Case Study: Blue Nile Inc. Analysis This Company

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¶ … Blue Nile Inc. analysis

This company was founded in 1999 and went public in 2004. Blue Nile has been dealing in fine jewelry and certified diamond. Most of their products are engagement rings of which they had sold approximately 230,000 of them by 2010. In the same year, they had achieved a sale of $332 million which was way above the $169 million in 2004. Blue Nile is also one of the top online retailers of certified diamond and jewelry of all sorts. They not only deal in rings but bracelets and earrings as well as pendants (Arthur a. & Ronald W., 2011:314).

Macro-environmental challenges

The company currently faces some major macro-environmental factors that come on its way to remain on top of the table and continue making meaningful profits. The first factor is the political, regulatory and legal factors. Of late, there has been a largely restricted trend in the movement of diamond particularly from countries in Africa and other developing nations. This is in light of the realization that the trade in the same was used in fuelling several wars, a case in hand is the blood diamond of Liberia that it is claimed Charles Taylor used to finance the atrocities. The newly implemented laws and regulations make it hard to access diamond even for the suppliers of Blue Nile, hence affecting their business trends as well.

The other macro-environmental factors that influence the current trade are the general economic conditions of the potential consumers. Being that Blue Nile deals in high end jewelry that can cost to the tunes of $20,000 the obvious target are people with money who happen to be the middle class upwards. This market segment that Blue Nile has capitalizing on regularly was the same that was badly affected by the economic recession in the recent global recession. This has seen the decline in the number of orders that the company used to receive online for their product.

The last and most influential factor is the immediate industry and the competitive environment that has unfolded of late. Of late, there have come in the market what is Arthur & Ronald call brick-and-mortar jewelers. They have also begun advertising and selling over the internet hence shaking a fortress that was traditionally dominated by Blue Nile. The competition learned of the weaknesses of Blue Nile like the concentration on the sale of engagement rings and they approached the market from a larger perspective of all jewelry.

Five forces analysis

New entrants and competition

The threat of new entrants into the same market niche that Blue Nile deals with is high with the onset of many outlets getting into the internet marketing and sales. There are major companies that have threatened the existence of Blue Nile with their entrance into the market and active marketing over the internet.

These include Diamonds.com which was founded shortly after Blue Nile in 2000 with the proprietors having more than 25 years in the loose diamond trade from great sources within New York as well trained and experienced gemologists.

The other competitor is Whiteflash.com who majored in customized jewelry, indeed this took half of their orders. This company gave Blue Nile a challenging strategy when they allowed clients to swap their Whiteflash rocks for any higher valued one at any time, only having to pay for the difference in price, something that Blue Nile had not been doing.

Ice.com is yet another online competitor who came into the field in 2001 and harnessed in the same year, more than 500,000. The company came in with an option of monthly payments as well as free shipping for any item over $150, an incentive that allowed many clients to purchase from them. They also provided toll free enquiry lines.

JamesAllen.com is yet another competitor that offers threat to Blue Nile since it has grown from the inception time in 1998 to be one of the greatest online marketers. The company prided in being the one that provided bets engagement rings that were certified and graded from reputable laboratories. They also had 30 days return policy to add on the number of clients that they had (Arthur a. & Ronald W., 2011:327).

From the above, it is evident that the threat of more entrants into the market is quite high as there are already very strong competition and the potential for the entrance of more dealers in the same field.

However, there could be barriers to the further entrance of many more dealers in the same due to the high price in the startup capital and the period that it takes to earn the trust of clients. This is on the background of the fact that many of the diamonds sold in the U.S.A. are not ideal, indeed only 13% are ideal hence it makes it hard for clients to trust that the piece of diamond being given to them is of high quality, or even worse genuine.

Suppliers

Blue Nile has an economical supply chain that gives it comparatively lower operating costs and still providing quality diamonds. The supply chain is one that bypasses the traditional wholesalers and brokers who would drive the costs higher. The company did not have to buy these diamonds from the suppliers until the client placed an order hence avoiding the burden of having to carry large consignments. Indeed much of the competitiveness that Blue Nile had was dependent on the negotiated and maintaining the favorable relationship with the many suppliers, hence reducing the dependence on one supplier for its merchandise. It is noted that the top three suppliers only accounted for 28% of their supplies by 2010 (Arthur a. & Ronald W., 2011:315). The suppliers also offered real time market intelligence providing Blue Nile with the kind of products that would sell at a given time hence enabling them to manage their inventory appropriately.

Due to the consistent and reliable supply of quality diamonds to Blue Nile, the suppliers can be categorized as strong. This categorization is coupled up with the information that the suppliers give the company as well as the consistency of their contract with Blue Nile. The great performance and appreciable incomes can be attributed to support that they get from the suppliers throughout the years.

The client base

The active client base for Blue Nile is the upper class and some of the middle class people who are predominantly getting into engagements. They deal majorly ion engagement rings for couples who would like custom-made diamond rings. The company also targets the middle class that would like to buy and can afford jewelry as gifts or for personal use. This client base has been consistent/strong for Blue Nile since over the years the company has not had a time when they have experienced a very low client experience.

Substitute products

Diamond, being one of the most expensive gems in the market, is bound to have several other substitutes for those who are not able to meet the cost of the grade of diamond that Blue Nile specializes in. The substitutes would be to go for a lower grade of diamond, some would also go for the white gold, natural blue sapphire also comes in handy as a substitute, ruby, emerald and alexandrite are as well substitute products that have of late competed against diamond (Sam Abbay, 2012).

Competition in the market

The company faces vital competition from the new firms as well as the firms mentioned hitherto. The competition is getting stiffer due to the flooding of more firms into the trend of marketing through the internet. The easy availability of diamond and other gems has also made competition to increase of late. The pricing strategies have been changed as well in light of the recession that hit the U.S.A. And most parts of the globe hence making the competition to be stiffer with people going for the cheapest option that they can get around them.

Firm profitability

Drawing from the factors discussed above, it is still relevant to say that Blue Nile is on the profitability trend and has not been pushed to the edge of the market with the current trends of diamond and jewelry market. This is in light of the high quality that they offer, the wide range they present in their display, the custom making option that they have, the pricing strategy the suits the market and the products, the brand recognition, the customer support strategies, reputation, reliability, the trust they have cultivated among the clients, all these work for the company to make it still a profitable company.

Strategic group map of Blue Nile

Anticipated response profile

Diamonds.com

Their future objective is to supply the city with the most affordable of the gems as they source them from New York. They current strategy rests on the having a wide selection of jewelry than any other jewelers while giving the clients extensive education on the same. Their main strength lies on the expertise of the proprietors… [END OF PREVIEW]

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