Marketing Sherpa has a great article on the top 10 reasons why Zappos online shoes is one of the biggest success stories in online marketing.

If you boil the 10 reasons down, it's basically: relentless focus on customers.

I'm going to excerpt a bunch:

• Lesson #1. Customer retention

  Rather than putting the lion’s share of their marketing budget into advertising, Hsieh and his team have allocated an increasing amount of dollars into customer retention, including three key tactics:

  • Free overnight shipping
  • Free return shipping
  • 24/7 fulfillment operations (including order processing and customer care)

• Lesson #2. Beta-test new products

  When they first started to create brand awareness, they bought mass ads, including expensive sports stadium signage. But the tactic didn’t create enough conversions to justify either the often inaccurate response forecast or the unspecific ROI analysis once the campaign ended.

• Lesson #3. Maintain accurate inventory

  Until four years ago, they used drop-shipping quite a bit and suffered from the fact that 80%-90% of the product being displayed on the Web site was currently in stock. The data feeds going from retailer-to-manufacturer-to-fulfillment produced regular glitches in the pipeline.

  “That means 10%-20% of our customers were finding out a couple days later that their item was out of stock, and they’d be extremely upset, creating a lot of negative word of mouth,” Hsieh says. “Drop-shipped orders were producing 25% of our revenue, and we walked away from it because we knew it was important to be true to our brand.”

• Lesson #4. Service and selection over price

  Shortly after joining the company in 2000, Hsieh had his marketing team test discounts and ecoupons for six months. What they discovered was that these tactics attracted too many price-minded, one-time customers rather than brand loyalists.

  “In terms of the three major areas -- service, selection and price -- you can really only offer two of them at the same time,” he says. “Our brand [niche] was in service and selection.”

• Lesson #5. Centrally located fulfillment

  In 2002, Hsieh moved their fulfillment operations to a Shepherdsville, KY, facility, creating more expeditious delivery, as the United Parcel Service’s largest domestic shipping hub was just 20 miles away. And, the new fulfillment spot fell within 600 miles of two-thirds of the nation’s population. The relocation was crucial in allowing them to trot out an ongoing free next-day shipping offer.

• Lesson #6. Do it yourself

  [They decided to stop using a lot of consultants for advice...]

  “You have to avoid falling into the trap of a consultant telling you that, ‘If you spend a large amount of money with us, all of your problems will be solved, and you’ll never have to worry about this again.’ In the end, they are outsiders and do not understand your business as well as you do.”

• Lesson #7. CRM: investment or expense?

  When balancing the books, Hsieh once ledgered CRM/fulfillment costs in the “expense” column rather than as an “investment” -- where categories like marketing dollars were accounted. Now, he and his team view customer service as an investment.

• Lesson #8 Positive word of mouth

  While many marketers have increased their focus on seeded viral efforts, such as videos on YouTube and through guerilla blogging, getting the best word of mouth is by having excellent customer service. Hsieh says traditional WOM -- when followed up with service that exceeds expectations -- produces better lifetime value than many trendier marketing mediums.

• Lesson #9. Don’t fret the competition

  Hsieh says he doesn’t keep a close eye on what other online shoe retailers do. Unlike other retailers who worry about potentially competitive data getting around, he lets his distribution vendors see exactly what is selling at all times.

• Lesson #10. Keep core values intact

  When the company began to rapidly grow, Hsieh knew that brand identity -- so reliant on company reps at all points of contact -- might evolve into a runaway train. So, they created a list of 10 core values that would help determine whether to hire someone -- for call center reps, order packers, marketing director or CFO.

  Here’s the list they’ve followed:

  • Deliver “wow” through service
  • Embrace and drive change
  • Create fun and a little weirdness
  • Be adventurous, creative and open-minded
  • Pursue growth and learning
  • Build open and honest relationships with communication
  • Build a positive team and family spirit
  • Do more with less
  • Be passionate and determined
  • Be humble

Zappos has a unified vision - and it permeates their success (they will likely sell $1B worth of shoes in 2008). For example, you can see why they can have a large affiliate program - they pay a lot for that first sale, but the affiliates are doing the hard work of acquiring new customers. Zappos doesn't pay the affiliates much for the return business, because the customers remember the brand and go back directly.

There's more in the full article at Marketing Sherpa.

¶ 8/09/2007