Jhal

o what did Zappos.com do to keep customers coming back? The key policy was nearly automatic upgraded shipping to next day air. Sounds kind of simple, but it was based on an astute observation.Zappos.com realized that they were competing with offline shoe retailers and not just online shoe retailers. So while the competition was sending shoes 5-7 day ground, Zappos.com decided to do it far better– next day air for free. Zappos.com was also clever in how they rolled out this policy. They didn’t just announce free next day shipping on the site, they surprised customers individually. So when acustomer thought their shoes would be coming in 3-7 days, they got an e-mail that said they’d been upgraded to overnight air because they were a valued customer - a small gesture that really makes animpression on the consumer. This one shipping policy strongly impacted return purchases.

** Update: Correction to the above paragraph. Tony Hsieh, the CEO of Zappos.com, e-mailed me to clarify theupgraded shipping policy. In Tony’s words: “I just wanted to clarify that we don’t actually do the surprise upgrade to next day air for all customers.
Instead, we semi-randomly upgrade orders formost of our repeat customers. There are a few that get next day air, and many get 2nd day air. Our long term goal is to get to next day air for everyone, but we’re not quite there yet.” **

The otherkey policy Zappos.com implemented was their returns policy. Zappos.com helped ease consumer apprehension around buying shoes online by offering free return shipping and a 365-day free return policy.Zappos.com’s 2005 net revenue was ~$250M, while the gross was $370M. That’s a huge amount of returns. Consumers are clearly taking advantage of the Zappos.com return policies, helping to build trust andsatisfaction in the service.

The toughest decision that Zappos.com had to make around customer service was eliminating drop shipping of shoes. Around 2003, Zappos.com reduced the amount of drop...