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If the shoe fits…Zappos’ Secret to Amazon deal

July 23, 2009 12:00 by

When it comes to a copy of Harper Lee’s ‘To Kill a Mockingbird’ or a rare Tarantino DVD, Amazon has long been the internet’s go to guy, but even with blood, sweat and tears, it hasn’t had the success and conversion rate that Tony Hsieh’s Zappos has demonstrated. Tony reveals his success in an exclusive interview for on how he has built Zappos from a $1million company to the $847 million empire that Amazon has just reached into its pockets for, in an unprecedented purchase.


During the interview recorded earlier this year Hsieh divulges innovations he has made to Zappos to grow the business from nearly no sales in 1999 to over $1Billion in gross merchandise sales in 2008. Hseih states ‘The number one driver of that growth has been through repeat customers and word of mouth.’ He also shares his secrets to improving company culture through recruitment and to his Marketing Strategies, ‘Most of the money that we would of spent on paid advertising we put into the customer experience … Any costs that we put into investing in the customer experience ends up driving that repeat customer behavior and word of mouth, so we think of it as an in direct marketing cost’. And he clearly was on the right track as Amazon digs deep to increase market share.


With $23 billion in annual sales generated by footwear and apparel online, Amazon appears to have made the move with money in mind. According to Forrester, this sector tops the hyper competitive PC market, ($16 billion) and consumer electronics ($11 billion). This has always been an area where Amazon has been lacking, but today’s purchase of Zappos is perhaps the most obvious admission of its failure to dominate this lucrative sector. In this respect, the deal makes sense. “They've been trying to do it for years with very little success,” said Sucharita Mulpuru, a Forrester Research analyst.


Whilst Amazon has stated that they aren’t ‘disappointed’ with the performance of (their presence in this market), this move is clearly an indicator of the company’s desire to become a more prominent player in certain areas of online retailing.


The move has, however, prompted some critics to question Amazon’s motives. Is it purely a case of profit and turnover that has led Amazon to tap into a sector in which they weren’t “King of the Hill”? Or, as some are speculating, is it perhaps a pre-emptive manoeuvre to prevent one of the most celebrated online retailers from expanding their repertoire into segments that Amazon has traditionally dominated?


After all, Amazon themselves started as an online bookshop before rapidly expanding into sector after sector.  As a shopping option Amazon is engrained into our lives as the de facto choice for online purchasing, a podium place they simply cannot afford to share.


Both companies have shown a resilience and sustainability even in the most challenging of times, which is good reason for such attention from not only Silicon Valley, but the financial and retail titans.


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