Zappos understood that call center interactions were a critical part of customer service. By moving the fulfillment of orders in-house, they could own the entire customer experience. As a result, Zappos terminated its drop ship business and began buying inventory and storing it within their own warehouses. This was not possible under the drop ship model, as Zappos had no control over the delivery times of manufacturers and never had perfect visibility into their inventory. In 2003, however, with many e-commerce companies going bust in the dot-com crash, Zappos decided to differentiate itself through providing exceptional customer service. It held no inventory and simply connected customer orders with manufacturers who filled the orders. When founded in 1999, Zappos was originally designed as a “middleman,” operating based on the “drop ship” model. The unwavering focus on service that we see in the business model is also the driving force behind many key operating decisions. The success of this business model is the result of an effective alignment with its underlying operating model. Pathways to Just Digital Future Watch this tech inequality series featuring scholars, practitioners, & activists Today, Zappos has annual revenue of well over $2 billion. Indeed, Zappos has found success with this model, reaching over $1.1 billion in gross revenue by 2009, at which point it was acquired by Amazon.

While some might balk at this number, Zappos views this expense as an investment in marketing, believing that happy customers are the best marketing channel. In 2008, 37% of purchases were returned ($379 million worth of goods) as a result of the lenient return policy. While delivering happiness may be a competitive advantage, the cost of doing so is high.

Free shipping and returns on all orders, regardless of order size, enabling customers to order multiple items to try on in the comfort of their own home.

Ī few key components of this customer promise include:

The business model of Zappos is built on providing an exceptional customer experience, and in doing so, building customer loyalty and driving word-of-mouth marketing. As an online retailer, Zappos brings the in-store shopping experience to customers in their homes, initially with shoes, and now with a wide array of other products as well.

Delivering happiness