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OM 5 C1 IM
Case Teaching Notes: Zappos Case Study
The objective of this case is to introduce students to a web-based firm where the motto is
“Deliver WOW through service” and the student can begin to understand issues such as:
(1) How goods and services are bundled together (i.e., the customer benefit package) to
create value.
(2) What primary, support and management processes might be needed to create and deliver
each good or service.
(3) What might be the focus of OM topics as shown in Exhibit 1.1 to the application of
Zappos business such as technology, physical goods and service quality, inventory and
warehousing, process design, and service encounter design.
You might also want to put up the Zappos web page during the classroom discussion and
browse through it pointing out OM related issues and topics. The case is an introductory
case so the discussion should focus on what the student might know from reading Chapter 1
only. Therefore, keep things simple, focus on (a) goods and services and their
differences, (b) three types of processes, (c) OM activities like forecasting, and
scheduling, and (d) Zappo’s requires BOTH goods and services (a CBP) to be a viable
business (and the processes to create and deliver all).
Make use of Exhibits 1.1 and the box “What Do Operations managers Do?” Students in
your class will almost always have ordered something from Zappos so let them tell their
story to begin class. Also, the quote that follows from the case highlights the importance of
the service center, service encounters, and customer service. Amazon has recently acquired
Zappos.
Over 95 percent of Zappo’s transactions take place over the
Web, so each actual customer phone call is a special
opportunity. “They may only call once in their life, but that is
our chance to wow them,” Hsieh says.
Sometime during the class point out that the CEO, Jeffrey Bezos, wants to “establish an
emotional connection” will all Zappos customers.
Case Questions for Discussion
1. Draw and describe the customer benefit package that Zappos provides. Identify and
describe one primary value creation, one support, and one general management process
you might encounter at Zappos.
Students may draw something like below but expect them to not be clear on what is a
good versus a service so if you grade this be open-minded. Go over the definitions of
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OM 5 C1 IM
Primary processes Support Processes General Mgt. Process
Call center, order Training, hire, VPs of OPNS, IT, Mktg,
entry, fulfillment, picking, medical, salary, HRM, Finance,
Also, you will have to help them with issues such as what processes create the OM
capability to provide free shipping in both directions. For example, primary processes
(see Exhibit 1.4) might be order entry, warehousing and order picking, outbound
shipping, purchasing, and return shipping and receiving. Support processes might
More on Zappos can be found on their web site such as
http://about.zappos.com/zappos-story/in-the-beginning-let-there-be-shoes.
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Peripheral Goods
Peripheral Service
OM 5 C1 IM
Some students may want to draw a “dual CBP with primary goods and primary services”
Note: One reason we do the CBP framework is to identify key primary and peripheral
goods and services (i.e., the bundle of goods and services customers buy) and then make
Notice that at Zappo’s goods are outsourced and offshored; services are mostly done
in-house! Ask the student, “Who ensures the physical goods are of high quality?”
2. Explain the role of service encounters and service management skills at Zappos. How
does Zappos create superior customer experiences?
Service encounter and service management are defined in Section 3 of Chapter 1 so go
over these definitions in class and apply to Zappos. Since service is one of the key
premises of the company, service encounters with the web site (human
3. Describe how any three of the OM activities in the box “What do Operations Managers
Do?” impacts the management of both the goods that Zappos sells and the services that
it provides.
Students might build a table somewhat like Exhibit 1.1 but at this early point in the
course it will not be too detail. Below are some ideas for the table.
OM Activity Good or Service
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OM 5 C1 IM
Facility Location Services – accounting, finance, etc. central functions,
call center sites
Facility Layout Goods – inbound and outbound flow and layout of
warehouses
You can also query the students on whether Zappo’s has initiatives on sustainability such
4. Explain how this case illustrates each of the seven major differences between good-s
producing and service providing businesses.
Differences Between Goods and Services
1. Goods are tangible while services are intangible. (Does Zappo’s manufacture
shoes? No. The CEO says “Deliver WOW through service.” And “They may only
2. Customers participate in many service processes, activities, and transactions.
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OM 5 C1 IM
3. The demand for services is more difficult to predict than the demand for goods.
4. Services cannot be stored as physical inventory (web and server capacity, call
5. Service management skills are paramount to a successful service encounter
(face-to-face call center staff (humans) and the customer (humans); go over the three
6. Service facilities typically need to be in close proximity to the customer (with
7. Patents do not protect services (no protection from a competitor setting up a
Teaching Strategy
One suggestion is to begin class by asking the class “Have any of you bought something
on-line from Zappos?” If so, let them tell their story pointing out key OM
issues/capabilities. Then go over each question letting the student answer the question
with your oversight. This case takes 20 to 40 minutes to teach depending on what you
cover and if you show them the firm’s Web page.
You might also note that the CEO’s vision includes
Zappos initiated a trend among on-line retailers with FREE inbound and return
shipments. L.L. Bean, for example, announced in 2011 that it would provide free
You can end by saying something like – (a) OM provides the core capabilities for this
on-line retailer that provides both goods and services. For example, great customer
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