Blue Nile Co. Case Study

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The threat of substitute products or services is low since our society generally does not value faux diamond engagement rings. As Blue Nile concentrates a huge portion of their business on engagement and wedding rings, the threat of diamond substitutes continues to be minimal.

The bargaining power of buyers is medium-to-high. In this industry, there are many competing sources from which to purchase jewellery. Competition between these channels ensures competitive pricing. Blue Nile offers both lower price products and high quality diamonds. This uniquely positions them to satisfy customers over established name-brand stores.

The bargaining power of suppliers is high. While Blue Nile has a good relationship with their suppliers, the suppliers in the diamond source countries traditionally tend to be unstable, due to legal and political instability. This represents a threat for the Blue Nile.

Opportunities in, and threats to the industry were determined (Exhibit 2). To summarize, key opportunities exist to enter into alliances with other competitors, to increase market share. Changes in customer demographics indicate that the market will be expanding, and there may be opportunities to obtain lower pricing for jewels. Key threats include obtaining jewels from countries with potential conflicts and political instability. The lack of adoption of on-line purchasing and lack of internet availability in some developing countries, coupled with the potential for internet fraud and possible delivery issues affects the ability for Blue Nile to increase its market share.

Blue Nile, Inc. Internal Analysis

Blue Nile, Inc. was founded on an innovative idea that incorporated empowerment of the buyer with a convenient purchasing process. It was this innovation that allowed the company to retain its share of a niche market for almost two decades, becoming the largest on-line retailer of diamond engagement rings. Blue Nile has been able to sell its product for lower than its competitors by establishing solid relationships with key suppliers, minimizing costs, and keeping operating costs low. Blue Nile's net profitability fell somewhat from 2006 to 2010, from 5.19% to 4.25% (Exhibit 3). By transitioning to the sale of higher-end jewelry and engagement rings and capitalizing on the company's competency of low operating costs, net profitability figures and market share should trend upwards.

While innovation was a strong point for the progression and consistency of Blue Nile in its early stages, a lack of considerable expansion recently has left the company remaining relatively stagnant and "stuck in the middle" of two large markets that will continue to result in the phasing out Blue Nile. Blue Nile’s offering provides value to the consumer, and certain strengths of the business provide an advantage in the market. The stagnation of the business and its operations has allowed competitors outside of the niche market to offer similar features as Blue Nile, making its service imitable and far from unique.

With respect to Blue Nile’s value-chain (Exhibit 4), the company's main strength has been its ability to use marketing and technology to enhance the customer experience. With the introduction of the Blue Nile software application, the company has been able to create a fluid channel between the operational component of the business directly to marketing and sale of the products available.

Weaknesses include a significant lack of personal touch in sales transactions and a neglect of the human resources group and employee development. This has forcibly helped to keep Blue Nile in its niche market and led to the company's current state where it is trying to determine the direction of expansion.

Currently Blue Nile is situated in the "Question Mark" point in their business. They have medium to high market growth rate, as they can provide high quality products for lower prices. They have low to medium relative market share, because of their niche market of being "online only" retailer, specializing in diamond engagement rings. The end goal is to move into the "Star" position, by becoming the "Tiffany for the next generation" and moving into the direction of "high end" jewellery branding. With investment in store-front-like points-of-presence, they can continue with their strong market growth and add brand recognition as part of their strategy to moving up. Adding value and brand recognition will increase their relative market share by increasing their customer base.

Key IssuesCustomer Service- the company is lacking the personal touch in sales transactions, as well as the face to face customer interaction. This removes the opportunity to build trust, and the potential of having long term customers for repeat business. Building “Brand Recognition”- the company lacks the ability to build a brand name to sustain on the high end jewelry industry and compete with competitors. HR Staff Development- because of the “online only’ business structure, there is a sense of neglect of the human resources group. Also because they have no store front operations, there is no opportunity for employee growth/development to move into higher positions or different departments. Innovation- started off as being ahead of their competitors, now they are currently sitting at a standstill, as now the competitors are becoming a threat to entry with them adding/improving their online options for their store-front customer base. Financial- they have a current ‘stuck in the middle” status, as they sit as “Question Marks” on the bubble chart. Due to this, it leaves them in a position to make a decision with what direction to take with the expansion of their business.

Based on the key issues explained earlier, (Exhibits 5A & 5B) shows the main two priorities that Blue Nile company is focusing on to reach their objectives which are to increase profitability and to reach more customers with better customer service offered.

The matrix reflects the Blue Nile possible solutions for best positioning to move forward in their company. The best suggested solution that will achieve a higher profits and higher customer service, is to have a new storefront representation to increase their market share and growth.

The key issues outlined stem from a major root cause, which is the lack of substantial innovation or change throughout the company. Beginning on an innovative idea to become the world's largest online diamond retailer and offering low cost diamonds while seeing great profits has been the company's niche. Blue Nile has been unable to capitalize on their core competency