Zappos - SWOT analysis

The article is based on Zappos SWOT analysis which can be found in the Library, in CayenneApps SWOT application.

Zappos, the online company with the largest selection of shoes, has created its unique company culture based on three values that I highly admire:

• Truly customer-centric service — focus on different ways of making Zappos’ customers happy.
• Employee-center approach — the company culture that concentrates on understanding why things are done and leading employees according to this philosophy.
• Lean and MVP approaches — focus on everyday activities, proper habits, and measuring and learning.

When I look at these three values and I try to find them in another company I find it difficult to do. I can think of companies that have two of them but not all three. So, how was Zappos able to achieve that? Let’s take a closer look at the Zappos SWOT analysis and its advantages and disadvantages.

Customer-center service and word-of-mouth marketing

First of all, Zappos has made customer service the responsibility of the entire company, not just of one department. Every new employee who begins at the company needs to complete a four-week training programe that focuses entirely on the customer service’s topic.

Also, every sales rep is free to send flowers, handwritten notes, or cookies as follow-ups or thank-you’s to the people they talk to. There are no scripts or time limits on calls that employees need to comply with.

The company became respected brand thanks to its personal approach to customer service. A famous example of this approach is when a woman wanted to return a pair of shoes that had been bought by her husband, who had died a short time after receiving them. A Zappos customer service rep not only agreed to the return of the shoes but also sent the customer flowers and condolences.

This positive and individualized approach has created a large and loyal customer and a very high customer retention rate of 75%. Moreover, the average order for returning customers is about $140, compared to about $110 for first-time customers. This is an example of how customer-center the company really is.

But everything is not perfect and still there is a room for improvement. In 2012, Zappos was a victim of a hacker’s attack that caused 24 million customer accounts to be compromised. The negative publicity surrounding the attack caused a decrease in customer confidence, which is difficult to regain. In the future, proper security will be even more crucial for every company that operates online, and Zappos needs to learn its lesson from this incident and pay more attention to improving the security of its systems.

Employee-center approach and Holocracy

According to the philosophy of Zappos CEO, employees perform best when they’re happy. This happiness can be achieved when workers experience a deeper sense of purpose in their jobs. The idea of focusing on “why” and increasing motivation is widely discussed today by authors such as Dan Pink and Simon Sinek (we dedicated one of our previous posts to this issue) and “deliveringhappiness.com” movement that Zappos CEO Tony Hsieh created is a perfect example of this concept.

But in addition to a typical employee-center approaches Hsieh goes one step further. He wants to increase employee satisfaction by experimenting with a completely management-free environment called The Holocracy.

In the Holacracy model, authority and decision makers are distributed throughout the company in multiple roles and circles. The employees are given specific boundaries concerning what decisions they can and cannot make, instead of needing approval about them from management. This freedom, responsibility and the ability to make their own decisions enables employees to act more like entrepreneurs and naturally increases their engagement in work.

But in general, the transformation to the Holocracy model is not an easy process, and the Amazon-owned Zappos is by far the largest company to attempt operating with such a model. The company has experienced negative PR because of this radical change of management model, mainly because employees were not asked if they wanted to adopt this self-management concept. As a result, 14% of the employees left the company after the CEO decision.

Now, the company needs to deal with this change in their work culture and convince some of its workers that in the long run this social experiment will pay off. I hope that Zappos will successfully get through this change and will become the herald of a new, efficient and employee-friendly way of management.

Lean and MVP approach

Last but not least, the company biggest advantage is the process that has greatly improved its day-to-day operations with just 5 simple steps.

This process is derived from the lean manufacturing philosophy, and has been used by the company from the very beginning.

The founder of Zappos didn’t begin by stocking large amounts of shoes, but first validated his basic ideas with a minimum amount of effort before falling into the trap of developing a service that no customer actually wanted. Instead, he went to local shoe stores, took photos of shoes and then posted them online. Once the orders started flowing in, he went to the store, bought the pair that had been ordered, shipped it, and then handled the payment process himself.

This experiment helped him to measure customer interest and gain knowledge about running this type of business. Zappos’ beginnings are a perfect example of the creation of the MVP (Minimum Viable Product) and the question arises as to whether the company will continue to use this approach during its future expansion of sale outside the US — if so, it may be the next stage in the company’s already successful growth.

Summary

Zappos is a very promising company that has already stolen the hearts of millions of clients. Its unique company culture that distinguishes it from competitors and the lack of resistance to experimentation with new approaches has already paid off.

The Zappos forecasts that its expansion in the clothing and accessory categories will eventually bring in $1 billion of revenue per year, and might eventually outpace their shoes sells — this to me is a realistic prediction I will certainly follow their new business plans with interest.

The SWOT analysis mentioned in this article is one of the sample SWOT analyses available for free in the CayenneApps SWOT application. You can explore these examples using this link.