Blue Nile, Inc. Essay
Blue Nile, Inc.
Vision and Mission
“Blue Nile’s vision is to educate its customer base so that customers can make an informed, confident decision no matter what event they are celebrating. It wants to make the entire diamond-buying process easy and hassle-free. In addition, an important part of Blue Nile’s vision as CEO Diane Irvine said in a recent webinar with Kaihan Krippendorf, is for the company to be seen as the “smart” way to buy diamonds, while saving 20%-40% more than one would in the typical jewelry store.” (Hoffman, 2010, p.1).
The objective of the case study of Blue Nile is to evaluate and study their current business strategy. Internal and external analysis are used to identify the weak points or aspects of their current strategy. Other courses of action will be identified to improve the implementation of Blue Nile’s strategy. Alternatives will be recommended to increase the brand name for Blue Nile.
External and Internal Analysis
Porter’s Five Forces Model
Rivalry among Competing Sellers. Rivalry among competing sellers is the strongest among the five sources of Porter’s Model. There are many competitors in today’s diamond market. This makes the rivalry between Blue Nile and its competitor’s high. There are small mom and pop shops, the larger retain stores like Tiffany and Co. and DeBeers. Blue Nile is faced with other online competitors like themselves as well as websites such as EBay and Amazon. The competition is extremely intense to gain customer base. With all the competition each company must be able to offer their customer something they cannot find with any of the others. Bargaining Power of Buyers. The Bargaining power of the buyer is high in the diamond purchasing world. The bargaining power for the buyer with Blue Nile is medium because customers are able to see the price of their desired purchase and shop around to find a better price or deal. Switching cost for the customer is virtually none existent because they can switch to another company if they do not like the price, customer service, or other things associated with their purchase.
The benefit Blue Nile has over the bargaining power of the buyer is they have prices set below their competitors with the same great quality. Bargaining Power of Suppliers. There are only a limited number of suppliers for Blue Nile to choose from, making the bargaining power of the supplier high. Blue Nile must depend on their suppliers to deliver their products in a timely manner in order to provide timely delivery to their customers. Suppliers are able to dictate their prices to Blue Nile because of the limited amount of suppliers. Blue Nile cannot accept prices from one supplier that supplier can easily find another company to sell to. Threat of Substitute Products. There is a threat of substitute product for Blue Nile. The threat falls into the medium category because other substitutes do exist. Some substitutes are diamonique, cubic zirconia, or other artificially made diamonds.
Some people will choose a substitute as they cannot afford to purchase and expensive diamond. Even though the quality is not the same as a real diamond many people still choose the substitute. Threats of New Entrants. There is an increase of new entrants as it is now easier than ever before to enter the diamond market. In the past the startup cost was extremely high making the entrance of new companies low. It is easier for new entrants today because the availability of the internet to reach customers. Also, the startup is low in online business.
Blue Nile has a strong position in the market because they have continued to gain confidence with their consumer. Being the largest online dealer in the world helps them to maintain their position in the market. Unfortunately, Blue Nile is facing threats and weaknesses that can deteriorate their market position. The increasing competition from other companies as well as their weak brand recognition are a major cause for concern.
Blue Nile is the leader in online jewelry making. They have a unique selling position as they were the first company to allow an individual to customize
their diamond engagement ring. Customers are able to choose and design their own ring with options such as clarity, size and the shape of the diamond. Customers can also choose from many settings for their engagement ring.
Customer service is a priority to Blue Nile. They offer their customers a personalized experience to build customer confidence. Many options are made available to their customers through their website. Customers can choose from toll-free calls, live-chat, or email as a means to contact customer service. Convenient billing and insurance options are other ways that Blue Nile strives to provide excellent service to their customers. Customers are offered a bill me later option as well as a 30-day money back guarantee. All orders are shipped to their customer fully insured to build customer confidence in Blue Nile.
With as many as forty suppliers Blue Nile has the capability to maintain a unique supply chain model. They maintain strong relationships with their suppliers. Their diamonds are offered for direct sale from their cutters. This allows Blue Nile to purchase stones at a lower cost than the competition because they avoid the mark-up from third-parties. Their virtual online inventory permits them to have limited inventory on hand, therefore decreasing their carrying cost.
Blue Nile does not have a physical store which takes away from the experience of touching and seeing the actual engagement ring that will be purchased. A diamond engagement ring is a large investment. When customers purchase a diamond online they are taking a risk at purchasing a diamond without being able to examine or actually touch their ring. This risk causes the purchase prices to be lower than those purchased in a physical store. Customers are more comfortable purchasing a more expensive ring from brand name stores like Tiffany and Co. Customers are also more confident in their online purchase with Tiffany and Co. because they have a physical store and the popularity of the Tiffany and Co. brand name.
Although Blue Nile is continuing to grow and their business model appears to be strong they still need to increase awareness of their brand name. The lack of brand awareness gives other competitors such as Tiffany and Co an advantage over Blue Nile. They need to create more ways to bring recognition to their brand name. Customers will not feel secure purchasing a large purchase from a brand they do not recognize. Increasing their brand name will give Blue Nile an increase in sales as well as increased customer confidence.
Sales for Blue Nile mostly focus on diamond engagement rings. Men are mostly the target for purchases of engagement rings. Blue Nile can increase their sales and their target market by branching out into other jewelry products. A broader product base can open up their target market to woman also.
Branching out with a physical store front can also increase Blue Nile’s sales and brand recognition. Having a chain of physical stores will give those customers an opportunity to purchase from Blue Nile who otherwise would not purchase because of the risk of making this type of purchase online. Sales would increase because customers tend to spend more per purchase when visiting a physical store as it reduces the perceived risk of the customer.
Globalization is a huge opportunity for Blue Nile. This would open up a vast amount of sales and will expand their brand name by offering their products internationally. The international market is an attractive opportunity for Blue Nile to broaden their customer base. Competitors such as Tiffany and Co have already tapped into the international market so for Blue Nile to remain competitive they must seek to globalize their business. Currently only thirteen percent of sales are from the international market.
The increasing cost of diamonds is having an impact on profitability for Blue Nile. They have a virtual inventory, meaning they purchase their diamonds at the current spot rate. When the price of diamonds is increasing this puts Blue Nile at a disadvantage because most competitors will have purchased their diamonds at a much lower price because they have them in their current inventory. In order to keep prices competitive Blue Nile most likely will absorb the cost of the increase in the diamonds.
Blue Nile’s main threat is the competition of other companies such as Tiffany and Co and DeBeers. Tiffany and Co. is the biggest threat to Blue Nile as they are famous for their diamond engagement rings, making their target market mostly men. The famous brand of Tiffany and Co makes it a very desirable choice for those men seeking to purchase an engagement ring. Many of Blue Nile’s competitors also offer many of the same benefits as a purchase from Blue Nile. Customer service, experts to assist in the purchase, and return policies offering customer satisfaction have become a norm among most competitors.
Many other online jewelry companies are entering the market for online jewelry purchases. They should continue to monitor the new companies entering the market. The threat of new entrants is an area that they must continually be aware of because letting their guard down could cause them to lose market. Because of these threats, Blue Nile must continue to strive to rise above the competition.
Given that Blue Nile has competitor’s that threaten to capture the customer base, what can Blue Nile do to capture additional customer base? Given that Blue Nile needs to increase sales and tap into a different market, what can Blue Nile do to increase sales and brand awareness?
To attract additional customer base Blue Nile should create additional products to attract the female customer base. Blue Nile should offer bracelets,necklaces, and other items that would broaden their customer base. As of now mostly younger men have the need to purchase an engagement ring. By offering additional products their customer base could grow to also include older men as well as females. Opening up their market to this additional customer base can increase their sales significantly.
In order to increase sales and brand awareness Blue Nile should look at two solutions. The first is to open a chain of brick and mortar stores as customers tend to enjoy the hands on experience of purchasing expensive jewelry from a physical store. Customers tend to spend more per purchase at a physical location. This would increase both sales and brand awareness. Expanding their merchandise line in other countries would also increase their customer base. Blue Nile should use their same strategy of providing diamond jewelry to the international markets.
Wheelen, T., Hunger, J., Hoffman, A., & Bamford, C. (2014). Blue Nile, Inc. Case Study 10. In Strategic Management and Business Policy (14th ed., pp. 10.1-10.16). Boston: Pearson.