Zappos Shares Secrets of 75% Repeat Business

Zappos was started in 1999 when the founder saw that there wasn't anything as easy as Amazon.com for buying shoes. But how did it survive the bubble? And why does it continue to enjoy steady growth? Tony Hsieh, Zappos CEO, shared some company secrets at today's Customer Service is the New Marketing summit.

Zappos has 7.4 million total customers, and 3.3 million of them have made a purchase in the last 12 months. (This translates into 1 out of every 40 people in the US.) Even more impressively, 75% of purchases come from returning customers, and repeat customers order more than 2.5 times every 12 months. Repeat customers also have higher average order sizes, and year-over-year revenue has gone up by 30%.

Focusing on repeat customers and word of mouth is what drives Zappos' revenue growth: 44% of new customers heard about Zappos from Internet advertising (the bulk of their marketing spend), and 43% came via word of mouth. Given this startling statistic, it makes sense to invest just as much budget towards good customer service as towards advertising. "When money goes back into the customer experience, customers will do the marketing for you."

Hsieh firmly articulated that the path to a superior customer experience is to invest in your company culture. It's easy for competitors to copy Zappos customer policies such as 24/7 1-800 numbers, free shipping both ways, and 365-day return policies. Culture and customer experience, however, are difficult to mimic. It's hard to copy culture, if not impossible.

These 10 core values are what Zappos adheres to religiously in both hiring and performance reviews:

1. Deliver "WOW" through service.
2. Embrace and drive change.
3. Create fun and a little weirdness.
4. Be adventurous, creative, and open-minded.
5. Pursue growth and learning.
6. Build open and honest relationships with communication.
7. Build a positive team and family spirit.
8. Do more with less.
9. Be passionate and determined.
10. Be humble.

Internally, Zappos reinforces these core values with its operating practices: no call time measurement, which encourages reps to focus on call quality rather than call volume; no sales-based performance goals; inventorying all product, so you never have to worry about delays or stock levels with drop-shippers. There are 5 weeks of culture and customer service training for all, which includes a "culture book", and interviews/performance reviews are 50% based on core values and culture fit.

On a more pragmatic level, Hsieh also shared 10 tips for building a service-focused culture:

1. Commit to customer service, and make it part of your mission - not just a department.
2. Come up with committable core values.
3. Actively manage your culture based on your core values, in every single department.
4. Make "WOW" part of your company's everyday vocabulary.
5. Remember that customer service is an investment, not an expense.
6. Trust and empower your customer service team, and find people that are passionate about customer service.
7. Create a culture book.
8. Give great service to everyone: customers, employees, vendors, and investors.
9. Make culture part of everyone's performance review.
10. Have the entire company celebrate great customer service.

The Zappos goal is to have all employees feel like they have ownership of culture. As a result, they have striking results around customer retention, recurring revenue, and word-of-mouth engagement. I'm starting to think that customer service may be sexy after all.