Blue Nile Case Study

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Blue Nile Case Study
Cristeen McPherson
Student Number 326914

BUSA 506 Dr Terry Power
November 11, 2012

1) The competitive forces confronting Blue Nile and other online retail jewellers are medium or weak in strength, with the exception of the strong rivalry between sellers. The potential for new entrants to the jewellery market is relatively low due to the high costs of inventory, the lack of differentiation of product and the brand recognition held by the industry leaders. Good substitute products for a quality diamonds are not readily available. There are synthetic gemstones, cubic zirconium and other jewellery options, but the general consumer does not see these as a true substitute for real diamonds.

Supplier bargaining power is a mixture of strong and weak factors leaving this force with a medium impact on the industry. The diamond supply industry is more concentrated than the retailers but is having new entrants emerging. Like the Canadian diamond producers Ekati in 1998, Diavik in 2003, Jericho in 2006 and Snap Lake-4 in 2007 making Canada now the third largest diamond producer in the world.[1] Two factors contributing to a stronger supplier power are that products are critical to the retailers’ success and there is a lack of good substitute products. In contrast, the commodity trading or buying process for diamonds contributes to a weaker supplier power as retailers have easy ability and low costs to switch suppliers. Industry members are also now integrating backwards into the supply of the product, Diavik mine is a joint venture between Rio Tinto and Harry Winston Diamond Corporation and the De Beers Group owns the Snap Lake-4 mine.[2]

Buyer bargaining power is moderately strong due to:
▪ Low costs of switching between retailers
▪ Lack of differentiation of product between retailers – differentiation is more on quality provided than the style or presentation of the product ▪ Large and diverse consumer base
▪ Buyers ability to be well informed on product; information on quality, prices and costs is growing due to internet accessibility ▪ Buyers are price sensitive

The strongest force is the rivalry between the competing retail sellers. Factors affecting competing rivalry: ▪ Buyer demand is growing slowly – jewellery market is mature, with a broad range of consumers ▪ Buyer demand had fallen off in recent years due to recession – many sellers found themselves with slow moving inventory ▪ Buyer costs to switch brands is low – the buyer has no costs to switch to another online retailer, it’s just a mouse click ▪ Products are weakly differentiated – diamonds and jewellery are similar offerings between the sellers ▪ High fixed or storage costs – the bricks and mortar (b&m) retailers and many of the online retailers have high inventory costs, which when not turning incur carrying costs (interest etc) negatively impacting cash flow and earnings ▪ High exit costs – the high inventory costs make it difficult to liquidate quickly ▪ Competitors are numerous – and diverse in their value proposition, with low value, high volume retailers like Walmart as well as high end prestigious retailers like Tiffany & Co.

2) Some key success factors that will affect the online jewellery retailers in the near future: Fine jewellery buyers are looking for a retailer that offers quality product at a competitive price. Retailers must rely on their brand recognition with consumers; they need to build awareness of their product offerings as well as their customer service. Retailers must prove they are reputable, reliable and trustworthy. Online retailers have to express this through capturing their online audience with an easy to navigate website, appealing to their emotional response and showing other consumers satisfaction and confidence with past purchases.

Jewellery retailers must be able to provide exceptional customer service and...
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