eCommerce Blog

US based online shoes retailer Zappos.com was mentioned in this story that it has reached 6 million paying customers.  Although this is a major accomplishment, what is even more amazing is the fact that three fourth of shoppers who make purchase on Zappos.com are repeat customers. This got me thinking – how many retailers use “repeat customers” as the metric to measure success. Most of the online retailers that I am aware of think of Revenue or Gross Profit or EBITDA or net-profit as a proxy for measuring success. These metrics are certainly better than the dot com days in 2000 when online businesses were happy with just measuring the online visits – primarily because they didn’t have any real sales to report on anyways. However, are these metrics telling anything about how the customer’s purchase experience has been on the site? I would argue that these metrics are lagging indicators of performance. In other words, if a retailer has a quarter of strong earnings or sales, it doesn’t necessarily mean that the retailer will continue to have strong performance in future.

Having a strong base of repeat customers , on the other hand, can say a lot about the future potential of the online retailer. Getting repeat customers is not easy – it requires excellence in execution and a right mix of price, assortment as well as customer experience from an online retailer.  It is easy to pump up the marketing spend or run promotions to get customers to make a one-time purchase on the site – however, if that customer comes back again for a repeat purchase, that shows a big vote of confidence in retailers ability to deliver. If more than half of the customers are coming back for a repeat purchase, then the retailer has a strong potential to gain or maintain a leadership position in the category. That is why I think if companies start using repeat customer as a metric for their day to day operations as well as in establishing overall goals, it will promote the right kind of behavior in the organization. I would argue that a 1% increase in repeat customers actually can result in over 5% increase in net earnings – because the repeat customers are the most profitable customers.  I am sure everyone has heard numerous stories about Apple or Harley Davidson that carry such a dedicated following of repeat customers. However, maintaining that kind of a following for an online retailer is no piece of cake.

So what can one learn from Zappos.com? If you go to zappos.com, you will probably get overwhelmed with the information presented on the home page. However, they have done it for a reason – they want to create an image that they have the biggest assortment of shoes among all online retailers and they have been successful in that. What is more interesting is that they have a section on the home page for customer testimonials and there are literally hundreds of comments every day from raving customers. Just by reading the comments, one feels like shopping from this retailer. They are using other customers as the biggest marketing vehicle to convert new customers.

Zappos has been able to create this exceptional combination of aggressive price match policy, an assortment of over 3 million shoes, free two way shipping, no questions asked return policy for an entire year and an amazing group of friendly customer care representatives.  Clearly, India is not a mature eCommerce or Retail market to even think of offering such kind of return policies. However, one thing we must look at is the fact that Zappos.com started from nowhere few years ago. The only thing that made it stand up against even the likes of Amazon is its impeccable and relentless focus on service. It is a little known fact that every new employee that Zappos hires in their corporate department is required to go for 4 weeks of customer loyalty training – answering phones in their call center (even accountants have to do that!). To Zappos, customer service isn’t just a department, it is the entire company. If Zappos can take over 30% of market share in the shoes category in a saturated US online economy, it makes me wonder what an online retailer can do in the Indian context if they focus all of their efforts on delighting the customer.