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 6pm.com 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 6pm.com 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.