NEW YORK Zappos CEO Tony Hsieh has not only constructed a $1 billion a year in sales company, but also a leading example of how brands are built that rely less on advertising and marketing.
The company’s approach to building its culture and promoting its brand through customer service has gained adherents from organizations large and small. One of its unusual approaches: Zappos offers every employee $2,000 after their first month of training to quit. This is designed to weed out those who haven’t bought into the Zappos Way. (Less than 3 percent take the cash and leave.) According to Hsieh, the company’s approach is mostly common sense. It has distilled it down to 10 core values that define its culture. The company recently rolled out a consulting service targeted at “The Fortune 1 million” that wants to learn how Zappos has organized its company.
Hsieh recently talked to Adweek (and answered questions from Twitter and Facebook) about building a brand without spending much on advertising, how Twitter isn’t that different from the telephone, and why Zappos fires people that don’t live its culture.
Why has the Zappos approach resonated?
I think part of it is we’re very transparent. One of our core values is being open and honest. It ends up creating more trust with our customers, employees and partners. It’s the opposite of what most businesses do. Most try to be secret with their secret strategies.
Why is culture so important?
Our whole belief is in today’s world companies are becoming more transparent whether they like it or not. One disgruntled or happy employee can write something on a blog and have that read by millions. It’s the same thing with a customer. Our belief is a company’s culture and brand are two sides of the same coin. The brand may lack the culture but eventually it will catch up. You can’t control every touch point like you could 50 years ago. The only way to do it is instead of trying to “control the touch points” is to get the right people with the right attitude, build the right culture and the rest will take care of itself. If I were to ask you of the brand of the airline industry, most would say something about bad customer service. No airline went out and said they wanted their brand to be about that, but that’s the brand of the industry.
How does it enable you to spend less on marketing?
About 75 percent of our orders are from repeat customers. We’ve grown from zero to $1 billion in gross sales in 9.5 years. The No. 1 driver has been from repeat customers and word of mouth. It lets us spend less on customer acquisition.
What does it mean for building brands?
There will be less reliance on advertising for a long-term, enduring brand. Word of mouth is so effective right now. Look at the companies with the highest brand values on Interbrand. Google is near the top of that list and they spend next to nothing on advertising.
What’s the biggest mistake you made?
With my first company it was not paying attention to the culture. We hired the right people with the right experience and skill sets, but we didn’t know to look for a culture fit. By the time it was 100 people, I didn’t want to go into the office anymore. That was a weird feeling. That’s why we ended up selling the company.
Twitter users @maxkalehoff and @derekbrookmeyer ask: What’s not working at Zappos?
We relocated to Las Vegas four and a half years ago. The reason we moved is because in the Bay Area it’s hard to find people who want to do customer service. Part of it is the cost of living and part of it is a different culture out there. In Vegas, we’ve had a lot of people showing up at our job fairs. The cost of living is lower. People can work in a call center and buy a house. What’s been challenging for us is hiring technical talent out here and some senior positions in accounting and finance. We end up having to relocate a lot of people.
David Vanderpoel on Facebook asks: How do you compete when your cost of service is much higher than competitors?
For us, it’s the repeat customers and word of mouth. The free shipping both ways is very expensive. On the P&L, it shows up as a cost of goods, but we think of it as a marketing cost. We spend most of the money we’d spend on paid advertising and put it into the customer experience and let them do the word of mouth marketing for us.
Twitterer @prdude asks: Zappos has hundreds of employees on Twitter. How do you calculate the return?
Part of the value we get is building the company culture. If you go to twitter.zappos.com, you’ll see all the employee Tweets. We have lots of stories of employees meeting up with each other outside of work because of Twitter. It’s been great for building relationships internally. One employee Tweeted that she could use a cheeseburger and another saw it and brought her one. It was like magic to her. With customers we find it’s good for building a more personal, emotional connection with them. It’s not specific to Twitter. With most Web sites, it’s hard to find any contact information. We put our 1-800 number at the top of every Web page because we want to talk to our customers. It’s our best branding opportunity. We have 5-10 minutes of our customer’s attention where we can let our true personality shine and develop that personal connection. It’s not that different from the telephone, but the telephone doesn’t sound that sexy. We don’t look at it as trying to drive sales but building the long-term relationship.
Twitterer @agasperi asks: How did you maintain the culture during rapid growth?
It comes down to whether employees view it as part of their job description. If they don’t, that’s not going to scale. The only way it can is if every employee feels it’s part of their responsibility. We make it part of the hiring process and we actually fire people if they’re not living up to the Zappos core values even if they’re doing their job function. It’s 50 percent of every performance review. That’s the only way I think it can scale.