Introduction
Online business demands unique strategies and tactics to compete with other retailers and deliver unique products and services to consumers. Blue Nile is one of the leading Online Diamond retailers selling necklaces, earrings, pendants, wedding bands, and watches to wide target audience. Company’s success depends upon effective use of resources and strategy formulation, market leadership and advertising. Company’s priorities are considered on a range of issues, from the overall goals or strategies to specific programs or line items in the budget to be eliminated, cut back, or funded as originally conceived.
Competitive Forces
Following M. Porter effective combination of competitive strategies and company’s strengths can be any corporation to obtain a leadership position and create a strong brand image. The case of Blue Nile shows that the company has a strong position on retail market creating unique value for its customers. Five force model enables the competitive environment in which Blue Nile operates. Competition among existing firms is fierce in diamond industry based on improved efficiency and inventory management (Chaffy et al 2000). The main competitors of Blue Nile are Zale Corporation, Zales Outlet, Gordon’s Jewelers, Bailey Banks & Biddle, Mappins Jewelers, Piercing Pagoda and Tiffany & Co. Threat of new entrants is low because entry barriers are high and competition among companies is strong. The problem is that volume size does not significantly change the cost base. Competitors provide commodities’ with little differentiation and customer loyalty is low. In addition, high inventory costs and competence barriers prevent many companies to enter this market. Threat of substitute products is possible thus the majority of buyers will not easily switch purchasing to the substitute without penalty.
Diamond cannot be produced through a different technology and enter the market. This is a unique product which can be substitutes only by cheap products or cheap minerals. Bargaining power of suppliers is high because Blue relies heavily on high quality products and on time delivery. Blue Nile’s suppliers have a unique availability product they can exert a strong influence over prices and conditions of supply, therefore potentially putting pressures on the businesses purchasing their product. as the most important, there is a limited number of suppliers in this industry. Bargaining power of buyers has a great impact on Blue Nile because there are a limited number of buyers who can afford its products. These facts show that competitive forces are strong and the rivalry is based on inventory management and ability of companies to deliver their products in the shortest period of time. In diamond online retail industry fixed costs are high, and Blue Nile has fewer inventories relative to annual sales than other companies (Chaffy et al 2000).
Key Success Factors
Today, key success factors of Blue Nile are cost-saving element, agreements with suppliers and low operating costs (that lead to pricing advantage), and premium-quality (Fill, 1999). It is possible to assume that during the next 3-5 years, the main success factors ill be the same plus exceptional service quality and unique customer relationship management. The key success factors will be crucial for diamond industry because the highly competitive nature of many markets and the likely future prospect of continued economic turbulence as national and global economic fortunes vary, requires that business managers continue to look for opportunities to improve performance (Hamel and Prahalad 1996).
These success drivers are obvious but it is amazing how many businesses ignore their importance. This is particularly true in difficult markets or economic recession where short term financial constraints lead to cost cutting. Early casualties are staff levels, training, research, product innovation, non—essential’ customer care etc. These are targeted because they produce relatively easy short term cost reduction. Ironically they often also reduce the ability of the business. to respond to and satisfy customer needs and expectations. In practical terms the business has reduced its capability to win and retain customers at a time when there are fewer customers in the market and it is even more important to win the sale (Crawford 2003).
Strategy
Blue Nile strategy is based on cost-saving element and low operating costs. The following statement can be regarded as philosophy of Blue Nile: “We are obviously looking at the dollars of profit we are making on the transaction, and we just love that people walk around with a Blue Nile ring that is that extraordinary and [ people where they bought it” (Case Study). The first, Competitive Strategy, laid out Porter’s conceptualization of generic strategies–strategies that encompass all possible actions a firm may undertake–which he labeled cost leadership, differentiation, and focus (Fill, 1999). It is possible to say that Blue Nile follows cost leadership strategy that flows from becoming the lowest cost competitor while differentiation entails creating real and/or perceived differences from other available offerings. Blue Nile generic strategies follow from the sources of competitive advantage or the things the firm does better than its competitors to the satisfaction of important constituents such as customers, suppliers, the government, and distributors.
“Blue Nile’s management believed that having reputable industry professionals certify and grade each gemstone offered for sale had many advantages” (Case Study). As a diversified firm, Blue Nile has more stable sales and earnings. Risk reduction unquestionably helps enhance shareholder value. The reluctance to place all one’s products in one basket is quite understandable since it could result in binding the company’s future to just one product, a product that might be rendered obsolete or substituted by alternate products. Also, competitors could prove to be more competent at value creation by identifying the desired components of value more accurately or delivering them more effectively. Continuous value enhancement in a single product area is certainly laudable, but prudence dictates that other stakeholders’ needs (shareholders, employees, creditors, and suppliers, for instance) also be taken into consideration (Pittengrew et al 2006).
Diversification is an important strategy in assuring that the needs of a variety of stakeholders are given careful enough attention to merit their strong approval. Moreover, expanding the product and market scope of the firm widens its spectrum of customers, providing even more opportunities for delivering value in completely novel ways. Blue Nile tries to achieve cost leadership in order to appeal to potential consumers with value proposition. When a firm has numerous product and service offerings, few of which have any relationship to each other, the objective becomes to maximize shareholder value (stock price and/or dividend). Commitment to a product line or to its customers is conspicuously absent at the corporate level. Also, Blue Nile is targeted to “stuck in the middle’ competitive approach based on below-average profitability but active profits (Pittengrew et al 2006).
Benefits and Limitations of the Blue Nile Business Model
The main benefit of Blue Nile approach is exceptional expert system and high service quality available to all customers. This strategy allows Blue Nile decides how to best position the organization in its competitive environment in order to achieve and sustain competitive advantage, profitably. The benefit is that this business model is formed at both corporate level (what industries/markets) and business unit level (in what segments the company compete and how). The pace of change has significantly increased in recent years and the competitive arena has enlarged, driven by, for example, larger international corporatisms with an appetite for new markets, reduced barriers to international trade, and technology. The main disadvantage of its strategy is that the company intends to persist in a concentration mode, that is, limit its horizons to a single product or achieve a predominant portion of its sales in one industry. Typically it is small businesses that start with such a focus. With success and growth generally comes a desire to reduce dependence on any one product or market (Pittengrew et al 2006).
SWOT
SWOT is a widely used thinking framework for identifying Strengths, Weaknesses, Opportunities and Threats (Paley, 2006). It enables key factors to be visibly recorded as a high level summary of a business (or personal) situation. SWOT analysis shows that Blue Nile obtains a strong position of the market because of its unique vision and services proposed to customers. SWOT shows that Blue Nile successfully identifies the main advantages and threats of correct market position and company’s operations. The strengths are strong brand image and expert system, excellent web-site and customer support.
The opportunities include high potential to growth and profitability, professional management team and corporate culture, customized order system and free shipping (Stacey, 1996). The main weaknesses are low market potential and uniqueness of the product. Competition is the main threat for Blue Nile. In spite of weaknesses and threats, Blue Nile has an attractive position based on a combination of cost management and customer services. Customers’ loyalty can be achieved through the people who are employed by Blue Nile. Resource-based philosophy and innovations create new opportunities for market development and brand recognition. There is a great opportunities for the company is this field, because specialized shops, throughout the world are interested in goods produced in the environmentally friendly manner (Stacey, 1996).
Financial Performance
Financial information reveals that Blue Nile has limited financial resources available and lack of capital. Relative cost of capital is high and Inventory and debtor management is excellent at the company. Stable relationships with suppliers help the company to decrease operational costs and reduce prices for the end consumers. As a well-run business, Blue Nile recognizes the need to make the distinction between cost types and reflect this approach in their management reporting and future planning. Those businesses whose strengths are solely in their operational ability — and surviving in a market where the margins are narrow — tend to be efficiency driven. In other words doing what they have always done, only trying to do it better (Paley, 2006). taking into account financial data and the forecast based on current figures it is possible to say that Blue Nile will grow annually and will obtain a strong position on the market during the next three years.
Financial data suggests that Blue Nile strategy works well and allows the company to increase annual profits. “During the 200 1—2006 period, Blue Nile’s sales jumped from $48.7 million to $251.6 million, a compound average growth rate of almost 39 per cent. Gross profits (sales minus cost of goods sold) rose from S1l.i million in 2001 to S50.9 million in 2006, equal to a compound average growth rate of 35.6 percent” (Case study). For Blue Nile to achieve this level of increase would require considerable effort and probably the need to incur some additional costs. We will assume that Blue Nile requires an advertising/promotional campaign ($50,000) and an additional member for the sales team ($100,000) — what will be the effect:
Sales volume must now increase from, 1,800,000 to 3. 900,000 — an incredible 117% rise.
With this alternative we can identify that…
Competitive Strength
Blue Nile has the clear and communicated direction and goals for the organization supported by a coherent set of actions aimed at gaining a sustainable advantage over competition. The orientation of each other factor is evaluated and changes introduced to ensure compatibility with the strategy. Blue Nile uses shared values which mean the appropriate culture and beliefs that support the needs and environment of the business (Pittengrew et al 2006). The ideas of what are right and desirable. The main strategies which help Blue Nile to create a sustainable advantage are quality and customer satisfaction, competition orientation, customer service, innovative culture, willingness to change. In addition, Blue Nile possesses unique skills and capabilities possessed by as a whole as distinct from those of individuals. They involve strategic thinking ability, responsiveness to change, ability to turn ideas into action and marketing competence. these facts show that Blue Nile has a sustainable competitive advantage in the online retail jewelry business (Paley, 2006).
Strategic Problems, Competitive Position and Stock
The main problems are dependence on a particular supplier (thus Blue Nile negotiates with others also), Management of Blue Nile should improve its advertising and increase product range including other minerals. This strategy will help to attract wider target audience and will attract existing customers. Value Driven strategies will help Blue Nile to improve its competitive position on the market. Customers’ perceptions of realizable net value are the single most important determinant of long-term performance (Pittengrew et al 2006). Broadly defined, customers include purchasers, end users, intermediate customers, distributors, internal customers and users, and others who derive value from or make sacrifices because of a firm’s product or service. Thus, employees who use the output of a previous stage of production or a staff function are also customers. The value provided to each type of customer is a direct result of the firm’s strategy. Net Value is defined as that value realized by a customer which justifies the sacrifice made to acquire, use, and dispose of a product/service, in comparison to available alternatives. Best net value is defined as that product/service set which customers perceive as superior to all others in providing what is expected, after considering alternatives and the required sacrifice.
This combination of the customer’s perceived value and his or her potential to realize that value minus all sacrifices determines how much value the firm can create. Blue Nile should introduce value-based strategies based on customer-oriented, business-level strategies and provided best net value. Value-based strategy should not be confused with generic strategy. Each strategy can be pursued with no assurance of providing best net value. While low cost and differentiation are usually seen as mutually exclusive, a value-based strategy may require and achieve both. Since many customers now count time rather than dollar cost as their most precious asset, a high-quality strategy provides little competitive advantage unless it is paired with low cost (i.e., low price and/or sacrifice reduction) (Pittengrew et al 2006). I would not buy Blue Nile stock because the company does not have a clear strategy and compensation plans in this sphere. Also, the main problem for Blue Nile is industry structure where “the diamond and fine jewelry retail market was intensely competitive, with sales highly fragmented among locally owned jewelry stores (34 percent); retail jewelry store chains with 100+ stores (13 percent); numerous chain department stores” (Case Study). It is possible to say that lack of strategic plans and goals in this sphere supported by fragmented markets are not attractive factors for stock purchase (Pittengrew et al 2006).
Bibliography
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Hamel, G., Prahalad, C.K. 1996, Strategy as Stretch. Chapter 6.Competing for the Future. Harvard Business School Press; Reprint edition, pp. 138-161.
Fill, C. 1999. Marketing Communication: Contexts, Contents, and Strategies 2 edn. Upper Saddle River, NJ: Prentice Hall.
McDonald, M. 2003, Marketing: A complete Guide. Palgrave Macmillan.
Paley, N. 2006. The Manager’s Guide to Competitive Marketing Strategies. Thorogood.
Pittengrew, A. M., Thomas, H. Whittington, R. 2006, Handbook of Strategy and Management. Sage Publications.
Stacey, R. 1996, Strategic management and Organizational Dynamics, 2 ed., London, Pitman.
Case Study 5. Blue Nile Inc. – The World’s Largest Online Diamond retailer. p. c62.