As I said in yesterday’s post…”Wow” is a moving target. As we have more “Wow” experiences, we expect more “Wow” experiences and if we don’t get them, we go away disappointed.

Does “Wow” Increase Share Prices?

Every year for the past 3 years, BusinessWeek does a national survey to find the top Customer Service champs in America. Last year, Amazon topped the list, followed by United Services Automobile Association, Jaguar, Lexus, The Ritz-Carlton, Publix Super Markets and Zappos.com. BusinessWeek poised the very pertinent question:  does increased customer satisfaction lead to greater equity values. Is being nice to people good business?

In a study from 2006, Claes Fornell and his fellow researchers found the answer was a strong yes. While customer satisfaction is a factor seldom watched by Wall Street, Fornell et al found that a portfolio comprised of the top 20% of companies in the American Customer Satisfaction Index would have outperformed the market (based on the DJIA) by 93% in the period 1997 to 2003. It also left the S&P 500 in the dust (201%) and the NASDAQ (335%). Interestingly, the only time the market indexes outperformed the customer satisfaction portfolio was during the irrational exuberance of the Dotcom bubble in 1999 and 2000.

In 2009, Bruce Cooil and a group of researchers from Vanderbilt did a similar study and added an interesting nuance to the Fornell study. They looked at four different portfolios picked on the basis of customer satisfaction scores and found that the portfolios that performed the best were the ones where the score was rising. Picking stocks based on high satisfaction scores alone wasn’t a consistent winning strategy. But picking stocks where the score was rising year over year and where the company’s scores were above the national average outperformed the market by over 100% through a ten year period. The worst performing portfolio? The companies where the satisfaction score was dropping, even if it started from a fairly high level.

So, it’s not necessarily the high score that generates the loyalty, it’s scaling customer satisfaction to keep it on the rise. As I said yesterday, the secret of “Wow” lies in exceeding expectations. This introduces a dilemma for the business owner. How do you scale customer satisfaction?

How Zappos Scales “Wow”

For the answer, let’s look at one of the consistent winners in the BusinessWeek Survey, Zappos.com. CEO Tony Hsieh approaches customer service with the ardour of a religious zealot. But the journey he and Zappos have taken there has gone through some twists and turns. In a recent keynote I had the opportunity to attend, Tony shared that Zappos core philosophy has evolved in the past decade. In the beginning, the core goal for Zappos was selection. They wanted to deliver online shoppers the largest selection of shoes available anywhere. Zappos founder Nick Swinmurn started Zappos because he was looking for a pair of boots. He came up empty handed. Surely, it shouldn’t be so hard to find the right pair of shoes, in the right size and the right color. Swinmurn’s answer? An online shoe megastore.

Soon, however, Zappos realized that selection alone wasn’t enough. In 1999 and 2000, people were wary about shopping online for anything, including shoes. Trust was essential in convincing customers to make a purchase online. Enter Hsieh. Zappos built the trust by focusing on customer service. No questions asked return policies. Free overnight shipping. Zappos switched it’s core corporate philosophy from selection to satisfaction. Happy customers fuelled word of mouth, which drove Zappos to higher and higher sales numbers.

Zappos retooled their operation to deliver a “Wow” experience. They brought shipping in house, creating their own fulfillment centre in Kentucky and later Las Vegas. They created a symbiotic, joined at the hip partnership with UPS. They re-engineered the process from order placement to doorstep delivery, aiming to knock the socks off their customers. Zappos began to systemize “Wow”.

It was at this point that Hsieh and Swinmurn learned their next lesson – “Wow” is best delivered person to person. People are the secret behind the scalability of “Wow”. If you hire great people, and treat them well, they’ll naturally aspire to deliver exceptional customer service, and because each employee is empowered to respond appropriately to each situation, they can scale “Wow” on the fly, reading a customer’s expectations and shooting to exceed it. Hsieh and Zappos switched their core philosophy yet again, from customer service to culture. HR became the primary focus of the company.

“I Just Want a Pizza!”

In his keynote, Hsieh gave us an example of how “Wow” could scale to ridiculous lengths if you let good people do good things.

Hsieh and some friends were celebrating one evening on the West Coast. As they headed back to their hotel, one of the group, an old college friend, mentioned how hungry she was. The group offered to stop for a bite. “No,” the friend said. Her heart was set on the pizza she was going to order from room service when she got back to the hotel. All day long she had been dreaming of this pizza. She went on at length to the group about how much she was going to enjoy this pizza. Very soon, Hsieh and company got very tired of hearing about this damned pizza.

They returned to the hotel at a very late hour and the friend phoned room service:

“I’m sorry ma’am, but room service shuts down at 2 am”

“But I was going to order a pizza…”

“I’m sorry ma’am, the kitchen is closed.”

“But my pizza…”

“Sorry, there’s nothing I can do.”

Crestfallen, the friend put the phone down. The group, who had gone up to the room to continue the celebration, looked up.

“Room service is finished. I can’t order my pizza. What kind of hotel shuts room service down at 2 a.m.? Pizza’s are supposed to be eaten late at night.”

At this point, Hsieh, inspired no doubt by some of refreshments consumed over the course of the evening, made a suggestion:

“Call Zappos!”

“What?”

“Call our call centre. We always say how great our people are…how they can solve anything. Call Zappos and see if they can help you.”

Soon, the group joined in, all gaining inspiration from the liquor consumed over the course of the evening:

“Yeah, phone Zappos. Let’s see how good they are.”

So, she phoned Zappos –

“Hello, Zappos. How can I help you?”

“I need a pizza.”

“Excuse me?”

“I was out with some friends and all I wanted was a pizza when I got back to the hotel. But I got back here and room service is closed. I can’t get a pizza!”

“Ma’am, you know you phoned Zappos, right?”

“Yes…”

“Zappos…the shoe store? Accessories? Clothing…?”

“Yes. But can you help me? I really need a pizza.”

“Just a minute…”

A few minutes later, the call centre operator was back….with a list of pizza delivery restaurants in the area that were open all night.

That’s how you scale “Wow”.