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Assignment on Strategies Adopted By Zappos.

com
MBA2: Strategic Management

SAHAN UMENDRA KARUNARATNE TENNAKOON MUDIYANSELAGE L0433KDKD0211 LONDON SCHOOL OF COMMERCE

Table of Contents 1. Introduction 3

2. Definition of strategy 3. Vision , Mission and Top Objective of the Zappos.com 4. SWOT analysis of zappos.com 5. Porters 5 Forces Analysis Of Zappos.Com 6. PEST Analysis Of Zappos.Com 7. Porters Generic Model 8. Organizational Culture as A Competitive Strategy For Zappos.Com 9. Conclusion 10. References

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1.0 Introduction The internet has changed the way of doing business. And the way consumers make their purchasing decisions. Because of the internet now we can see an increase in long distance purchases made by consumers as there are no geographical barriers. The one of the first companies to take advantage of this is Zappos.com. Zappos.com is an online shoe store that sells all kinds of men and women's shoes, from dress shoes to casual shoes, to athletic shoes, and the like. They also sell a growing range of accessories including designer handbags, belts, wallets, socks, and even diaper bags. In July 2009, the company sells its stocks worth $1.2 billion to Zappos.com. Since its founding in 1999, Zappos.com has grown to be the largest online shoe store. In this assignment we discuss how the company can use strategies such as SWOT analysis, 5Forces Analysis, PEST Analysis, Porters Generic model and the Company Culture to achieve success in global business. 1.1 About Zappos.com Headquarters: Las Vegas, Nevada CEO: Tony Hsieh Business: Online retailing Founded: June 1, 1999 Sales (2009): $1.2 billion Main product: Shoes Upcoming products: Handbags, clothing, eyewear, jewelry, luggage, accessories, housewares, electronics. Differentiator: Customer service and interaction
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Customer interaction channels: Telephone Email Twitter Blogs Streaming video Partnerships with Facebook, YouTube

2.0 Definition of strategy Johnson&Scholes (Exploring corporate strategy) defined strategy as follows: Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholders expectations. (www.tutor2u.net accessed on 10/11/2011)

3.0 Vision, Mission and Top Objective of the Zappos.com 3.1 Vision To provide a legendary customer experience. 3.2 Mission Statement Our mission is to position Zappos.com as the online service leader. If we can get customers to associate the Zappos.com brand with the absolute best service, then we can expand into other product categories beyond shoes. 3.3 Top Objective Our number one priority as a company is our company culture. Our whole belief is if we get the culture right, then most of the other stuff, like building a long-term brand or delivering great customer service, will just naturally happen on its own. (www.missionstatements.com accessed on 10/11/2011) 4.0 SWOT Analysis Of Zappos.Com 4.1 Strengths Customer relationship & IT support Zappos.com business strategy. Company carefully monitors customer buying behavior and provide customize solutions based on their previous purchase history. Product diversification. Zappos.com has a product range from shoes to fashion accessories. This will help the company to grow its customer base. Strong distribution channels. Zappos.com provides a next day delivery service to its customers. Pricing strategy. Zappos.com delivers an outstanding service at a low price. Innovation, Zappos.com innovates the free shipping both ways concept.
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4.2 Weaknesses By adding new categories by diversification of products Zappos.com has the risk of damaging its brand. Because they are famous for online shoe selling. No region based sites. Because of the free shipping policy Zappos.com is losing their profits.

4.3 Opportunities E-Commerce expansion in Asia. Takeover by Zappos.com creates more brand value. Growth of the Global Internet users.

4.4 Threats High competition due to low market entry barriers. Global economic crisis Hacking problems.

5.0 Porters 5 Forces Analysis Of Zappos.Com

M.E.Porters 5 Forces analysis will help to do an industry analysis. It will give us a clear idea about the strengths of industry 5 forces. This will determine the eventual profit potential of the industry.

5.1 Competitive Rivalry An initial point to analyze the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry is high. If it is easy for consumers to move to a substitute product for example from tea to coffee then once more the competitive rivalry will be high. Competitive rivalry is medium to high for Zappos.com. There are many players in the online shoe market such as endless, shoebuy.com and PIPERLIME. Because of this there is a high head to head competition between these players. There is a high fixed and storage cost of the industry because of the firms have to store inventories in their warehouses for ready delivery. Zappos.com has the advantage over other players because they have the biggest storage warehouse and the biggest inventory, so they are able to provide a next day delivery service to their customers. Also consumers have a choice of purchasing shoes from bricks and mortar store which comprise of 90% of all the sales.

5.2 Threat Of New Entrance New entrants to an industry can lift the level of competition, and reduce its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries, whereas other industries are very easy to enter. Threat of entrance in e-business industry is very high, because of the low set up cost. But Zappos.com has the advantage of been in the online market for more than 10 years and also they have a very well placed distribution system covering all over the world. Also they have the capital investment to try new innovative business strategies such as free shipping both ways. Also Zappos.com has the advantage of having a customer orientated organizational culture, because
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of this Zappos.com is having a loyal customer base. Zappos.com brand name is very well recognized in business so new comers will face it hard to compete with this well established brand. 5.3 Bargaining Power Of Buyers The bargaining power of buyer is very important in that buyers can influence prices to go down, demand higher quality products or services, these will cause loss of industry profits. Buyers can put more power when they are large number of buyers, the product is a major part of the buyer's costs or purchases, the products are standard within an industry, and there is low changing or switching costs. The bargaining power of buyers changes with time and a companys competitive strategy .Bargaining power of buyers are very high in online business, because buyers are having more choices and they can instantly compare prices between Zappos.com and their competitors. So Zappos.com should have strategies in plays to retain their customers. Zappos.com has the customer loyalty because of their

value addition on their products and more customer friendly business strategy (365 day return policy). Also they introduce customer loyalty programe for their loyal customers. Also Zappos.com guaranteed low price than their competitors.

5.4 Bargaining Power Of Suppliers Suppliers can insert great deal of pressure over an industry as they can influence price increases and product quality. A supplier group exerts even more power over an industry if it has few suppliers, there are no substitute products for the suppliers product and their product is vital to the industry to survive. These factors are usually out of the control of the company but strategy can change the power of suppliers. Bargaining power of suppliers is very low in online business. Because
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Zappos.com having more alternative suppliers in the market. So they can dictate terms with their suppliers. This is an advantage for Zappos.com, because they can charge a low price to customers by having products cheaper from suppliers. Suppliers also want to do business with Zappos.com because their fair trading policies such as guaranteed price for suppliers and on time payment policy. 5.5 Threat Of Substitute Products Substitute products are the usual result of industry competition; they will restrict the profitability inside the industry. A substitute product is a product that can do the same purpose as the product that the industry is producing. Threat of substitute products for Zappos.com main product line (footwear) is low. Also all the main suppliers are willing to work together with Zappos.com. Furthermore Zappos.com has a very high loyal customer base. So the customer switching rate is very low for Zappos.com

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6.0 PEST Analysis Of Zappos.Com

An organizations success is depending on factors operating in its internal and external environment; an organization can boost its success by following strategies which influence these factors to its advantage. An established organization will not only recognize existing factors but also forecast future changes, so that it can take advantage of changes in the environments in which it do its business. PEST analysis is concentrating the key external environmental influences on a business. PEST stands for the Political, Economic, Social and Technological factors that could influence the strategic decision making of a business. Understanding PEST influences is a very good way of identifying the external environment in which a business operates. On the other hand, it must be followed
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up by strategies of how a business can find solutions for these influences caused by external environment. 6.1 Political Environment First component of a PEST analysis is an understanding of the political factors. Political factors affect organizations behavior in different ways. Political factors can generate advantages and benefits for organisations. As well as they can create obligations and responsibilities on organisations. Political factors include the following types of instrument: - Legal factors such as the minimum wage or anti discrimination laws. - Business code of conduct - Market regulations - Trade agreements, tariffs or restrictions - Tax levies and tax breaks

Non compliance with legal obligations will put penalties such as fines, negative publicity and imprisonment. Unsuccessful business codes and practices will frequently lead to governments introducing new laws and regulations to control the actions covered by the business codes and practices. Zappos.com has to understand the rules and regulations of countries they are doing their business. Because of the Laws and regulations are different from country to country. As an example; google.com has been banned in China for governmental decision arguing that Google threatens the community and national market with unsuitable contents in his data bases. In addition, Google has lost potential market, as China could be, due to political decisions. (www.essaysbox.com accessed on 20/11/2011)
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6.2 Economic Environment The second component of a PEST analysis is having a good understanding of economic factors. All businesses are influenced by national and global economic conditions. National and global interest rate and fiscal policy will be determining economic conditions. The status of the economy decides how consumers, suppliers and other organisational stakeholders such as suppliers and creditors act in the society. Because of todays economic recession countries will have to face high unemployment rates, low spending power of consumers and low stakeholder confidence. Zappos.com has been affected by this economic recession, because in most cases, customers prefer to buy in their neighborhood stores, than going online. Customers favor following the normal commercial process of going to the store, paying the product and having it immediately than going online, giving their bank details and waiting for a number of days to obtain the product. But Zappos.com implements a low pricing strategy and next day delivery strategy to keep attracting customers to their web site. 6.3 Social Environment The third feature of PEST is looking at the forces inside the society such as family, friends, contemporaries, neighbors and the media. Social factors influence our attitudes, interest s and opinions. These factors shape who we are as people, the way we behave and eventually the way we purchase. Today Social networking has become a huge factor in a very short period of time. Social attentiveness of the worlds environmental needs influence the products that many people buy. Also companies have to understand the ethical and religious believes in countries. In

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some cultures Internet use is not permitted because of the fact that at some point contents in the internet may spoil their cultural, ethical and social believes. Zappos.com has a special social network marketing strategy to attract more young customers to their site. They use Twitter and Facebook to run their marketing campaigns. They create brand awareness through social networking sites. 6.4 Technological Environment The fourth aspect of PEST is technology, as you almost certainly know technological advances have very much changed the way in which businesses function. Technology has shaped the world which expects instantaneous results. This technological uprising has improved the speed at which information is exchanged between stakeholders. A quicker exchange of information can help businesses as they are able to act in response speedily to challenges inside their working environment. Internet is having a great influence on the marketing mix strategy of organisations. Consumers are now able to shop 24 hours a day from their homes. Zappos.com is a company very much involved into the technologically field, and its accomplishment has been well achieved over the past eleven years, even though a lot of challenges face Zappos.com in the high-speed environment of the Internet for this reason, Zappos.com has to cope with this challenge, finding innovative ways to stay ahead of the rest of the competitors.

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7.0 Porters Generic Model

Michael Porter furthermore defined a competitive advantage grid based on three generic strategies that facilitate an organization to strongly recognize a range of competitive strategies available to them, In general they comprise of: Cost leadership Differentiation Focus Porter himself identified that strategy is first and foremost regarding creating and sustaining an advantageous situation in the marketplace. The organization needs to recognize the competitive range accessible to it, taking into account the approach to targeting and segmenting the market, and make sure that the organization is working in a closely defined market.

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7.1 Cost Leadership In cost leadership, an organization develops into the low cost manufacturer in its industry. The sources of cost advantage are diverse and rely on the composition of the industry. They may comprise the pursuit of economies of scale, proprietary technology, better access to raw materials and other factors. A low cost producer must discover and develop all avenues of cost advantage. If an organization can attain and maintain overall cost leadership, then it will be an above average performer in its industry, provided it can control prices at or close to the industry average. 7.2 Differentiation Once a company differentiates its products, it can charge a premium price for its products in the market. Organizations can differentiate themselves from their competitors by providing better service levels to customers, better product performance etc. Porter (1980) has suggested that organizations have to incur an extra cost to practice the differentiation strategy. Such extra costs can be high advertising costs to promote a differentiated brand image for the product. Differentiation has a lot of advantages for the firm which implements the strategy. 7.3 Focus Strategy This strategy is intended at an exact target customer cluster, for example cultural, economic, political, geographical or age-related groups. The strategy practice either cost focus or differentiation focus within its target audience, and in this sense it is a narrower function of one of the abovementioned strategies.

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7.4 Generic Strategies Adopted By Zappos.Com 7.4.1 Cost Leadership Ways of achieving Cost leadership Achieving process efficiency, creating most favorable outsourcing and vertical integration Process efficiency was increased when Zappos.com understood that it was competing with conventional shoe sellers so it improved its efficiency by providing for shipping overnight before waiting for a couple of days Drop Shipping was the practice in which the company maintained only 80 90% of its shoes so displayed on the website as stock and other orders were transferred to the manufacturers Drop- shipping method resulted in holdup in the delivery time creating problem to the customers so 100% stock was maintained and warehouse were kept open 24*7

7.4.2 Differentiation Strategy Strategies practice to add to the uniqueness of the Zappos.com products: 24*7 toll free customer service Search Engine Marketing (SEM) Usage of social media comprehensively Company Culture besides devotedly emplacing on customer services 75% of sales came from repeat customers in which their spending for the repeat purchase was higher

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7.4.2.1Customer Services Concern on customer services made them relocate their headquarter from San Francisco to Las Vegas We were having a hard time finding good customer service People in SanFransisco. Las Vegas has a lot of call centers and Lots of people who want to do customer service as a career. Directing customer towards its competitors websites was also one of its differentiating strategies. Scoring of every customer call made it easy to track the performance of each customer service representatives It also had its warehouse location Kentucky worked round the clock for convenience of their customers

7.4.2.2Company Culture Centered On Customer Services Their Competitors can emulate their services but its culture would give them competitive advantage To give maximum services to customers it was significant to have dedicated set of employees on the payroll 5 week training period recruits had to work in company call center for some time and then at warehouse This Strategy had been in attention for quite some time with If you give up, we will pay you USD 1000+bonus USD 2000 Managers were asked to construct relationships by spending time with employees and to develop communication and build trust between them Doing this Zappos.com was growing by Word of Mouth unlike other competitors
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8.0 Organizational Culture as A Competitive Strategy For Zappos.Com Core Values Frog! The most important aspect in relation to the Zappos.com is their exclusive culture. As they develop as an organization, they didnt like to lose that culture, and they required a method to distribute it among all human resources and everyone else who connect with Zappos.com. They formed these ten core values to explain what precisely the Zappos.com culture is. They are highlighted in everything they perform and all communication they have. Their core values are at all times the structure from which they produce all of their work. When screening to find the possible future employees, theyre searching for employees who equally appreciate the requirement for these core values and are eager to take hold of them. To facilitate them along, every day, in every circumstances they ask themselves: What would Core Values Frog do? 8.1. Deliver Wow Through Service Core Values Frog (or CVF for short) thinks everything worth doing is worth doing with WOW. To WOW, CVF differentiates them by executing things in an unusual and innovative way. They go over and ahead of the standard level of service to generate an affecting contact on the customer and provide them an encouraging story they can take with them the rest of their lives. 8.2. Embrace And Drive Change CVF can not simply cope with regular changes, but anticipate it and accept it with happy faces. CVF not at all satisfied or becomes comfortable with the status quo,
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but is constantly looking for ways and means of changing the way things do, thoughts, and beliefs, with anticipation of success. Lacking innovation, CVF cant continue to offer the better-quality customer service that is the Zappos.com trademark. 8.3. Create Fun and A Little Weirdness CVF has funniness; they know that its fine to laugh at you occasionally. Job shouldnt be identical with hard work; CVF knows how to find enjoyment and creepiness even when the rubber meets the road and theyre receiving lots done. Become a little creepy wants to being a slight innovative and CVF is at all times searching for a possibility to completely connect with their job and take out the enjoyable and creepy part of it. 8.4. Be Adventurous, Creative and Open-Minded CVF is brave and not irresponsible. Hes not frightened to do mistake, since it is the best way to learn. CVF look for chances and encourage others to take chances responsibly too, providing they gain knowledge from the mistakes and take successful decisions in future. CVF has faith in instinct; everybody be able to build up an instinct regarding business decisions if they are willing to take new ideas and the risk of failure. 8.5. Pursue Growth And Learning CVF stretches himself equally in personally and professionally. He not at all thinks that he is trapped in a groove, because there are no boring works at the Zappos.com. CVF recognize that within himself and each and every Zappos.com employee has extra talents that they didnt think of. CVF try more frequently to

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release that talent, of him and his fellow staff members. Theyll by no means acquire it accurately, but they are willing to take that challenge. 8.6. Build Open And Honest Relationships With Communication CVF is transparent in everything he does, his sincerity while engaging with other employees makes the way to a strong relationship that built on confidence and assurance. He is able to use these powerful relationships to achieve success. Its not simple to achieve that, CVF constantly works honestly, is sympathetic and trustworthy, and is an excellent listener. Finally its not what they say or do, but how they create employees believe is matters the most. 8.7. Build a Positive Team And Family Spirit CVF needs to make family not mere a team. CVF works as an administrator who removes barriers and creating his straight reports to succeed. The most excellent business decisions and innovations are comes from the bottom up, and CVF needs to promote that value on his family. As an administrator, he acts instantly when he recognize a problem and integrate with his team to solve them. Other than that, they look after each other, be concerned for each other. They work collectively and play with each other, because our relationship goes further than the characteristic co-worker relationship. 8.8. Do More With Less CVF is forever on the watch out for how to build himself extra capable and improve processes at Zappos.com. There is constantly opportunity for development and CVF always see the importance when creating those developments. CVF want to become the supreme service company in the world.

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8.9. Be Passionate And Determined What keeps CVF going? Its enthusiasm for our business and our culture. Theyre enthused as they have faith in what they are doing and where theyre going. They dont receive thatll never work for an answer. A lot of people told us that selling shoes online would never work; think if we have listened to them! CVF has an encouraging and confident approach, because this encourages everybody with him. 8.10. Be Humble CVF understands that regardless of all the big things the Zappos.com has achieved in the past, we have to face lot of challenges in the future. No matter what happens, CVF is for all time considerate of everybody. CVF likes to commemorate our individual and team achievements.

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9.0 Conclusion Zappos.com has grown step by step from its initial beginning of online shoe Retail Company. During this period they have incurred massive losses and it became more expose to competition and threats. Maintain a low cost while achieving a high profit is Zappos.coms greatest challenges. However they have key advantages of having a highly recognized brand name, providing high quality customer experience, massive volume of sales and realizing economies of scale. These advantages will help them to claim competitive advantage over their main competitors. However Zappos.com should develop strategic partnerships with all its suppliers. In a fast changing online business environment with a high competitors' force Zappos.com have to implement new product diversification strategies in order to continue its market leadership position. Zappos.com has to continuously become accustomed to the rapid changing conditions. Strategy implementation should be recognized as a procedure of constant learning, which has learning regarding the goals, the result of likely actions towards these goals and how to execute these actions. The superiority of a developed strategy and the pace of its implementation will consequently depend on the superiority of Zappos.coms cognitive and behavioral learning processes.

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