UPDATED: Does Putting Customers "First" Pay? Amazon.com Buys Zappos.com for $928M

Natalie L. Petouhoff, Ph.D. By Dr. Natalie Petouhoff

While at the Forrester IT Forum this past spring, I was invited by Tony and Alfred to visit Zappos.com. I was intrigued about what I had heard about this company. Could it be actually true that even the receptionist understood what customer lifetime value (CLTV) meant?

Zappos.com was known for their extreme customer service... but was the whole culture really like that? And if so, how did that work? I had enjoyed the tweets I'd seen of the nearly 400 Zappos.com employees on twitter- they seemed authentic, genuine... Zappos had built its business through developing relationships, creating personal, emotional connections and delivering high touch (WOW) customer service.

I reached out to Tony via Twitter and let him know I would be in Las Vegas. He immediately tweeted back, "Please come visit!"

I had met Alfred (the COO/CFO) and Tony (CEO) back in February of 2009 on Twitter. That's when I had started my research on the ROI of social media for customer service.

Curious if what I heard in that February interview would be embodied in the actual corporate culture, I ventured from the Palazzo.I had imagined waiting in long taxi lines typical of Las Vegas... They would have none of that! I was greeted by a wonderful young women in a truck with a large Zappos.com logo. "Wow, I thought... They offered to come pick me up! That's some kinda service!"

The gal that picked me up- she was one of the many receptionists-- talked about what a wonderful place Zappos was to work; how important the culture was to her and that she couldn't imagine working anywhere else. Oh, and that how they treated customers-- how everyone at the company treated customers, not just the customer service reps, but everyone.... was their "secret sauce." She said --like real customer experience trouper--" It helps us increase our customer lifetime value." And that was my first experience of the embodiment of Zappos.com's CLTV.

We arrived at the building and as I entered the lobby, I was WOWOW'd by the decor. It was fun, hip- and there were bookshelves full of THE top business books- not just one or two of one's fav books, but just about everything you'd want to read... and not just one copy like a library, but 10-20 copies like a well stocked bookstore.... "The Tipping Point, Blink, How to Win Friends and Influence People, Co-opetition, Freakonomics, Chief Customer Officer, Tribal Leadership, The Ultimate Question, Flow, The Wisdom of the Crowds..." You get the picture... I asked -- being a book addict -- what they were for.

The receptionist said, "Those are for our employees to read. We can take them, read them, give them to our friends. Go ahead, browse the shelf. Take whatever you want."

I asked, "So any employee, at any time, can just take a book. You don't have to buy it or check it out? She said, "No that's part of our culture. To continuously learn and be customer-focused."

I was greeted by a handsome young man, Donvaon Roberson, who took me on the tour of the call center as well as the rest of the operation. It was clear that each group had played a large part in decorating their area to reflect their values, their dreams and their passions. It was not your typical company cubicles. It was colorful and vibrant. It rang of "play." But not "play" in the "not so serious play"-- but more of the type of "play" where enthusiasm was followed by passion which was fueled by truly delighting customers.

As the tour ended, I "got" that they "got it." Customers were their business. Not shoes. Not orders. Not paperwork. Not spreadsheets. Not warehouses. They were in the business of serving customers- EVERYONE -- marketing, sales, customer service, accounting, shipping... everyone truly got that the recipient of whatever a particular person's "job" was--- was a real, live human being. And it mattered how they did that "job" because ---what they did somehow, some way affected another human being. And that level of consciousness and caring was astounding.

So on this day of July 23, 2009, the day that Amazon bought Zappos for $928M, I had to pose the question, "Does putting customers "first" pay?"

There's long been two camps. Those that drive the bottom-line so hard that anything that can't be seen as revenue on a P&L must be a waste. Their mantra? "Cut the fat! Cut the fun! A serious employee's work is never done!"

And then there are those who believe that the customer and their experience fuels the bottom-line. I appreciate what my colleague Bruce Temkin has done to prove the business value of the customer experience. And I appreciate what Tony and Alfred did by building a company that is a true example of the value of putting customers first.

Perhaps now that we have the "proof" that putting customers "first" does ---and will always pay- may the mantra of all companies become, "Love your customers, love them all. When you do, you never know what riches -- of the soul, of the heart or of the bank, you will be fall."

What's your take on the importance of putting customer's first?

Learn. Grow. Share.    @drnatalie or npetouhoff@forrester.com

Letter to Zappos.com employees from Tony: http://blogs.zappos.com/ceoletter .


re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

I have had the opportunity to visit Zappos, as well as meet many Zappos team members on and offline. The value of Zappos is the culture. It was so electric that it turned me into the biggest advocate for the brand. I also keep their Culture Book on the top of my shelf so I notice it every time I walk into my office. The Zappos team is an inspiration and I know they will inspire the Amazon team.I think Customer Service culture and its value is starting to be noticed in organizations. In tough times, people will go to the companies they trust the most. Trust is built from your Customer Service organization and every interaction with members of your company. Also, as Zappos knows so well, the power of social media is huge. They benefited from the social media buzz created by their wonderful service and transparent approach. Like Zappos, companies can benefit from the buzz by creating service oriented culture, but if their service is not up to par, they will see the negative backlash in this new world. It's such a great time to be in Customer Service. I love the change in thoughts regarding service that is happening in many organizations.

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

Thanks Frank for your thoughts! It's people like you that are raising the stakes in customer service to a higher level and thus the higher value. Because of people like you, Tony and Alfred -- who get what business we are all in -- which is the business of serving customers. Perhaps by your example at Comcast and others in similar positions, CXO's will take notice and empower you all with the budget, the resources and positional power to "be the change we want to be in customer service."

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

Here's the big "aha." Everyone seems to have a story like this about Zappos.com. Customer or prospect meets brand. Brand shows extra love. Love warms our heart -- validates us (often in ways we can't quite pinpoint) -- and we end up telling others...often to self-reinforce the validation. This does carry real cost, even head-count implicatons, but the good news today is we have unparalled ability to meter the viral dividends of 'customer first' bonding. The more we can meter "cause & effect" the easier to resource, or shift dollars from one areas (e.g. "paid media) into other (e.g. "earned media" or service operations). In my nearly ten years of metering unaided consumer emotions/opinions across the web, I've consistently seen the very things Zappos does well -- empower employees to solve problems, create brand experiences that exceed expectations -- work across hundreds of companies and brands. But it's usually more anecdotal than systemic. The Zappos case study affords us a unique opportunity to formulate a new model that values service on equal footing as other marketing inputs.That said, there is some risk of gushing too much about Zappos.com. Not all of this is scalable, and we need to understand the difference between "first mover" and "steady state" service dividends. At som level, Zappos owns the "sharable story" about the Culture Book. Not clear if pay similar rich dividends for second-movers. And I'll be shocked if we ever see another CEO secure 1/10th the followers on Twitter as Tony H. But there are real foundations to their approach that will pay dividends for a very long time, and perhaps embed themselves in Amazon business processes as well. That's the big opportunity for the rest of us.- Pete Blackshaw, Nielsen

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

Natalie:Great post, great case study. It shows that "goodwill," as an accounting artifice, actually depends on "good will," (note the space) as a human reality.Per Wikipedia: "Goodwill as a term was originally used to reflect the fact that an ongoing business had some 'intrinsic value' beyond its assets, such as the reputation the firm enjoyed with its clients. Likewise, a buyer may agree to 'overpay' because he sees potential synergy with his own business."Zappos clearly cultivated good will among all its stakeholders--i.e., everybody who ever came into contact with it--and made people want to gravitate in its direction. Clearly, from what you're saying, Zappos sustained a community of good will based on the personal touch. Simple respect.Jim

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

Natalie - Great post. This reinforces the concept that giving employees the tools to care for your customers...be it technology, empowerment or building a customer service culture can pay big dividends. Not enough companies today focus on the customer experience aspect of customer service. If you spend all of your time finding ways to reduce costs, but don't experience it from the customer POV, reducing costs may have a negative backlash. Misuse of IVR's is a great example...sure it's cheaper - and also frustrating, confusing, annoying, etc. It's great to hear a story reinforcing the value of the customer experience!

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

BTW - What is your opinion on whether the Amazon.com acquisition will impact the Zappos culture and the customer experience they provide? I usually have a pretty good experience with Amazon, but it's definitely not the stuff of legend that Zappos seems to be.

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

Putting customers first does indeed, pay, Natalie -- great post & observations! I remember working with retail clients in my consulting days and focusing on the -- then novel -- Nordstrom case study of customer focus. Everyone then talked about the urban legend of an elderly woman who brought in tires for return -- and the Nordstrom associate took them, rather than point out the obvious. The point then was the adage that every happy customer would tell a friend or two, but an unhappy one would tell 10. And that had a powerful effect on CLTV (Customer Lifetime Value).The interesting bit, though, is that companies and industry-watchers think that this is a "choice". In today's world -- dramatically different from the days of that Nordstrom story -- a happy customer or an unhappy customer have the ability to tell *thousands and millions* through the power of social media. And, custoemrs areexercisign that ability every minute, every hour, and every day. Just ask United Airlines, Domino's, and Motrin.Companies don't have a choice -- their customers are already first. Companies just have to act to turn that into an opportunity. Every company, every brand has custoemr advocates and potential advocates out there -- most just haven't idenitifed them and put them to work. We just surveyed CxOs and VPs of companies with over 1000 employees and asked how much a customer advocate was worth on an annual basis to their business. The results -- nearly 60% said over $50,000 per year -- nearly 30% said over $250,000 per year! If companies act to actually build a community and customer network of their best advocates, they can turn this new reality into enormous leverage -- just as the folks at Zappos have done.Sanjay DholakiaChief Marketing OfficerLithium Technologies

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

Natalie,That was an inspiring post. I have not been fortunate enough (or probably smart enough) to have first-hand experience with Zappos.com. Maybe it's the difficult to fit foot that stopped me! As I learn more about Zappos and their culture I see that our own company and many other companies can benefit from emulating the things that helped Zappos develop relationships, create personal emotional connections, and deliver high touch ("WOW") customer service.We are lucky to have the privelege to work every day with companies who understand creating a WOW customer experience pays short-term dividends when they apply technology to better service customers. That's what we do all day, every day!! In fact, one company achieved a 25% increase in inbound sales conversion rates by simply using co-browsing technology to put customers more at ease as they shop for new satellite TV programming packages.The Zappos/Amazon relationship is clear evidence that putting the customer first also pays in the long term for employees, shareholders and customers so IMHO, Yes -- it pays to put customers first!Linda Ziemba, LiveLOOK

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

Great post Dr. Natalie. The number one mistake companies should avoid is thinking that the Zappos philosophy is only applicable to B2C companies. Treating your customers “the Zappos way” works whether or not you are selling Enterprise Software to the largest companies in the world or selling coffee, shoes, or clothing to consumers.Your insider view was awesome, thanks!

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

I too have had wonderful experiences on Zappos.com. Anyone who tells me "I've never used Zappos before" is forced to hear me recount my wonderful interactions with the company. When I read about the acquisition my first knee-jerk reaction was "Oh no, how will this change my experience?" Further reflecting on it, I realized that there are several features of Amazon that Zappos doesn't have that could make the Zappos experience even better. If they can merge the benefits of being a larger vendor with the qualities people have come to expect from Zappos, I will continue to be a positive customer. I'd be interested in your thoughts.

re: UPDATED: Does Putting Customers "First" Pay? Amazon.com Buy

Good Post. This event has been the topic of many conversations around the office. We have both camps represented - Cost driven managers saying "Zappos is unsustainable" and customer experience driven managers (such as myself) thinking "They have it right." I am not sure if Tony’s vision will be able to mesh long-term with Bezos’ control at Amazon. Would be great if it is able to be done, but I have my doubts. Probably depends mostly on how long Tony and Alfred are around at Zappos after the merger is completed. That said, I will need to get down to Vegas soon, before anything has a chance to change in the wrong direction.