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Monday, September 13, 2010

Tony Hsieh, Zappos

By Karen J. Bannan on Mon Sep 13 2010
Photograph by Jeff Green

On June 7, a new book by Tony Hsieh titled Delivering Happiness: A Path to Profits, Passion, and Purpose hit the stores with a retail price of $24. There's no readily available data on how many readers plunked down that much, but what we do know is that 1,678 readers did not. Those people were subscribers of the crowdsourced discount site Groupon, which carried the book as a discount special in the middle of May—10 bucks, including shipping.

Given the state of book publishing these days, a markdown that steep (pre-launch, no less) might not seem like the swiftest thing to do from a bottom-line perspective. Never mind that selected bloggers got the book for absolutely nothing. But you'll have a tough time finding anyone in the business world who thinks Tony Hsieh (the surname is pronounced "Shay") doesn't know what he's doing. For him, deep discounting was a means to an end—in this case, getting the book in front of as many eyeballs as possible. And why not? Since the book told the story of Zappos.com—the shoe and apparel Web site for which Hsieh serves as CEO—it made a lot of sense to make sure American consumers had a copy. At last count, 3 million of them did.

As it turns out, this kind of gambit is nothing new for Hsieh, 36, who has no formal marketing training and has always been a bit of a maverick, an entrepreneur willing to take chances that on the surface might seem illogical.

"Tony is not deterred by what people think—or conventional wisdom," says Zappos CFO Alfred Lin. "Most businesspeople think of business decisions as a trade-off; you have to try these two things and not the other two. Tony will try and figure out how to do all four."

Much of the time, he will figure it out, too. All of a decade old, Zappos isn't just the No. 1 online shoe retailer; it's also set its sights on the apparel category, offering clothing, handbags and accessories for men, women and children. But the biggest news came in July of last year, when Amazon.com acquired Zappos for just over $1.2 billion (that's $200 million more than Zappos moved in gross sales in 2009) in a stock-for-stock swap.

That Zappos proved so tempting to e-tailing's 800-lb. gorilla speaks not only to the power of the brand loyalty that Hsieh has created, but to the marketing methods that he used to create it. Under Hsieh's leadership, every Zappos employee is like a little marketing department. "Our brand and our culture are two sides of the same coin," Hsieh says. "The brand is just a lagging indicator of the culture."

Yes, we know what you're thinking. Every executive talks about culture and empowerment, and refers to employees as "brand ambassadors." But in Zappos' case, it's really no joke. At Zappos, customer service is like a pair of shoelaces—threading straight through the company culture and holding it together at the same time. 

While other retailers outsource their customer-service lines to call centers on a distant continent, Zappos' number connects directly to the company's HQ just south of Las Vegas. A live rep picks up almost immediately (two rings when we tried), and you can even hit 5 to hear employees tell you a joke of the day.

Hsieh insists that associates be helpful with anything that customers might call about—and he means it. That person who called in search of a pizza joint in Santa Monica that was open at midnight? They found him one. And in case you've caught those TV spots (via Mullen) with the puppet customers phoning the puppet service reps, those are actual Zappos employees doing the voices. In fact, apart from a few quick camera cuts, the commercials don't even feature shoes. No oversight, Hsieh explains. Instead, "We wanted to show how our reps are ready to bend over backwards for our customers," he says.

But the core of Hsieh's customer-service ethos rests with charging each employee (from the carpeted-office guys on down to the warehouse workers) with spreading the Zappos gospel online. Zappos maintains a dozen blogs (including ones run by the COO and Hsieh himself, who also has more than 1.7 million Twitter followers). The company expects each employee to "develop and cultivate the brand," according to senior brand marketing manager Michelle Thomas, whether that means tweeting about a cool new shoe or creating their own videos for YouTube. "We—everyone at Zappos—is equally responsible for marketing," she says. "We don't have any formal written guidelines, since Tony says they are too limiting and not aspirational enough."

That kind of autonomy would probably make most CEOs incredibly nervous. Trusting employees to send a message is one thing—but letting them write the message, too? Hsieh, however, doesn't seem to view these efforts as marketing in the formal sense. It's communication and outreach—and so long as it's genuine, the marketing benefits follow organically. "Tony and I never thought about social marketing as a way to market to customers" is how Lin puts it. "Twitter is just another way for our customers to contact us and communicate . . . to establish that personal and emotional connection that you can't get with a TV or print campaign."

Hsieh also believes that even the most creative and genuine employees won't develop that connection if the brand's products and services aren't top quality to begin with. "A lot of companies talk about how to generate the short-term marketing buzz," he says. "But if you don't have the goods, nothing you do is going to be a good long-term approach."

Strangely, Hsieh gets so much attention as a marketer that it can be easy to forget that he's actually the CEO. Yet Mullen managing partner Alex Leikikh observes that "great CEOs should be great marketers. What makes Tony a great marketer is his understanding of the concept of differentiation. For Zappos, that's about great customer service, and he's found a way to bring that to life in a compelling way that makes sense for its customers."

Somewhere along the line, he's also found a way to be an author. His book, by the way, made The New York Times bestseller list shortly after publication.

*****

Step Lively

How has Zappos managed to tiptoe away with so much market share? Sure, it has good prices and a huge selection. But Zappos claims that speed is everything. How quickly a customer gets her order will, the company says, be a key factor in whether or not she decides to shop for shoes online again. The company differs from other Web retailers in that it won't put any shoe up for sale unless that exact shoe is physically present in the company's warehouse. The practice has served the company well—and should continue to. After all, Zappos predicts that 30 percent of all retail transactions will one day be online.