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Zappos.com Case Study: Why shoes are great for e-commerce … yes, really
written by Nisan Gabbay, posted on September 17th, 2006
Most importantly, shoes turned out to be great for SEM for several reasons. For one, people search for shoes by brand. Zappos.com didn’t need to spend advertising dollars to build the Zappos.com brand; they only needed to get a consumer to click on an ad for Rockport or Vans shoes. Zappos.com also didn’t need to educate consumers about their product – people knew shoes.
Furthermore, shoes are high ticket items with good margins. The average order on Zappos.com is ~$100 and gross margins on shoes are ~50%. This leaves a lot of wiggle room for SEM campaigns. In addition to SEM, the high ticket price and brand loyalty associated with shoes also lends itself to successful affiliate marketing. Zappos.com has 17,000 affiliates driving traffic and shoe sales to their site.
Zappos.com did a fair amount of offline advertising in its early days to help establish its brand with shoe manufacturers. Shoe manufacturers were apprehensive to work with a young company like Zappos.com and were concerned about how their brand would be perceived via the online channel. Thus, Zappos.com’s initial marketing investment was only partially aimed at consumers; it was more to impress suppliers.
Once Zappos.com had secured some shoes to sell, they could use cost effective online marketing (SEM, affiliates) to attract consumers. Philosophically, Zappos.com chose to invest in superior customer service rather than marketing. Something like 15% of their revenue is spent on customer service and another 15% spent on marketing. For most e-commerce companies, this ratio is skewed significantly towards marketing.
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