Posted February 27, 2008 11:07 am by with 13 comments

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Zappos has decided that it wants to be known more for customer service than discount pricing. It is eliminating its free overnight shipping guarantee as well as a guarantee to refund 110% of the difference between its price and a lower competitor’s price.

If you are not familiar with Zappos, they sell shoes and other clothing and are one of the largest online retailers (#31 according to Internet Retailer ). They also own a few other sites such as which is more of a discount clothing store.

According to CEO Tony Hsieh, this policy change took place because the goal of Zappos is to be known more for customer service than low pricing.

I find this situation very interesting for several reasons.

1) I like the fact that Zappos is trying to cater to customers who value customer service more than lower prices while using to cater to the customers who value discount pricing. That is a good strategy for online retail. If you want to build a brand with a reputation for quality and customer service and still feel an urge to try to compete on price, perhaps you should have two brands and two sites.

2) I am skeptical that Zappos is going to be able to demonstrate a level of customer service that will justify a higher price. I am not saying it cannot be done, but I am skeptical. It reminds me of Nordstrom, which is where I used to buy all of my clothes. Then I found out I could get the same clothes at Nordstrom Rack for a lot less money. I do not have a personal shopping assistant at the Rack who sends me cards and knows me by name like I had at Nordstrom, but the money savings are worth it to me.

My experience is that most customers online are like me. They are willing to pay more for better brands but are not really willing to pay more for the same brand just for extra customer service.

Of course, there are people not like me too, and those appear to be the people that Zappos are after. My guess (based on our own studies and other studies I have read) is that they represent 10-15% of online shoppers. Those shoppers do value customer service more than discount pricing. I do have to wonder though why those people would shop at Zappos rather than going to high end brick & mortar stores that will shower them with personal attention. (I just cannot see any online store providing a Nordstrom-like experience.)

3) Zappos is admitting that they cannot provide both the lowest price and the best customer service. All of us need to admit that too, and decide which strategy we are going to pursue.

Our strategy at Vitabase is similar to Zappos in that we are going after the customers who value some factors more than discounted pricing. However, we are different in that we have branded our own product line and focused on building its reputation as a high quality product and worth more than similar products of other brands.

We believe that a focus on a combination of quality products and outstanding customer service is enough to attract up to a third of online shoppers (the other two thirds are primarily focused on price). I emphasize again though that if we were selling brands besides our own, I do not believe our strategy would work.

So, I am skeptical that Zappos can get premium pricing for customer service alone. I think it will take more than that. I will be interested in watching how they go about it.

  • I’m a huge fan of zappos, and I find this as a surprise. I’ve always had good customer service there.

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  • Of course the real reason could be that the margin on shoes is just too small. It would be interesting to see if the other players like and Endless follow suit.

  • Tim

    I began reading your article and abandoned after the 2nd paragraph. You claim that “They also own a few other sites such as which is more of a discount clothing store.”

    I do not believe Zappos owns a few other sites (although I could be wrong) and I certainly know that is not a discount clothing store.

    Get your facts straight.

  • @Tim, you need new facts yourself. You are wrong. Go read the link I put in the original article.

  • Zappos still works for me because of their great selection. That’s their core competency.

  • I’ve got Greg’s back on this one. He is right. Good article.

  • It should be interesting to see how this works out for them. The fact that they changed both policies at once was a little surprising. Personally, when it comes to online shopping, I’m not terribly concerned with customer service. As long as the company can design some reasonably intuitive automated customer service systems to help me fix problems and send in returns, I’m happy. I agree with the author – if I want a great customer service experience, I’ll go to a brick and mortar store.

  • Katie

    OMG! I loved Zappo’s free overnight shipping. Im sure there are a ton of last minute shoppers out there like me. I’m not so much worried about there prices or customer service, but im highly upset that they dropped their free overnight shipping.

  • Rob

    Translation: Zappos can’t afford to give free overnight shipping anymore. They always had the best customer service of anywhere I shopped online, this is a line of BS pure and simple and I’m done with them. I only shopped there because I could get it next day for free, I’ll just go to Journey’s in the mall now.

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