After launching in 2011, Chewy (NYSE:CHWY) is estimated to be the online market share leader in the U.S. pet category. Considering Amazon's (NASDAQ: AMZN) ambition to compete in almost every category, how did this happen? It likely happened because Chewy learned from Amazon that an obsession with the customer drives customer loyalty and new customer growth. Chewy has applied that approach narrowly to the pet category and has arguably taken customer obsession to another level.
What's not going to change in 10 years
At the 2012 Amazon Web Services re:Invent conference, Amazon founder and CEO Jeff Bezos said,
I very frequently get the question: "What's going to change in the next 10 years?" And that is an interesting question; it's a very common one. I almost never get the question: "What's not going to change in the next 10 years?" And I submit to you that that second question is actually the more important of the two -- because you can build a business strategy around the things that are stable in time. ... in our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now.
They want fast delivery; they want vast selection. It's impossible to imagine a future 10 years from now where a customer comes up to me and says, "Jeff, I love Amazon; I just wish the prices were a little higher." ... "I love Amazon; I just wish you'd deliver a little more slowly." Impossible.
And so the effort we put into those things, spinning those things up; we know the energy we put into it today will still be paying dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.
Chewy appears to have taken this business philosophy to heart given it also focuses on low prices, wide selection, and fast shipping. From my experience, Chewy's prices are certainly as low, if not lower, than the competition. It also seems to have the widest selection in the pet category. And its one- to two-day shipping speed is as fast as anyone's.
Amazon seems to have similar prices for the products it sells directly, but prices for products sold by third parties via Amazon seem higher. Amazon's shipping speeds for products it sells directly are as good as it gets, but third-party shipping speeds vary.
But the biggest area where Amazon falls short to Chewy is, in my opinion, product selection. For one example, I can get my dog's food from both Amazon and Chewy, but only Chewy has the larger, more cost-effective 30-pound bag. It seems that Chewy's singular focus on this one category allows it to dedicate more energy and fulfillment center space to stocking more options for the many pet products people buy.
Simply put, it's hard to stock every single pet product and bag size when you're the "everything store" and you need to dedicate fulfillment center space to everything from slow cookers to underwear to bed frames and everything in between.
Taking customer service to another level
Chewy seems to have made overall customer service part of its mission and culture. Its customer service team can be reached by phone, email, or online chat 24/7 and 365 days per year. You can return things for any reason with no questions asked, although that is frankly table stakes for a retailer in this day and age. The company's employees are known to send handwritten cards to new customers, birthday cards to customers' pets, and sympathy cards when pets pass away. Similarly, the company has been known to surprise pet owners with hand-painted portraits of their pets. The company says " ... our experiences build memories and customer engagement which fuels long term loyalty for our company and our brands."
Chewy says it sent 11 million handwritten cards to its customers last year, which is especially impressive considering the company started and ended the year with 6.8 million and 10.6 million active customers.
This kind of behavior generates significant customer goodwill, to the point where customers seem to love doing business with Chewy. You can see that in Chewy's Net Promoter Score (NPS), which is based on evaluation of how likely someone is to recommend the product or service to others. Management calculated Chewy's NPS to be 86 out of 100 last year. Those in the know deem an NPS over 70 to be "world-class." Amazon's management has not disclosed an NPS, but one third party calculated it at a "pretty high" 62.
What's enabled Chewy to provide this level of customer satisfaction is its focus on just one category and its founding culture of personalized customer service. The company's initial public offering prospectus says:
We empower our [customer service representatives] to go above and beyond for our customers, and they do so with the knowledge that our commitment to our customers is our number one priority. We engage with pet parents thousands of times per day, and we embrace the opportunity to "WOW" our customers each time, from surprising them with a hand-painted pet portrait to sending flowers to a family who has recently lost their pet.
Despite Amazon's excellent customer service, Chewy is winning over more and more pet owners by making the relationship more emotional and less transactional. Chewy is tugging on customer heartstrings with its handwritten cards, paintings, and sympathy flowers, and is almost establishing a personal relationship with the customer that Amazon hasn't attempted. After all, Amazon was founded as an online bookseller, branched out into CDs and DVDs, and gradually expanded into general merchandise. None of those categories offer the retailer an opportunity to win over customers based on an emotional attachment to the product -- a toaster, for example -- unlike the pet category, where pet owners have an emotional attachment to their pets.
Having been founded solely as an online pet retailer, Chewy established that personalized, emotional connection from day one. While Amazon represents a competitive challenge to Chewy for others reasons, it would be hard for it to beat Chewy on connecting with customers in the pet category.