Customer Lifetime Value and Service

Zappos.com
Zappos.com (Photo credit: Wikipedia)

I recently wrote to Zappos because a pair of sneakers I bought were not waterproof. In less than 24 hours I received the following response:

Hello Randi,

Thank you for contacting Zappos VIP Customer Loyalty Team. I am Diana, your Email Guru and I’m here to help you today.

I hope you are keeping warm on this chilly New York night. Personally, I find that a mug of hot cider and a fluffy blanket usually does the trick!

I am sorry to hear that the sneakers you purchased from us are not what you were expecting. That’s definitely not something that we like to hear about our merchandise, and is not indicative of the high quality of service and products we strive to provide our customers. I am glad that you wrote us right away so we can immediately address this situation.

Because I would hate for you to wait for your refund as this was unacceptable, Randi, I went ahead and refunded you in full today for this item. Please keep in mind, it can take up to 2-10 business days for the refund to be reflected in your account depending on your financial institution.

I hope this email helps to bring you peace and clarity and if there is anything else we may be able to help you with, please don’t hesitate to let us know!

Thank you so very much from your Email Guru,

Diana S.
Customer Loyalty Representative
Zappos Customer Loyalty Team

It occurred to me that not only was Zappos customizing by my location they were likely determining my value as a customer. Deciding whether I was “worth” a return. By calculating customer lifetime value the brand can estimate a customer’s future profitability and activate an appropriate customer service response. Lucky for me I am a good customer and estimate that I could spend $3,000 with Zappos over the next 20 years. Though that number does not include Zappos’s expenses to serve me it also does not include any positive word of mouth I might generate for the firm, such as this blog post.

The Upsell

Zappos also makes use of email to encourage people to buy more of what it offers.  The email closed with the following:

Did you know Zappos.com sells clothing? Check it out: http://www.zappos.com/clothing.htm
Come take a tour next time you’re in Las Vegas: http://www.zappos.com/tours

Zappos could do a better job with this section of the email. I would recommend adding a visual here because  I missed it when I scanned the response.  It is no secret that people do not read their email carefully.

Helpful Tool

Harvard Business School offers a customer lifetime value tool to help determine the dollar value of your customers.  To use the tool you will need to determine:

  1. Number of Purchases per Year
  2. Average Spend per Purchase
  3. Direct Marketing Costs per Customer
  4. Gross Margin
  5. Average Customer Retention Rate
  6. Annual Discount Rate – this figure takes into account the time value of money recognizing that a dollar today is worth more than future dollars.  Some people use the interest rate here.

This is the kind of service people expect and that firms can deliver…to the ‘right’ customers. Zappos customer service is legendary.

How do you feel about Zappos customer service?  Take the poll here:

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