Blue Nile

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BLUE NILE

RESEARCH & APPLICATION 5-20

Total points = 58/60

1. What is Blue Nile’s strategy in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence from the 10-K supports your conclusion?

After reading through the 10-K statement for Blue Nile, it is apparent that they believe in a mix of customer intimacy, operational excellence and product leadership customer value proposition. Evidence in the marketing statement found on pg. 9 supports this. See Marketing Statement below.

They express their desire to provide customers with a non-intimidating environment, that they seek high quality from a trusted source and a company with a good reputation. They also repeat these statements throughout the business section of the report. For example, on pg. 8 they explain their focus on customer experience, their intent to increase supply chain efficiencies, improve operational efficiencies, expand product offerings and expand into International Markets.

Further they explain in detail their commitment to a high level of customer service and support as well as fulfillment operations strategy. (pg. 9)you are correct that these are all important aspects, but if you have to pick the PRIMARY one it would have to be operational excellence. 4/5

2. What business risks does Blue Nile face that may threaten its ability to satisfy stockholder expectations? What are some examples of control activities that the company could use to reduce these risks? Are some of the risks faced by Blue Nile difficult to reduce through control activities?

Blue Niles does a good job spelling out the risks to stockholders. Some of the risks listed are not specific to just Blue Nile but to many other companies. Those include:

• Limited operating history making it hard to forecast net sales and plan expenses

• Quarterly financial results fluctuate for a variety of reasons, which may lead to volatility in the stock price

• Seasonal fluctuations in sales

• Failure to acquire inventory at reasonable prices resulting in higher costs and lower net sales

• Inability to establish the branding as projected

• Competition

• Attracting customers in a cost-effective manner

• Failure to meet customer’s expectations

• Decline in demand

• Inability to expand brand offerings

• Business interruption

• Poor inventory management

• Theft

• Inability to effectively manage growth

• Overcoming past business losses

• Loss of key personnel

• Increased product returns

• Risky acquisitions

• Changes in accounting standards and practices

Blue Nile began operations in 1999, breaking new ground and creating a niche market for fine jewelry purchases. Instead of the traditional brick and mortar operations, they market and sell their products through the internet. This method of doing business posed some risks that are unique for an e-commerce store and specifically Blue Nile. These risks include:

• Purchasers of fine jewelry may not want to choose their diamonds via the internet

• More on-line stores are increasing competition

• Adverse publicity - diamond mining has become a controversial subject. This could cause customers not to purchase diamonds

• Blue Nile keeps all of their computer records and communications in a single leased facility. If that facility were destroyed or harmed it could effectively shut down Blue Nile operations.

• Blue Nile also faces challenges to intellectual property rights

• Use of the Internet declines or government regulations makes e-commerce more expensive

• Blue Nile sales could be negatively impacted if they were required to charge tax on purchases

• Computer hackers could...
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