January 7, 2009
Consumers Return to Zappos
Sean
Kim, vice president of business development at Zappos, told Forbes that
while it is true his company sells shoes, in reality the online shoe seller
is "in the service business."
Zappos has used a no-questions-asked
return policy to set itself apart from competitors in shoe retailing
and remains committed to its approach even as many others are
tightening their own programs in an effort to reduce the cost of returns
on their businesses. Zappos, as Forbes points out, not only provides
a full refund for returns, it also picks up the cost of shipping returned
items.
"We
say to our customers: Go ahead, buy it and try it. If you’re not happy,
return it. As many times as you want," said Mr. Kim.
While
many see returns as an expense that negatively affects top and bottom line
performance, Zappos take another view. "Service is not an expense,
it’s an investment," he said.
"We
don’t advertise and hardly spend money on traditional marketing," Mr.
Kim added. "Our company has grown through word of mouth and referrals.
Our returns policy is a big part of our growth."
Discussion Questions:
How big a competitive advantage or disadvantage is Zappos’ return policy?
Is there room for retailers to be less liberal in accepting returns or
is it an area that they shouldn’t tinker with?
BrainTrust
Recent Discussions
Discussion Questions
Poll
L.L.Bean built a business around the philosophy (paraphrased here) that “the sale is not complete until the customer has worn out the product and thrown it away.” While the Zappos return policy is geared more toward encouraging risk-free trial of multiple products, and it works like a charm–just ask my wife–there is an implied element of dependability in the policy as well. That air of credibility and reliability is difficult to gain and worth its weight in consumer credit cards. L.L.Bean knew it. Sears earned it with Craftsman for years. Nordstrom will always be legendary for it. Zappos is building an invaluable asset with this policy.
Zappos’ product return policy is one of its most significant differentiators, and one of the key reasons I personally became a Zappos customer for the first time last fall. The experience of buying shoes tends to be quite personal, with a strong preference by most to see, touch and try them on before making a purchase decision.
Zappos has simply and cleverly removed this barrier, and in fact encourages its customers to order the same item in two sizes if they are uncertain, knowing they can easily return those that don’t fit, at no cost.
Zappos is a model for online retail. By focusing on ways to remove friction in the purchase or decision process, the convenience and good will factors increase exponentially.
The “no questions asked” return policy is a key value at Zappos and one that sets them apart from their competitors. It’s all part of their customer service mind set.
We all remember the story of someone testing Nordstrom’s return policies by returning a set of tires. Whether truth or urban myth, it stuck and Nordstorm’s reputation was enhanced.
Zappos knows their core story and stands by it. And consumers take note of it. It’s one of the reasons why they are successful without spending millions of dollars to advertise.
This is a significant advantage and an issue for all merchants, especially those online. Customers link returns with trust and customer service. Look at Nordstrom and the Macy’s of old.
For Zappos, this is only a part of their strong service culture that puts the customer at the center and permeates everything they do. It is always amazing that more merchants don’t act like this.
That said, an exception is a deep discounter like Gilt.com, where the value proposition is singly focused on key merchandise at liquidation.
Let’s see: The economy is tight, consumers are scared, and it’s tough to make sales these days. And, retailers are bent on making it more difficult for customers to buy by restricting returns? Are you kidding me?
Such myopic policies are certain to get retailers who tighten return policies into even more trouble. It seems like a simple bottom line boost to show how eliminating returns can turn a profit. But, don’t the bean counters get that return policies aren’t put in place because we want to give money back? They’re there to make it easier for customers to buy from you.
Zappos gets it. I can’t imagine why other retailers can’t figure this easy one out.
Zappos is the bomb! All people I know who use it absolutely love the return policy, it’s an essential element of the brand’s relevance to its audience. The CEO is right, they are in the service business and the service is divine.
I even use Zappos to send shoes to my 80 year old Dad who lives on the other side of Michigan, so he can try them on. He’s the evangelist for the brand in his assisted living home–they have a hard time getting out to shop for shoes so the service is IDEAL.
I’ll bet matures is a market segment Zappos has yet to monetize fully, but if you think about it, everything they stand for works perfectly for a mature mindset, especially good old fashioned service and return-for-free promise.
We recently had a query about return policies and it was interesting to see the responses. Zappos has probably the best online return policy out there and customers that have spoken to really rave about the service at Zappos. Zappos understands that returns are part of the selling process and that you can lose business by not providing stellar service throughout the whole transaction. Their return policy is an excellent ‘gesture’ to their customer. Ultimately it can only impact the business positively.
That said, the clubs seem to tightening up in the return policy. Costco and Sam’s now have strict 90 day electronic return policies. But to counteract any negative feedback, return associates are to be fully trained in warranty and service center information so that the customer is not left hanging. Let’s face it, there is a lot of return fraud and with this economy, it will probably get worse. But should we punish all our customers because of a small percentage of fraud? I say tighten it up and scrutinize it more, but don’t lose business because of returns. A return at the store level is probably your best shot at converting back to a sale. Another thing to remember: the right product for the right customer. Some returns start right on the selling floor!
Way back in business school, one of the examples of outstanding retailing merchandising was Nordstrom and their policy on shoe sales. When shopper asked to see a particular pair of shoes, the salesman was required to bring out at least an additional three pair that the shopper might like.
Zappos has multiplied that idea tenfold. The more shoes the shopper sees, the more he or she is likely to buy. I don’t know Zappos’ margin structure, nor the statistics of people who order, return and buy nothing. However, if you consider that the margin with the purchase of one pair of shoes gives Zappos a break-even on the entire transaction, then a sale of a second and 3rd pair is pure profit. That doesn’t even consider that as long as the shopper has the shoes, Zappos has the money, which pays for the inventory carrying costs.
It is probably unfair to compare the Zappos return policy to that of other retailers. For Zappos, returns are not only expected, they are encouraged. Zappos take on returns is the complete opposite of other retailers. Zappos says the more returns we get, the more shoes we sell. Most retailers would consider that illogical.
Does it work? None of my 4 grandchildren have ever been to a shoe store. All of their shoes are purchased from Zappos. I have watched my wife try on 10 pairs of boots in the time it would take her to go to one shoe store. An online store for a very high-end shoe designer/retailer is run by Zappos.
Even assuming that retailers can’t approach the Zappos business model, is there room for a more liberal return policy? Personally, I won’t buy a present for my wife without a liberal return policy. (Yes, sometimes I am way off the mark.) From a business point of view, I can’t help but make that example as part of my retail business model. Give the consumer comfort that they can return whatever they purchase. The result will be that they will purchase more and once the item is at home, they will return less. Consider it as an alternative to not making a purchase at all.
Boy, lots of love for Zappos above! Looking at our comments, you’d think Zappos was 5x the size it is–maybe they will be.
The whole idea of a liberal return policy building a business is not new (think Sears). But obviously the online factor is, and as we all know from surveys, being able to return something (concerns about fit, etc) is the number two reason behind security for hesitancy in an online buy.
So, not only is Zappos popular, they listen to their customers–that lost retail art. Looking forward to making them larger.
Have you ever bought shoes online? I have. Getting the shoe that fits is tough. Styles now include abbreviated toe boxes and platforms–these are even harder to fit styles.
Zappos is right on the money. Making returns easy, with no questions asked, is nearly imperative–not only in this economic environment, but also for their business in particular.
Bravo Zappos!
Zappos is truly in touch with consumers (and seemingly employees) in a way that is rare and welcome–almost old fashioned in a futuristic kind of way. Follow their CEO on twitter or read his blog. Get their culture book. Tap into their shared knowledge on how they approach business. There are many lessons to be learned from the Zappos model. As a marketer and as a customer, I give them high marks for using large doses of common sense in responding to all of the human touchpoints that make their brand a brand that should withstand the test of time.
I have heard nothing but raves about Zappos and their return policies from it seems everyone who has ever dealt with them. This includes a detailed report from NPR which focused on the company’s no shipping charges for returns.
This should be the only way to do business when it comes to any form of apparel, especially shoes. I find that my shoe size can differ by a half size when trying on different lines of shoes from the same company. By purchasing at a store I can try shoes on and take home the right size. This eliminates several possibilities for a return.
Proper size and a comfortable fit are not assured when purchasing from a web site, mail order firm, television infomercial or shopping network. It would seem that many of these companies are penalizing consumers by charging for returns shipping due to a shortcoming in their retail format.
Shopping networks often encourage returns through their on-air pitch people as this provides revenue streams through shipping & handling charges both ways. Thus a consumer may pay twice for s&h and wind up with no product. No wonder the on-air pitchers stress their easy return options.
I love the Zappos love, and I love the consumer value proposition. But let’s be realistic about the financials….
Read their press releases and you’ll see that executives are very specific about having $1B in gross sales–not net of returns. Since many customers purchase multiple sizes and return knowing there is no cost in doing so, Zappos return rate is exceedingly high–for some product, upwards of 30%. Yes, they’ve improved repeat purchase rates and reduced acquisition costs (save those awful television commercials–look Zappos puts rainbows in every box!–but those costs are offset through free shipping and returns expense. The company operates at break-even (barely) and had to reduce headcount by 7% due to flattening demand….
The problem with the footwear (and apparel business) is sizing and trying things on. Zappos eliminated the friction point by making it easy to buy and return. That’s great, especially from a consumer perspective. And with a shoe AOV of, say, $80, they can offer free shipping on every order; it’s considerably higher than Amazon’s $25 hurdle rate. But I would argue Zappos’ return rate is exceedingly high (maybe 2-3x higher than Amazon) and the company will eventually have to offset the expense. It’s already trying to do so with its 6pm site–discount product, $7 shipping, no free returns, no service.
I purchase from Zappos at least four times a year. They’re great, and here’s a personal example: I wanted to buy a pair of black bowling shoes with flames on the sides, but I don’t bowl. I just wanted the cool shoes. However, the shoes were sold in right-hand and left-hand versions. For right-handed bowlers the left shoe had a felt sole to facilitate sliding while the right shoe had a regular, outdoor sole. Vice-versa for left-handed bowlers. I asked the Zappos order clerk about this, and she suggested (suggested!) that I buy both pairs and return the shoes with the felt soles. I did and it worked. Now I’m a firewalker.
Return policies, of course, depend on the merchandise. For shoes and most apparel, it’s necessary. For opened pharmaceuticals, it’s impossible. The Zappos return policy is more a necessity than an epiphany. They simply have no choice in the matter, and it’s serendipitous to be able to gain kudos and congratulations for something you had to do anyway.
Zappos relies on word-of-mouth marketing. That makes some dollars available for new investment ideas. Zappos current “no questions asked” return policy is good use of those available investment dollars. Makes me want to tell my friends where to buy their shoes with complete safety.
More Discussions
As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…Is Supply Chain Volatility Here To Stay?
Can we expect an ongoing volatility to remain in terms of retail supply chain?Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?
L.L.Bean built a business around the philosophy (paraphrased here) that “the sale is not complete until the customer has worn out the product and thrown it away.” While the Zappos return policy is geared more toward encouraging risk-free trial of multiple products, and it works like a charm–just ask my wife–there is an implied element of dependability in the policy as well. That air of credibility and reliability is difficult to gain and worth its weight in consumer credit cards. L.L.Bean knew it. Sears earned it with Craftsman for years. Nordstrom will always be legendary for it. Zappos is building an invaluable asset with this policy.
Zappos’ product return policy is one of its most significant differentiators, and one of the key reasons I personally became a Zappos customer for the first time last fall. The experience of buying shoes tends to be quite personal, with a strong preference by most to see, touch and try them on before making a purchase decision.
Zappos has simply and cleverly removed this barrier, and in fact encourages its customers to order the same item in two sizes if they are uncertain, knowing they can easily return those that don’t fit, at no cost.
Zappos is a model for online retail. By focusing on ways to remove friction in the purchase or decision process, the convenience and good will factors increase exponentially.
The “no questions asked” return policy is a key value at Zappos and one that sets them apart from their competitors. It’s all part of their customer service mind set.
We all remember the story of someone testing Nordstrom’s return policies by returning a set of tires. Whether truth or urban myth, it stuck and Nordstorm’s reputation was enhanced.
Zappos knows their core story and stands by it. And consumers take note of it. It’s one of the reasons why they are successful without spending millions of dollars to advertise.
This is a significant advantage and an issue for all merchants, especially those online. Customers link returns with trust and customer service. Look at Nordstrom and the Macy’s of old.
For Zappos, this is only a part of their strong service culture that puts the customer at the center and permeates everything they do. It is always amazing that more merchants don’t act like this.
That said, an exception is a deep discounter like Gilt.com, where the value proposition is singly focused on key merchandise at liquidation.
Let’s see: The economy is tight, consumers are scared, and it’s tough to make sales these days. And, retailers are bent on making it more difficult for customers to buy by restricting returns? Are you kidding me?
Such myopic policies are certain to get retailers who tighten return policies into even more trouble. It seems like a simple bottom line boost to show how eliminating returns can turn a profit. But, don’t the bean counters get that return policies aren’t put in place because we want to give money back? They’re there to make it easier for customers to buy from you.
Zappos gets it. I can’t imagine why other retailers can’t figure this easy one out.
Zappos is the bomb! All people I know who use it absolutely love the return policy, it’s an essential element of the brand’s relevance to its audience. The CEO is right, they are in the service business and the service is divine.
I even use Zappos to send shoes to my 80 year old Dad who lives on the other side of Michigan, so he can try them on. He’s the evangelist for the brand in his assisted living home–they have a hard time getting out to shop for shoes so the service is IDEAL.
I’ll bet matures is a market segment Zappos has yet to monetize fully, but if you think about it, everything they stand for works perfectly for a mature mindset, especially good old fashioned service and return-for-free promise.
We recently had a query about return policies and it was interesting to see the responses. Zappos has probably the best online return policy out there and customers that have spoken to really rave about the service at Zappos. Zappos understands that returns are part of the selling process and that you can lose business by not providing stellar service throughout the whole transaction. Their return policy is an excellent ‘gesture’ to their customer. Ultimately it can only impact the business positively.
That said, the clubs seem to tightening up in the return policy. Costco and Sam’s now have strict 90 day electronic return policies. But to counteract any negative feedback, return associates are to be fully trained in warranty and service center information so that the customer is not left hanging. Let’s face it, there is a lot of return fraud and with this economy, it will probably get worse. But should we punish all our customers because of a small percentage of fraud? I say tighten it up and scrutinize it more, but don’t lose business because of returns. A return at the store level is probably your best shot at converting back to a sale. Another thing to remember: the right product for the right customer. Some returns start right on the selling floor!
Way back in business school, one of the examples of outstanding retailing merchandising was Nordstrom and their policy on shoe sales. When shopper asked to see a particular pair of shoes, the salesman was required to bring out at least an additional three pair that the shopper might like.
Zappos has multiplied that idea tenfold. The more shoes the shopper sees, the more he or she is likely to buy. I don’t know Zappos’ margin structure, nor the statistics of people who order, return and buy nothing. However, if you consider that the margin with the purchase of one pair of shoes gives Zappos a break-even on the entire transaction, then a sale of a second and 3rd pair is pure profit. That doesn’t even consider that as long as the shopper has the shoes, Zappos has the money, which pays for the inventory carrying costs.
It is probably unfair to compare the Zappos return policy to that of other retailers. For Zappos, returns are not only expected, they are encouraged. Zappos take on returns is the complete opposite of other retailers. Zappos says the more returns we get, the more shoes we sell. Most retailers would consider that illogical.
Does it work? None of my 4 grandchildren have ever been to a shoe store. All of their shoes are purchased from Zappos. I have watched my wife try on 10 pairs of boots in the time it would take her to go to one shoe store. An online store for a very high-end shoe designer/retailer is run by Zappos.
Even assuming that retailers can’t approach the Zappos business model, is there room for a more liberal return policy? Personally, I won’t buy a present for my wife without a liberal return policy. (Yes, sometimes I am way off the mark.) From a business point of view, I can’t help but make that example as part of my retail business model. Give the consumer comfort that they can return whatever they purchase. The result will be that they will purchase more and once the item is at home, they will return less. Consider it as an alternative to not making a purchase at all.
Boy, lots of love for Zappos above! Looking at our comments, you’d think Zappos was 5x the size it is–maybe they will be.
The whole idea of a liberal return policy building a business is not new (think Sears). But obviously the online factor is, and as we all know from surveys, being able to return something (concerns about fit, etc) is the number two reason behind security for hesitancy in an online buy.
So, not only is Zappos popular, they listen to their customers–that lost retail art. Looking forward to making them larger.
Have you ever bought shoes online? I have. Getting the shoe that fits is tough. Styles now include abbreviated toe boxes and platforms–these are even harder to fit styles.
Zappos is right on the money. Making returns easy, with no questions asked, is nearly imperative–not only in this economic environment, but also for their business in particular.
Bravo Zappos!
Zappos is truly in touch with consumers (and seemingly employees) in a way that is rare and welcome–almost old fashioned in a futuristic kind of way. Follow their CEO on twitter or read his blog. Get their culture book. Tap into their shared knowledge on how they approach business. There are many lessons to be learned from the Zappos model. As a marketer and as a customer, I give them high marks for using large doses of common sense in responding to all of the human touchpoints that make their brand a brand that should withstand the test of time.
I have heard nothing but raves about Zappos and their return policies from it seems everyone who has ever dealt with them. This includes a detailed report from NPR which focused on the company’s no shipping charges for returns.
This should be the only way to do business when it comes to any form of apparel, especially shoes. I find that my shoe size can differ by a half size when trying on different lines of shoes from the same company. By purchasing at a store I can try shoes on and take home the right size. This eliminates several possibilities for a return.
Proper size and a comfortable fit are not assured when purchasing from a web site, mail order firm, television infomercial or shopping network. It would seem that many of these companies are penalizing consumers by charging for returns shipping due to a shortcoming in their retail format.
Shopping networks often encourage returns through their on-air pitch people as this provides revenue streams through shipping & handling charges both ways. Thus a consumer may pay twice for s&h and wind up with no product. No wonder the on-air pitchers stress their easy return options.
I love the Zappos love, and I love the consumer value proposition. But let’s be realistic about the financials….
Read their press releases and you’ll see that executives are very specific about having $1B in gross sales–not net of returns. Since many customers purchase multiple sizes and return knowing there is no cost in doing so, Zappos return rate is exceedingly high–for some product, upwards of 30%. Yes, they’ve improved repeat purchase rates and reduced acquisition costs (save those awful television commercials–look Zappos puts rainbows in every box!–but those costs are offset through free shipping and returns expense. The company operates at break-even (barely) and had to reduce headcount by 7% due to flattening demand….
The problem with the footwear (and apparel business) is sizing and trying things on. Zappos eliminated the friction point by making it easy to buy and return. That’s great, especially from a consumer perspective. And with a shoe AOV of, say, $80, they can offer free shipping on every order; it’s considerably higher than Amazon’s $25 hurdle rate. But I would argue Zappos’ return rate is exceedingly high (maybe 2-3x higher than Amazon) and the company will eventually have to offset the expense. It’s already trying to do so with its 6pm site–discount product, $7 shipping, no free returns, no service.
I purchase from Zappos at least four times a year. They’re great, and here’s a personal example: I wanted to buy a pair of black bowling shoes with flames on the sides, but I don’t bowl. I just wanted the cool shoes. However, the shoes were sold in right-hand and left-hand versions. For right-handed bowlers the left shoe had a felt sole to facilitate sliding while the right shoe had a regular, outdoor sole. Vice-versa for left-handed bowlers. I asked the Zappos order clerk about this, and she suggested (suggested!) that I buy both pairs and return the shoes with the felt soles. I did and it worked. Now I’m a firewalker.
Return policies, of course, depend on the merchandise. For shoes and most apparel, it’s necessary. For opened pharmaceuticals, it’s impossible. The Zappos return policy is more a necessity than an epiphany. They simply have no choice in the matter, and it’s serendipitous to be able to gain kudos and congratulations for something you had to do anyway.
Zappos relies on word-of-mouth marketing. That makes some dollars available for new investment ideas. Zappos current “no questions asked” return policy is good use of those available investment dollars. Makes me want to tell my friends where to buy their shoes with complete safety.