1. How strong are the competitive forces confronting Blue Nile and other online jewelers? Which one of the five competitive forces is the strongest? Do five-forces analysis to support your answer. * Threat of new competition: Barrier to entry is moderate due to high capital requirements for technology and software application needs to ensure a customer/user friendly online purchasing experience. But I believe this will be offset by the industry profitability attractiveness to new competitors. Currently within the market several online jewelry retailer including Blue Nile have established high customer loyalty and will be able to maintain a strengthened competitive position. In overall evaluation of this force could be rated as moderate.
* Threat of substitute products or services: This is the weakest competitive force facing this industry. There is a low buyer propensity of substitute products for diamonds/fine jewelry items. Also, ease of substitute products is high within this specific industry.
* Bargaining power of customers (buyers): This can also be considered a significant force due to the volume of online jewelry retailers within the industry and brick and mortar retailers developing an online market presence to improve sale revenue. The jewelry retail market has many rivals and online jewelry retailers have a strong market presence as well. This provides increased purchasing availability and accessibility for the consumer. With increased competition within the industry the jewelry buyer can afford to be price sensitive.
* Bargaining power of suppliers: Currently the financial strength can be attributed to the free cash flow provided by its suppliers. In Blue Nile’s business model the cash-generating capability resulting from the 40-55 day positive cash float from its supplier negotiations is quite an intelligent business strategy. However, online jewelry retailers could experience devastating affects if suppliers were forced to make changes in these contract options. With the 2008 recession in the U.S. a trickle down affect might be seen in foreign markets. The bargaining power of suppliers could be seen as the strongest competitive force due to the very nature of online purchasing structure and absence of substitute products for diamonds/fine jewelry.
* Intensity of competitive rivalry: This force is significant within the online jewelry industry. The case study states research from the U.S. Department of Commerce with estimated internet sales of jewelry in 2009 at 2.7 billion which is a 10.7% increase from 2008. As e-commerce grows substantially each year other jewelry brick and mortar retailer will make the transition to offering their jewelry products online. The jewelry industry if facing a weakened economy and e-commerce is the next logical step to increase cost-savings and improve sales.
2. What key factors will determine a company’s success in the online jewelry business in the next 3-5 years? Blue Nile’s strategy before the 2008 recession had been very successful and placed them as an industry leader in online diamond purchasing while providing them with international brand recognition in quality, excellent customer service, and extensive product information. The following are key factors that should be addressed for the online jewelry business.
* Establishing trust in their brand overcoming the negative perception of the questioning consumer associated with luxury item purchasing with e-commerce. An online jeweler could offer a GIA or ASGL grading report with their diamonds to gain consumer trust. These grading reports were also the most respected in the gemological industry.
* Competitive pricing structure: Online retailers should position themselves so they can endure the challenging economic conditions they are currently facing in the industry. Developing an effective pricing structure of an extensive product line of diamonds/fine jewelry...
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