Zappos – The OM Blog by Heizer, Render, & Munson

OM in the News: Why Customer Call Centers Matter

Dollar Shave Club, a quickly growing California company with 2.2 million members known best for its viral commercials, has 36 member service agents who answer phones and emails, conduct online chats and reply to queries on social media — all while channeling the brand’s distinctly playful and irreverent tone. But finding the right personalities is challenging. Training takes weeks. It would be a lot easier to contract with a third-party customer service firm.

Online retailers, though, including pioneers Zappos and Bonobos, have found the investment in unscripted customer service worthwhile, reports The Los Angeles Times (Sept. 25, 2015). The interactions, they say, feel more authentic and help humanize e-commerce brands that are, by their very nature, faceless.

The approach is “high cost, difficult to execute, but the word of mouth” makes it worth it, said an industry analyst. That’s imperative for Zappos, which relies on repeat customers and word-of-mouth marketing to power its $2 billion in sales. Zappos has been at the forefront of unscripted customer relations and instills what it calls “WOW” service in its 600 agents through a 7-week training course. That results in some extreme cases of customer satisfaction, like the time an agent visited a rival shoe store to fill an order Zappos couldn’t because it didn’t have the right size. “It certainly would be cheaper to contract out customer service,” said a Zappos exec. “But it wouldn’t be better. 75% of sales come from return customers, so it’s important for us to control the customer experience as much as possible.”

A similar approach is taken by online clothing retailer Bonobos, whose team of 40 customer service “ninjas” are encouraged to be playful and spontaneous with customers. Many are recent college grads, aspiring comedians and actors. “Rather than looking at customer service as an expense, we see it as a fundamental investment, just as we invest in the design and quality of our clothing product,” said Bonobos’ VP.

Classroom discussion questions:

Compare the approach these 3 firms take with the bank’s service documentation in Example 2 in Chapter 5.
Why do most firms outsource their call centers?

OM in the News: Scheduling Zappos’ Call Center Employees

Last September, Zappos’ CEO Tony Hsieh was wandering the halls of the online retailer’s Las Vegas headquarters and noticed that the customer service center’s walls were covered—floor to ceiling—with sheets of printer paper. He had stumbled across the scheduling method for the center’s 540 employees, who respond to the 10,000 customer inquiries the online retailer receives every day. Employees choose their shifts in order of seniority, by writing their names on sheets of paper listing the shifts they want. “It was like how I signed up for college courses before I could do it on a computer,” says a senior manager at Zappos.

“The old-school, paper-and-pencil process didn’t sit well with Hsieh,” writes Fortune (Jan. 28, 2015), “who is known for his devotion to customer service.” (The Amazon-owned company aims to answer 80% of customer inquiries within 20 seconds.) The wasteful manual sign-up process is now being replaced with Zappos’ Open Market, a newly created online scheduling platform that allows workers to set discretionary hours and compensates them based on an Uber-esque surge-pricing payment model: hourly shifts with greater caller demand pay higher wages. The goal of Open Market is to create a “free-market system,” and strike a balance between the rigidness of customer service center scheduling and what the company says is its dedication to giving employees time to pursue other opportunities at Zappos. Everyone receives at least 10% flexible time, so during a 40-hour week, employees would have 4 hours to play with. They could choose to not work during those hours or they could fulfill them whenever they liked by tacking them onto the start or end of a workday or by coming into the office on a scheduled day off.

Employees decide when to work with the help of Open Market’s real-time metrics algorithm that shows customer demand, as measured by the wait time of the longest-holding customer, and the accompanying compensation rates. The longer the hold time, the higher the customer demand, the more the employees working that shift would get paid. The idea is to tie compensation for the employees—who earn an average of $14.50 per hour—into the Open Market model and pay them a range of hourly rates based on demand.

Classroom discussion questions:

1. What are the advantages of the new scheduling system?

2. How does Open Market differ from employee scheduling systems you are familiar with?

OM in the News: Quality Tales– Dogfish Beer and Zappos

If you are looking for a few interesting examples of companies choosing quality of service over quick money, here are two firms that I discovered in the news today: Dogfish Head Beer and Zappos.

The Delmarva Daily Times (March 15,2011) reports that Dogfish, a well-known Delaware brewery, just decided to stop its explosive growth by pulling out of markets in four states. Sales of “off-centered beers for off-centered people” had grown into 30 states in the past 9 years. Founder Sam Calagione, a Discovery Channel minor celebrity, decided that Dogfish ramped up production too far, too fast, to guarantee quality. The expansion even resulted in shortages in the firm’s home state. Fans may be frustrated in Tennessee, Rhode Island, Indiana, and Wisconsin, but the company’s reputation for quality will be preserved.

Meanwhile, Next Montreal (March 16,2011) is reporting, very unhappily, that Zappos is shutting down completely in Canada. Here is the message that the shoe e-tailer has just posted on its website:

We have made the difficult decision to shut down the canada.zappos.com site and stop shipping to Canada. One of our core values is to “deliver WOW through service”. That means the best selection of brands and products that can meet just about every individual’s needs as well as fast, free shipping and free returns, all at competitive pricing. Our Canadian customers know that we have not lived up to these service levels.

Zappos has struggled with uncertainty and unpredictability of delivering orders to Canada, given customs and other constraints. Considered by many to be one of the best on-line retailers, it was not willing to risk its reputation for quality in a market where it could not meet its own standards.

In today’s economy, it is indeed unusual to see firms cede market share in order to maintain such high quality.

Discussion questions:

1. Refer to Table 6.5, Determinants of Service Quality, and relate Zappos’ decision to the 10 items.

2. What did Dogfish view as the danger of rapid expansion?