Blue Nile Case Study

Blue Nile Case Analysis

Overview

Founded in 1999, Blue Nile has grown to become the largest online retailer of certified diamonds and fine jewelry. At Blue Nile you'll find high-quality diamonds certified by the most respected independent diamond grading labs. You can create your own jewelry were you choose the diamond and they will set it in your favorite earring, pendant, or ring design. Every order is shipped free, guaranteed and returnable within 30 days, so you can be sure you made the right decision. With sales of $251.6 million in 2006 compared to $169.2 million in 2004, Blue Nile is larger than the next three largest online jewelers combined. Blue Nile was the only jeweler to have ever received the bizrate.com Circle of Excellence Platinum Award which recognized them the best in customer service ranked by actual customers.

With such a large and competitive industry Blue Nile is able to limit costs while offering high quality stones along with providing detailed product information. Some issues with Blue Nile that could use some improvement is with their marketing efforts, stock options and there expenditures into international markets.

Strategic Issues and Problems

Blue Nile’s strategy to attract customers had two core elements. The first was offering high-quality diamonds and fine jewelry at competitively attractive prices. The second entailed providing jewelry shoppers with a host of useful information and trusted guidance throughout their purchasing process. Blue Nile’s merchandise consist mainly on offering high quality stones in terms of shape, cut, color, clarity, and carat weight. Besides finished products Blue Nile offers a build your own feature that allows customers to customize diamond rings, pendants, and earrings. Customers could select a diamond and then choose from a variety of ring, earring and pendant setting that were designed to match the characteristics of each individual diamond.

Another strategy of Blue Nile was their supply chain and comparatively low operating costs. The distinctive feature of Blue Nile’s supply chain was it set of arrangements that allowed it to display leading diamond and gem supplier’s products on its Website, some of these arrangements allowed multi-year agreements whereby designated diamonds were only offered by Blue Nile. Blue’s Nile suppliers represented more than half of the total supply of high quality diamonds in the United States. Blue Nile did actually purchase a diamond or gem from these suppliers until a customer placed an order for it, this minimized the costs associated with carrying large inventories. Blue Nile’s supply chain saving gave it a significant pricing advantage. For every dollar that Blue Nile paid suppliers, it sold its finished jewelry for a markup of about 33 percent over cost.

Blue Nile’s marketing strategy focused on making sure the website was a positive shopping experience for customers. Also their efforts to draw more customers included both online and offline marketing. However in 2005 Blue Nile pulled back on advertising during December because the cost to buy keywords on Internet search engines rose dramatically. In a $55-$60 billion industry, management believes that the company’s market share of online sales of engagement rings exceeded 50 percent in 2005. In 2005 the share of the overall engagement ring market in the United States was approximately 3.2%. With sales of jewelry not containing diamonds accounted for 10% of Blue Nile’s 2005 revenues, but typically lesser-priced items were considered important because they helped develop both trail and repeat business opportunities. In such a large industry with lots of competition Blue Nile needs to increase in advertising in efforts to attract more business.

Other strategy efforts that need improvement are the international websites because both the U.K and Canadian site offered limited merchandise selections compared to the U.S. website as well as less developed search and educational features. The two combined sites only had sales of $3.3 million in 2005. Another issue is the fact the Blue Nile became a public company in 2004; they state that they have an employee stock purchase