Dell and Zappos: Two Different Approaches to Operations
Zappos Headquarters Photo by Ethan Miller
In COMM 101, we recently learned about how maintaining limited, yet dynamic inventory levels is essential to efficient operations, as well as investigated how Dell’s goal is to reduce returns by bringing value to its customers.
Reduce returns.
Reduce returns?
And then there is Zappos, one of the world’s largest online shoe retailers and most known for its free returns policy, through which shipping costs on merchandise returns are covered by the company—for 365 days after purchase, no exceptions.
Since its establishment in 1999, the company has quickly grown with the value proposition of exceptional customer service, which is embodied by the return policy, as well as free two-way shipping and the month-long training process of Zappos employees. While such practices seem counterintuitive to managing inventory and increasing profits, they are actually the core of the Zappos business model and contribute to brand recognition, customer loyalty, and decreased marketing and advertising costs. Furthermore, the return policy may actually increase customers’ willingness to buy, resulting in more sales—and specifically, more sales of higher-end products, as the company “claims that clients who buy its more expensive footwear have a 50% return rate. But the higher profit margin on those high-end items is worth the added shipping costs.” (Dugdale)
“Our best customers have the highest returns rates… but they are also the ones that spend the most money with us and are our most profitable customers.” – Craig Adkins, VP Fulfillment Operations at Zappos
Craig Adkins Photo by Courtesy Photos
While Dell focused on moving inventory and lessening returns by investing in specific areas of production that were valuable to customers, Zappos aims to create that same value with a generous return policy and the sacrificing of rigorous inventory control in return for customer satisfaction.
Thus, we see that even with completely different business models and approaches to operations management, both companies were able to achieve success in their respective industries.
Sources:
Brock, Terry. “5 keys to extraordinary success at Zappos.” The Business Journals, 22 Jan. 2014. Web.
Dugdale, Addy. “Zappos’ best customers are also the ones who return the most orders.” Fast Company, n.d. Web.
Glassman, Barry. “What Zappos Taught Us About Creating Ultimate Client Experience.” Forbes, 13 May 2013. Web.
Magretta, Joan. “The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell.” Harvard Business Review, March 1998. Web.
Tice, Carol. “5 Shipping Secrets of Zappos.” Entrepreneur, 4 Dec. 2012. Web.