There's been a lot of hubub over Zappos' recent web debacle that resulted in a $1.6m loss. Apparently some web dev person made a coding error that priced all items on the site at $49.95, even these. You can read the story here if you want the details. Most of the coverage has focused on how rad Zappos is for standing behind their pricing despite it being a mistake. I actually find this humorous. This kind of thing happens quite often, of course maybe not on the same scale, but in every case I'm aware of, the company eats it. That's business. Mistakes generally cost money, and companies with over $1B in revenue make $1m mistakes. That is not news.
The story is interesting no doubt, because a "handful" of late night shoppers scored big time.
The real story though, is the love affair America has with Zappos, including the press and the blogosphere. I awoke to friends and bloggers I read tweeting and retweeting the story like crazy. Zappos has built up so much goodwill from it's Wow! service model, that people are chomping at the bit to promote them. They can't help themselves.
This is human nature. Robert Cialdini talks about this in his book, "Influence: The Psychology of Persuasion". When we give first, without expectation of receiving, there is an innate and powerful drive in that recipient, to reciprocate that generous act.
Zappos has harnessed this law of human interaction perfectly, and it's been costly-the word on the street is that Zappos technically has yet to make a profit (free shipping/returns, get well soon cards, bereavement flowers, and generally all around awesome treatment doesn't come cheap). And yet Amazon recently bought them for $1B. Crazy. Or maybe not so crazy when you consider the goodwill that Zappos possesses.
Jeff Bezos didn't pay a billion dollars for a web retailer. He paid a billion dollars for a deep customer portfolio that just can't wait to reciprocate.
2 comments:
Good point Chris! The truth is, there is a handful of people who can get into the consumers mindset 10x deeper than the rest of us. And once there, they trust their gut and go for it!
Venture Capitalist Fred Wilson (http://avc.com) wrote last week that one of the best questions from a Google I/O panel was "What is the biggest no-no for a start-up?" The answer is Fear. It is quite apparent that neither Jeff Bezos or Tony Hsueh let fear influence their decisions when doing what's right.
Love your thoughts Chris, allow me to comment on some things that stuck out.
1. $1B companies making $1.6M mistakes is not common. A company like Zappos (with the resources of Amazon) can shrug it off, but a $1.6M screw up is still a MAJOR SCREW-UP no matter how big your company is. These things simply don't happen on a regular basis, and it is BIG NEWS when it happens (especially with a high-profile company like Zappos).
2. I believe that Zappos has been CFP for at least 3-4 years. "Technically" being profitable is a very fuzzy line to walk. Enron (and many others) proved that long ago. Creative accounting can move profits to losses and vice versa. I don't believe Amazon would have paid $1.2B for a company that was losing money. Maybe, but I doubt it...especially in the current economy.
3. I love your reference to Cialdini's book. One of my favorites. Love love love that book.
4. This is perhaps the most brilliant $1.6 million dollar marketing campaign ever created. Did they do it on purpose? Probably not, but they couldn't have spent it in any better way.
Keep up the great posts, I always enjoy them.
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