We can also look at the external environment factors contributing in the company’s revenues with the help of Porter’s five forces model.
One of the main and integral aspects of Blue Nile’s success is its efficient and highly effective supply chain. The company’s economical supply chain system and low operating costs have allowed Blue Nile to obtain most of its products at a more cost-efficient way than its main competitors. But in doing so, Blue Nile has also successfully managed to limit the power of its suppliers. They have limited the bargaining power of its suppliers. For example, the top three suppliers account for only around 20-25 per cent of the purchases.
Blue Nile has one of the largest collections of diamonds among all their competitors and is able to offer them at a competitive price. They also offer customization of the products according to each individual’s taste. These factors contribute towards limiting the bargaining power of the buyers to a certain extent.
Internal Environment
We can look at the internal environment of the company using a SWOT analysis.
Strengths
- Due to their pricing power, Blue Nile is able to control their prices gaining a price advantage over their competitors.
- A superior supply chain management
- A large number of products. They offer more than 60000 diamonds in their website.
- Over the years Blue Nile have managed to create a brand name for themselves
Weaknesses
Blue Nile has a poor cost management since it has been suffering with declining operating margins comparing to their rivals like Tiffany’s. But they have reported growth in their revenues. Also, Amazon is on its way towards becoming a low-price leader, which again weakens Blue Nile’s position in the market.
Opportunities
- Expand their international presence
- Provide more product categories
- Improve online services like video conference, live chat with representatives, 3d view of the products etc.
Threats
Looking at the external environment, the biggest threat for Blue Nile is the economic conditions. The company suffered the most due to the global economic crisis. The revenue of the company decreased during the recession. The main factors contributing towards the economic condition were low rate of economic growth, high inflation rates, unemployment, interest rates etc.
From Porter’s five forces model, the biggest threat to Blue Nile is the competition from their rivals. Many of the major companies like Zale and Tiffany’s have started an online service.
The success factors that contributed to the company’s success can also be determined by applying the value chain analysis. The primary activities that have contributed to the success are:
- A superior supply chain management. They also use just in time method. Unlike their competitors, they do have a lot of inventory.
- Distribution system at Blue Nile has been designed to enhance customer value. The company has an order delivery rate of 99.6 per cent. They have a very cost efficient distribution system with their partnership with FedEx and US postal service.
- Blue Nile’s marketing strategy was specifically designed to increase brand recognition and value.
The primary activities at the company are backed up by the supporting activities. They are:
- Technology plays a key part in the support activity. Blue Nile is always looking to improve the overall customer satisfaction. They have provided educational information and certification about diamond so as to put to ease any concerns that the customers might have about the products. The website provides all the information about selecting a diamond like the cut, shape, colour, clarity etc. Also, the diamonds available in the site are independently certified with reports available to customers for verification.
- One of the critical factors in the company’s success is their customer service and support. The company strives to provide a high level of service and is always trying to improve every aspect of the purchase process. All their support personnel are highly trained and are able to help the customers at every step right from the selection process to the final shipment of their order.
Blue Nile should try to look at new ways of improving their business. They should look at organisational/business strategies that they could implement in order to improve their position in the market and increase the market share.
Strategy 1: Enter new international markets like India
Blue Nile has a presence in around 40 countries around the world. But, it has yet not decided on entering the Indian market. The jewellery industry in India holds an important position in the Indian economy.
Advantages:
- Fastest growing industry in the country
- India is the world’s largest industry for diamond cutting/polishing
- The industry is well supported by the government with their policies.
- The banking sector in India also supports the diamond industry with as much as $3 billion credit provided to the industry by over 50 leading banks.
- Gold and precious gems have always played an integral role in the Indian society.
- The demand for gold/diamonds is driven high during festivals (a lot of them in India!) and during weddings.
- Large middle class population with an increasing disposable income.
Disadvantages
- Diamonds comprises about 20 per cent of the Indian jewellery market, while gold forms around 70 per cent of the market.
- A large unorganized sector, operations are generally labour-intensive etc.
- Unfamiliarity with online shopping when it comes to jewellery.
- Blue Nile brand not known in the Indian market.
- Setting up a supply chain from scratch. The company will have to work hard on this aspect. For example, McDonalds worked for nearly 2 years on setting up their supply chain before they even started their operations in India.
- Competition with jewellery giants already present in the Indian market like Tanishq, Allukas etc.
Gold, precious gems, diamonds have been an integral part of India’s cultural history. India’s jewellery industry is expected to cross US $26 billion in 2012. It is one of the fastest growing industries in India with a growth rate of around 14 per cent. Diamond sales are estimated to cross around $6 billion. India accounts for almost 8 per cent of the global diamond market and it is growing at around 30 per cent.
Strategy 2: Open stores (brick & mortar)
Blue Nile is the leading online retailer of diamonds and fine jewellery. The next step for them would be to open stores in major cities. They should consider moving from an online/virtual presence to a physical presence.
Advantages
- This would increase brand awareness among consumers.
- Would help in international markets. Many countries do not have the culture of shopping online especially when it comes to jewellery.
- Usually the younger generation shops online. Consumers, who are more mature, typically over 35 years of age, prefer to shop in stores. They often have more disposable income. The older generation also prefer to shop in stores. The company could target more market share.
- Having a retail store will also help connect the company with the local business community.
- Will increase employment in the community and be socially responsible.
- Having a physical presence will also enable the company carry more inventory, thereby increasing the product categories like gold and precious gems.
- Online shopping has the perception of being less personal.
Disadvantages
- Will have to maintain inventory.
- Increase in operation costs
- Retail industry growth is only around 2.5 per cent which is considerably less compared to the online industry growth of around 10 per cent.
- Would lead to an increase in the prices of products which helped the company gain a competitive advantage over its rivals.
Conclusion
Many established businesses are moving into the online retail business or e-commerce, including many of Blue Nile’s competitors. But, Blue Nile is exclusively an online company. They do not have a physical presence. This could be a disadvantage for the company. There might be many problems, specifically financial when it comes to moving from an online business to a brick & mortar one. But, in the long run this is a move that will pay dividends. It will be most important when it comes to their expansion plans in the international markets. Shopping for jewellery is still a very personal experience for many consumers and being inside a store where they can see and touch the product gives them confidence and a sense of satisfaction compared to shopping online. Also, a benefit of opening a retail store after having an online presence is the risk of not having any customers is reduced. The existing consumers will follow the business to the retail store. It will also increase word of mouth advertising significantly.
Most of the competitors are moving online to compete with Blue Nile. But, Blue Nile is already a big player in the online retail market. They have gained a reputation in the e-commerce sector. Having a store and a retail presence will definitely raise brand awareness in the market and help the company improve brand recognition in the market.
I believe that expanding into India is a good option for Blue Nile. But, in order to do that they need to have a brick & mortar presence. Many countries or markets are conservative when it comes to shopping online. Entering international markets like India or China would be a long term plan for the company as it will take considerable research, time and money for them to do so. This move also contains high risks due to uncertainties in international business. And also, expanding into more international markets without having a physical presence in the market would not be advisable. Hence, the strategy of having a brick & mortar presence should be implemented by the company.
References
Thompson, A.A., Peteraf, M. A., Gamble, J. E. & Strickland, A. J. (2012). Crafting and executing strategy: The quest for competitive advantage, Concepts and cases (18th ed.). Boston: McGraw Hill-Irwin.
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, 57(2), 137-145.
Diamond market on upswing in India, China. (2011, August 20). Retrieved January 28, 2012 from website: