How strong are the competitive forces confronting Blue Nile and other online retail jewelers? Do a five-force analysis to support your answer. The competition among the competing sellers in the industry is strong. Competitors for Blue Nile not only include the online jewelry sellers such as Diamonds.com, Whiteflash.com, Ice.com and JamesAllen.com, but also include brick-and-mortar jewelers, chain department stores, mass merchants, local jewelry shop, and large jewelry chains such as Zale and Tiffany. The competitive force from new entrants is moderate to weak.
The new entrants of the traditional jewelry industry will need a large amount of capital for inventory, established brands to attract customers, and a strong sales team. For new online jewelry sellers, they also need to find ways to build their brand awareness, establish partnership with suppliers, and to keep the operation costs low to ensure attractive prices. The competition from substitute products for jewelry sellers is also moderate to weak. There are synthetic diamonds, manmade jewels and alternative jewels. But for engagement rings and wedding bands, people would still choose those real and precious diamonds and materials. Thus, from this aspect, there could not be substitutes for diamonds and expensive jewels. The bargaining power from the buyers is strong since there are many choices for them to purchase jewelry from. It is easy for customers to change their source for purchase.
The bargaining power from the suppliers is strong for the prices for diamond and precious metals depend more on the exchange market in the world. There are limited suppliers creating an established oligopoly over the years. 2. What key factors will determine a company’s success in the online jewelry business in the next 3-5 years? Key success factors in the online jewelry business include the following ones: 1) Lower operation costs to keep prices lower than rivals
2) Partnership with suppliers to reduce inventory
3) Build customers’ trust and loyalty
4) Strong e-commerce capabilities
5) Manufacture customized products
3. What is Blue Nile’s strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Blue Nile is taking? What type of competitive advantage is Blue Nile trying to achieve? Blue Nile’s strategy is to be the Best Cost Provider. It provides the customer high quality engagement rings, wedding bands and jewelry with low prices to value seeking customers.
Blue Nile tries to achieve low costs of its operation and marketing thus maintain its competitive advantage in prices. 4. What do you like and dislike about Blue Nile’s business model? Blue Nile’s business model is to make profits through its online sale of high-quality jewelry at competitive low prices with trusted guidance throughout the purchasing process. The model I like is that it provides value to its suppliers and customers which in return bring about their profits. The lean costs and supply chain efficiency enable them to achieve this goal. Another aspect of the model I like is that they provide a high level of customer service and was continuously engaged in refining the customer service aspects in every step of the purchase order.
The business model places great importance on customers’ satisfaction which would help their business to grow. The model I don’t like is that they don’t have their own brand of jewelry established and they depend too much on the jewelry of their suppliers. Quality of their jewelry as well as the brand effects could not be competitive with other well-known brands. 5. What does a SWOT analysis of Blue Nile reveal about the overall attractiveness of its situation? Strengths: 1). Offer high-quality jewelry at competitive prices 2). Provide great customer services
3). Efficient supply chain management
4). Good financial condition with a positive amount of cash flows Weakness: 1). Brand name not widely recognized as Zale and Tiffany 2). only sell online
3). Restricted to US, UK and Canada.
Opportunities: 1). Growing jewelry market in US
2).Many recognitions in the online jewelry industry Threats: 1). Competitors from online and offline jewelry retailers 2). Seasonal sale of jewelry
6. What is your appraisal of Blue Nile’s financial performance based on the data in case Exhibit 4? How well is the company doing financially? Is there
evidence that Blue Nile’s strategy is working—what is the story of the numbers in case Exhibit 4? Use the financial ratios in Table 4.1 of Chapter 4 as a guide in doing the calculations needed to arrive at an analysis-based answer to your assessment of Blue Nile’s recent financial performance.
Blue Nile has adequate competitive strength to compete with its online rivals. It has already created brand awareness and brand loyalty among most of its customers. It also has a large number of jewelry selections thanks to its extensive partnership with jewelry suppliers. The efficient supply management also ensures the low prices of their products. It has built a sustainable competitive advantage in the online retail jewelry business. For offline competitors, Blue Nile should work on putting more marketing efforts to make more people know about their brand and build its brand into a reliable high-quality image. 8. What strategic issues and problems does Blue Nile management need to address? Issues and problems Blue Nile Management need to address:
1). Lack of marketing and advertising makes Blue Nile still unknown to many potential customers. Blue Nile should explore more advertising channels to promote its brand image. 2). International efforts to reach the global market are slow. They currently only reach out to UK and Canada. Blue Nile should try to tap more potential global market and explore new markets. 9. What recommendations would you make to Blue Nile management to strengthen its competitive position and future strategic and financial performance? Blue Nile management should keep on providing customers jewelry at low costs while maintain its high quality of jewelry and customer services. Reducing the costs would help ensure the low prices and continuous efforts on educating the customers and assuring their purchase decisions would help Blue Nile to strengthen its competitive position.
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