Üurbrand,providinggreatserviee in tire other cormtry without rtäringl al*tribution center or call center?'

The ansv,'er i$, 'No'' If you're g*ing;n ;; to anothct countrv and estabiish la

distriburion cenrcr and call ccntcrl, noio?iy do- you havc to- put in .- !y:1,11money, u,rt you ur*o-h*u, to undÄrstand thä culture there. [An equivaienl stze

rnarket to the u.s.] is to serve a[ of gurope. Europe is aagmented with different

layout i*r** urra different eultural i**"**, *"0 aiffer*nt levels of understanding of

thc dcsire for scrvice'

with substantial opportu$ities stitl ta be tapped in the u's" and significant chailenges and costs

required to replicatelt* ***puoy'u *.r""*rJ io-r**igt markets, zappos had rejected major

intcrnational **p*ri* *u"t, rime-it had been csnridered. The company did sell footwcar and

bags to intemational--.**to**r*, uut "irutg"J

for ^shipping

and retums, and required that

customers take care of taxes and duties themilfver Ordärs fäm customers outside the U'S' and

Canada were accepted oniy by phone' not on the Zappos'com website'

THn Ecqwolflc CHALLEncss on ?008

As of November 2008' Zappos had noi yet seen a major imp'ael T: fu frnalllt-3artet

coliapse and economic'sto*äor"r,. The compäny had recorded sigirificant rsvsnue lncleases

rhrough the first three quarten of the y.*ff. üil-iü rtieh-e"d brick-and-moflät r'tailers reported

double-digit sales Oecräses in September and Octsber, Zappos eontinued to grow' albeit at a

somewhat slower rate'

Margins were decreasing, htwever. ".1n

addition to the inrmediate impäct' this brought into

quesrion an issue *rai*ä"ro eventually "*ä-io

be considered even in good sconomic tim*s-

scatrability. So** oi tlr"--'wow" factoi important to thc eustomefs and to the company resulted

&om iabor-intensive *riul,l** which mighl eventuaily becoms unwieldy ar unaffcrdable as the

company grew. wcutg zappos oll- l"..rJu pio.Ä* and organizational changes in order to

successfully groo ,ri"iuiiffi or $?0 uiltion in'sales? (see Exhibit 4 for 200? sales of the top

ten Internet rctailers.)

customer behavior also seerned to be changing' Tradirionally' customers- came |o the

zappos.com site and purchased direetly, Ho*Ju.i as the ecsRomy sh'uggled, Zapp.gs noticed

rhat customers came to the sire many rime; tl"Jgh muitiple ehannels, before fin*lly plaeing

orders. tirey might ;;,h" site directty,' r"q* iht*]rgh affrliate sitts, through comparison

rtr"ppitg.ogio"r,iu*ugh a Google ad' and then finaily buy'

The changing economy posed challenges on üutlly fronts" In-loolring at how best to prepare for

diflicult economic;äit5il;ö;;;"1""ü;-ät u'p**t* of its busines* for irnprovements and

efficiencies, including its supply chain'

Chain ta Deliver WOW*

philip Dackweiler <p.dackweiler@gmx.de>. Ingen de1 urnol*G rna reproduceres etter gengives pä nogen mäde.uden udgiverens forudgäende tilladelse' Brug (ud

over kvaliriceret og rimerig anvendetse), som er ulovlig eiler-overtÄder se*i"e"i1kä'e";;-;;*::::iä:::.tiiin:ä:i#äJJffiff:"#lgiffi, In.

:J,:"triä,","ä""';*?l:''lnffi::xilJ;$il:',#;#;äTtrI#;:ilä'J^"immungdesVerlagskopiertoäerüberfasenwerden' ganzgleich' mit

welchen Mitteln dies geschieht. Eine andere verwend'ng als die gesetzlich oder in den servicebedingungen festgeiegte verwendung ist verboten' Bei

Zuwiderhandlung werden gerichtliche Schritte eingeleitet'

Zappos.csrn; Developing a Supply Chain to Deliver WQW

ZaPposeal,r: Dnelopin| a S':PFi! Chdln b nelb* t4OW!: üS'45 P' 19

Srunv Quusrull$s

l'WhatareZappos'eofeGomp€tsncieandSgurce$ofcompetitiveadvantage?Howsustaineble ** ä*yi urout roi" does corporate cuiture play in these questions?

2. How tnpürtent is next day ailshipment io the $$!üIfler experience? ls it wortb the ccst?

How miglrt you change it in the cost-conscious environment ftcing the cornpany in late

?008? _ ,_- r_._a- *^ra rm'*nl '

3. How would you expaud the business? $fould you add more products' more geo6raphie*'

or by selling pnuate labels? As you elFand G business,-how can üre company become

more pmfitabl-, ;;;;üiy i"1iäitt urlt* "o.t*

associated with the focus on service?

4.Howwouldyoue}rpgcttheenvironncntofamsrecost-consciotrscoilsrrfteltoaffeetzappos, uusinessi what can zappos do in such *n envirorun$t to maintain sales

$CIwth?

nogen mäde'uden udgiverens forudgäende ttt

rver livalificeret og rimelig an rerr-dllre;, som er ulovlig eti"r-ou..täa". rervicevilkärene, "i ioil'a'' n" pt"ontt' der foretager en sädan overtr-delse' vil blive

etsforfulgt, i det omfang ioven tillader-det.Kei' r.it "in",

gu.h; ou.r on r" aie vortrerige zustimmung des v"rtug' tofit't oäer über*agen werden' ganz gleich' mit

ri/elchen Mitteln dies geschieht' Eine andere Verwtno*' it ä'" **tzlich oder in o* '"*lt"t"otn!*g"n

festgelegte Verwendung ist verboten' Bei

i"*io.tn*ot*g werden gttitryhtht' Stin'tt" tlg"lttttt

Case Studies in lnternational Markeling Maflägementt 'tntt'

j

APPendixZaPPos Culture and Values

StepintothelobbyofZappos,headquartersolrtsideLasVegas,andyouknowyouarevisitinga*Äp"oy with a *iq:* .utt**. The room -f*dt

lik- t wäl used [but well cared for) *ollege

dorm activiry room. I ne liglrts are-low ana tfre-aroä oipop*o* wafu from a püpper sitting on

the reception;*t,* a*rt. ää* is a large *d-""d;;;;;;'iD*** Dance Revolution"'awaiting

bath visitors and ernployees. you wait on.a "oäio*[r* sofa. The:e are bcokshelves filled with

rnany copies urpoporuJiäir.** ,rra *ori""i"i"iü*ts. The rules for this library are simple:

voucantakeaüybookyouwaüt,youdr>notneedtoreh.lfnit,butyoumustreadit'

Thcuniquenanueofthecompanyculturedossnotendatthelobby.Eachworkareainthebuildingishighlydecorated..Employees.*".ti'anopenofftceenvaonmenlbutnotnconventional, discreteäuüioi**. roJt.*6, ui*fts ate A*not'd by iow (four foot) rnodular walls'

Divisions berween "a:*ää*äpro-v**

*nrr.*purer u* to*. {ere is no dividing wall between

workspaces on one ,iÄ- uitrr. lisie and thaJ" on the othgr, The company's senior cxecltivcs'

inciuding Hsieh, Li;, M;;;l*. and. Hili, are locatsd in the rniddle of such an aisle'

indistinguishabte tcrn ;y ;th-; empl.oy.ge, ä short, the working environrnent reinforces a

beiief that employees ä" "ät

op**t* ** ioiita*ft, U"t ä* part of a tiam' a*d teams ar€ part o'f a

larger organi"urioo*-ii.r|;;-l;;"1";O pf*vt ä i*pntiunt rslc, and eveivone conlributes

together.

As a visitor tou.s the offiees, the employees in each aisle give a warm welcome-sornetimes by

giving a big smile uJ-*u"iog, ,näeti*** by other furms of recognition' ln one case' one

cmployee starts a ;;i;g-;;'tnusic, at the"end of which the eatire group rings caw belis'

clearly, thes* people";äd; o-te wrrereirtuf**, doing whar they are doing, and working

with their colleagues.

Likemanysiart-upcompanies,ZapRgseultureandvaiuesbegantodevelopatlhecompany'sfcrmaLive .t"g*. Thui;-l*r* ,lr"**ly few employces_,. and many of them wcre involved rvith

each new hire. As companies grow, the *.rfr** g""*taity *votuei to be more fonnal' losing the

highly coltaborative,"i;äü;fi*pü.* n.i*tt äa Lio-n*a seen this at Link Exehange' where

the compa*y had been a Änanciai *u.***r,-bJ had ceased to be a fun placc for ernployees to

work and sPend their time'

Following the Link Exchange experience, Hsieh and Lin believcd that it was just as important to

$ow the culture ***ry y*J au it.r*u, * g'ä* t*"*"ues-and other business metries' In 2004'

Hsieh sent an e-*,ail-tö all employeel *lfing';Vmat does the cultrre rnean to yr:u?" The

t**f**"t were then distilled down to l0 values:

1. DeliverWOW Through Service

?. Embrace and Drive Change

3. Crcate Fun and a Little Weirdness

-Io see a

,, zuppo, provides torrrs t0 anyone who reql,ests ttrern, For information. contact tours@zapPos.cam.

video of the Zuppo, *uuiloment, ;nctuding inre'ul"*s *i*' Tony Hsieh' sec an ABC Nightline segmelrt availäble at

the bottom ofth* Z"ppos'"om Uomepage {Novemb* 24' ?008)'

Chain rc Oeliver lY0fi'!:

gen mäde. uden udgiverens forudgäende trlladelse' t'rug \uu

rver kvarificerer og rimerig anvenälse), som er ulovlig eller?"aäd.. servicevilkärene,-tii"t"l"at' ot peßon€r' der tbretager en sädan overtraedelse' vil blive

etsforfulgt, i det omfang rov.n irruo"r'ao.raein Teil eines B,,* orr "*" die vorherige zustimmung des Verlags kopiert är übefiragen wer den' ganz gleich' mit

ilelchen Mitteln.ies geschieht. Eine andere Verwero*' ".ä*

gesetztictr ooer in 0." s.*i..n.oin"g'ngen festgelegte verwendung ist verboten Bei

iu*ioertturratut g werden gerichtliche Schritte eingeleitet

Iapp+s'com: Developing a Suppiy Chain to Deliver WOW!ffi

4. Be Adventuou$, Creative' and Open Minded

5. Pursue Crowth and Learning

6. Build Üpen and ;;;-Jilüionships- with Communicatisn

i. euiH a Fositive Team and Famiiy Spirit

L Do More with l-ess

9. Be Passionate and Determmeo

10" Be blumble

ThesevaluesplayedanimporrantraleinnlyemploVelhiriledecisions'intraining'andwerereinforced ny everyoay ;;,il;; ti"".ghout the oä*it.t*o- li.the recruiting process' pottßlial

employees were intcwiä-ä'i" ä.*äionuf f*Jiäregaraine their abiliw ts do the work' The

hurnan resources *-p;;;ri'Ä* intunri"i"yä;il;d-fu* lo *ot** that thcy were

compatible rvith the;öä lulu**. rar*.' roi i*tul::, tl" value "Be Humble'" when

inreiliewing experts t;;ä# po*ition*, if the recruit exhibited excessive ego or aIrogance' that

person would not b,e rrir*6. ro, this reascn, ti. .-äp""v prefered to train employees to take

[ish*r-f*u*f positions 'h*n

to bring in experienced sutsiders'

Another value w*s "Cteate Fun and a Little Weirdness'" Potential employees might be asked to

rate horv "weird" tn"V *ao *o a scale of t-10' fftiäoU*t*ed' "'1f thev saY 'one" we won't hite

rhem.... If they,re a 10, rhey,re probably *".p-;;iliiiot 3*' .W" likeis or 8s"''* One example

of ..fun and a littlc **Ldn***" was thc-*-.ki;;;ttite of a deparunent (varying from week to

week) dressing in costumes and parading througb the office'

Hsieh desctibed the Zappos culture as follows:

Tome,theZapposcultureembadiesmanydiffcrentelements'lt'saboutaiwayslooking for ne\# wäys to WOW *u*Vooi we cüme in eontact with' lt's about

building relarionships where.we treat ;;;other like family. lt's about tearnwork

and having r* un,T ou, taking ouncr"Ä *u seriously. it's about growth, both

pcrsonal *O proi**ionai. tt'Jabout achieving the impossible with fewer peoplc'

lt,s about "p-*ä*. "tiig

ris5s, 11d not beinf afraid t9 *+* mistakes. But most

of alt, ir-s "b;;;hav;;iä*,itut if we da the-right thing. then in üe long run we

will succeed anA üuitdlomething grcat'le

onemightexpectthattheexuberanceoftheworkfarce,andthestrong,cohesive,t-un-lovingculhxe ernanated ro* u rowdy, boistero,,s,- ou*.-rtt*-*p, leader. Nothing could be further'

however, rro* H*i*ii*;-;;";i*ryl*, o, trtä uitrt* other senior leader*hip' Hsieh was quiet'

humblc" and exffeme$ soft sp*ken. Tt ä;; **niot leaders wets nutufe' calm' and

professional.Thespecific-cu}tw;**u1*dicrated&gmthetop.butrathergrewfrorntheemployees. T-he roie of the leader* **-to *-"ftiuate it- reinforce it' and ensure that those

attributes that fostered passion and jgy ;-G the employees were not casualties of the

coilpany's succtlss and continued growth'

1s Helen Cosrer, "A Step Ähead"'For$es' June 12' 2008' pp' ü0'

tn Z*ppor.** 2Q0S Culture Book' p' l?'

ogen mäde'uden udgiverens forudgäende tllta(

:r kvalificeret og rimetig anvendelse), som er ulovlig el1er overuäder servicevilkär"n", "'io'-ouo'' o' pltton"t' der foretaler en sädan overtredelse' vil blive

;fortulgt, i det omfang love" rrii*r'ä-r.^"in Teil eines "r*i*i"*"

die vorherige trri*.*, oäs v{aes !o11rt

ier übertragen werden' ganz gleich' mit

rchen Mitteln dies geschieht. Eine andere Verw.naung urräi. g.J,.n oo", i'o"n s"-i"ru"cnlungen festgeiegte Verwendung ist verboten' Bei

;;;;;;*t *.rden eerichtliche Schritte einee

Case Studies in lnternational Marketing Managemsnt

Lin described whal the sxecutivss told new employees dunng their initial training:

We tell ali the employees' 'This cannot be just me' or'Tony tUsieh]t-'o1^[el

flMosslerl,orStevü1üiU1'oranybodyelse-who'sonthe'illanagementtesm'sculture.It'severybady,sculturengre.andil'simportantthatyoulive,breath,inspire ttre curtuä, *na uulq lqon it. Atl this is uier generated' we don't ask

peoplc,. d".;;'f ;; rrrrrr, i*'iuu*tuilds upon itsclf" If you're passionate about

-it, Plcase build uPon it''

Mossler observed that ths Zappos culture fastered excellence:

Everyonc's focused on just !-1"+ t* very bcst at whatever particular department

they are i, I,;;;;JJ,- J-r1ri"rv a thread that runs throughout the companv'

lt,salifestyle''..They,reaiwaystioiog,brearhing'andthinkingaboutthecompanv. Aft;;;"tk,;*ptt a*'t;;ff;-;"J iofretatro"r what happened at

Zappos' l'*y!o n* *iti' o*rt*t zuppL öioy*o''id they have fun' they bond

and build *t"ää;ilff;;;äi4*!ni"s *b"::^f:* caü we move the

business forward? How can we innovate? Hcw can we make it better?'

Everynewemployee,whethersntrylevelorseniormänsgel?wextthroughtheseffi*four.rveehrraining program. Mld]u;';ffigf trt* o"inioe, Hsieh oifeted thc ncw hires a bonus' plus pay

for the tirne rhey have been with the "o*p*r, ä quir. ttt* size of the bonus had increased over

rime, and in 2008, *-*ii,öoti. rrr* ou:*.tiJr;;;**e that anv new ernplovee who staved

was passionate *b*.i;;;;;;anf an*lts uulu*r, and to identify those who wefe nÜt a$ $oon 6s

possiblc. Thrcughoutä"-*oäpuoy,* hirt"ty,;;;;fu* *j- for thesc bonuses was just ?-3

percent. since rhc call cenrer io*ou., *t" ;;; Gt;; fty ?:3.

percent, Hsieh commented that'

;,To ,,r*, it says ,t ur rn* oii*i i* nor high *"rgä.;-;;iG ftitiog process was not matching {he

üsmpany unO *mpt"yä* Ur"n*tr, orl,W* diän't do a good enou*h job of training, them. on an

ongoing basis after ,ir" r,ii iä"-ö* or ***üJ -o,

,ori*tirn*s *thcr stuff happens in their lives

thatmakestr,*r*,u.ro*u*ednnwork.,'e*pr"y.*-whostaycdmcrethang0days,howcver,generally stayed for the long tenn"

A1 the end af the training, all Lss,vegas new hires' regardless of the job they were hired far'

worked for ar teasr r*" *ä"f, as cati cenrer qp-;;-ö.l4;::i,:*..:ttn customers' At some poinl

intheirfirstyear,theywouldalsospendatleastaweekworkingattheshepherdsvillewarehouse_ leaming how orders *r.e trinn*a.

- iuppot believed iiwas important that all

employecs have a üffi;-ä;äios. grrh;b";i;J 'tut*r

emplt:vees hired at shepherdsville'

particularly rnn** -räli-ä-ö 3t n-iert-t r-"Jt' **nt tn t-as vegasio participate in the new hire

ä;i;c. if pcssibte during their frrst year with the comp*nv'

Eachyear,Hsiehsentane+nailaskingeachemployee,-asrvellasthecompany'saffiiiatesandbusiness partner$, ,o'ilr* "i**

linesäescriblng *üat the Zappos culture meant to them' They

were nor to discusJ*i, *irh their coileag*-. irrhey !{-bce.n employecs the previous year'

rhey wcre nat to noüä;;l;;g31 tr"g*t{*n before until they had made their new subrftssron'

These were put in; ; book, which *", piJi*JJ- irt* zaog äütioo was about 4?5 pages long'

Whiie na *n., "o'JJüu--*t

**.r*fu*a u*-:;typical'"' there was definitely a comrnon feeling

thain to Dclivu lfül{!:

Philip Dackweiler <p.dackweiler@gmx.de>. lngen del afnogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtraeder servicevilkärene, er forbudt. De personer, der foretager en sädan overtradelse, vil bliveretsforfUlgt, i det omfang loven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder üb€rtragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Schritte eingeleitet.

Zappos.eom: Oeveloping a 5upply Chain to Oeliver WOwl

Zappos,com: D*eloplng a Supply Chain to Delitter lfOW!: GS-65 o. 23

arnong them as contributors told stories of the inrportance of Zäppo$ in their iives, and what theeümpany culturs m€ant to them. The following commeüt by one smplüyee is representative ofthe sentiment sxpressed by many:

I am truly grat€fuI eash day I walk through the doors that I can be challenged,encouragcd Bnd grow; 1 san ls,rgh and play. I am abie to spend my d*ys in anenvironment tbat operates with aud suppoJts thc same beliefs I hold close to myheart. There is really no place likc zome.'"

Company partners were also asked to eontribute. One commented on the relationship betwesnüulturB aäd company success:

From the momert that I first reseänched Zappos I knew there was somethingsp€cial happening within the company. I waated to know how a ccmpany eouldsuccessfully grow as quickly as Zappos. I found *re answer to my question assüon a$ I walked in rhe door of the Zappcs carnpns. I felt welcomed and thecampus was buzing with ftiendly people. As I taured the campus, *lmosteveryone intoduced tLemselves by name and gave me a brief description of theirjob. I eould tell everyone was proud of theü careers and enjoyed being part of theZappos team. I believe that the positiveenergy that's being unleashed by thcZappos team is thc key to Zappos' susee$$."

1l q"** fi'om Kelly D., Merc.handising Deparuneat, in'?008 Culture Book - äqppos.coar, p. 2? l.

"' Quore frotn Lesli* W,- ofZapp*s.com parm*r fleur't, in "?0ü* Culnrrc Bock " fuppos.com, p.45V,

Philip Dackweiler <p.dackweiler@gmx.de>. Ingen del af nogen bog mä reproduceres elier gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtrreder servicevilkärene, er forbudt. De personer, der foretager en sädan overtredelse, vil bliveretsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Schritte eingeleitet.

W Care Studie$ in ln1€rnational Märketing Möriagcment

Zappat mlla: Develapiag c,txpp& Chaia ta Deftv* WAIf!: GS-65 p,21

Exhibit IZappor Gross Revenu€ Growth

1000

800

600

40s

20s

0

2000 ?00r 2002 2003 2004 2üü5 ?006 2007?0ü8

(est)

$Millhn 1_6 8.6 3? 70 t84 31ü 597 840 t0üs

Zappos gtowth in gross revenues, 2000-?008. Retunu typically ran in the r*age CIf 35-3?percent of grüss reve[ues.

Saurce: "2008 fulture Book," Zqpar.eoar,p.9.

1200

Philip Dackweiler <p.daclnveiler@gmx.de>. Ingen del afnogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtr€der servicevilkärene, er forbudt. De personer, der foretager en sädan overtredelse, vil bliveretsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Schritte eingeleitet.

Sappos.com: Oevelqping a Supply Chsin to DefiverWOW!

Zagas.com: Exelaplng a S*pply Chain to Deliver IFOIF!: GS-65 p' 23

Exhibit 2Z*ppor Distribution Center, Shepherdsville, Kentucky

Shepherdsville Distribution Center Static Sh€lving

Carousel Robots (and operator)with shelves st work station.

Robotic inventory area"

Source: Zappcs.com {with pnnissioü)"

Philip Dackweiler <p.dackweiler@gmx.de>. Ingen dei af nogen bog mä reproduceres e1ler gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtrader servicevilkärene, er forbudt. De personer, der foretager en sädan overtredelse, vil biiveretsforfulgt, i det omfang loven tillader det.Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlung werden gerichtliche Schritte eingeleitet.

Zappcs,com: Beveloping a Supply Chain to Eeliver WQW!

llappa*.wm: D*elaphg a Sqply Chtin to Dallvrr lfOl{!: GS-ül D' lr

Erhibit 4Top Internet Retail Businesres in X007

The top tfir Internet retäil cüupänies in ?0S7, aceording ta Internet Refaifer, were:

Source: "Ärnerica's Top Tea Retail Businesses," /rterßet Retailer lop 5d0 Gaidt, 2008 Edirian online sumrnarytLtlSJi]{lgltjftlq'seEelsjsr.cs_rd:ep5_0.91-l-i-sia$, acce$sed Jauusry 23, ?00*)"

0ffrce Desct lnc.Dell Inc. i 4.2

Inc. i 2""1

8 i Sears Holding Corp. i 7.6

Philip Dacloreiler <p.dackweiler@gnx.de>. Ingen del af nogen bog mä reproduceres eller gengives pä nogen mäde uden udgiverens forudgäende tilladelse. Brug (udover kvalificeret og rimelig anvendelse), som er ulovlig eller overtraeder servicevilkärene, er forbudt. De personer, der foretager en sädan over6adelse, vil bliveretsforfillgt, i det omfang loven tillader det.Kein Teil eines Buchs darf ohne die vorherige Zustimmung des Verlags kopiert oder übertragen werden, ganz gleich, mitwelchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Sewicebedingungen festgelegte Verwendung ist verboten. BeiZuwiderhandlwrg werden gerichtliche Schritte eingeleitet.

Case $tudies in lnternätionai Marketing Mänägement

Zapa*cam: Eel.etoplng a Suqpb Chainta üaliv* l,lüIt{.. SS-dJ

Exhlbit 3Zappos Supply rffeb

FulfillmentC€nter

llustrxn*r

SupplierA.com, etc. are "Powsted by Zappos" sites.