Blue Nile Case

1) Rivalry: Rivalry among competing sellers is very strong. According to the text, the diamond and fine jewelry retail market was intensely competitive, with sales highly fragmented among locally owned jewelry stores and other retail stores. One reason being the high fixed cost the sellers incur due to jewelry being an expensive luxury item. Second, there are thousands of competitors competing in the market (27,000 in the U.S.). The top jewelry chain stores control about 6,400 of the stores. Blue Nile had a unique case where they have to compete with online and offline and combo competitors. The recession hit the jewelry business real hard but Blue Niles business model kept them functioning through the hard times with sales falling by only 8% from 2007 and 2008. In addition, many of the online retailers employed Blue Niles business model purchasing stones from suppliers only when an order for a specific stone was received and quick delivery when purchased.

Suppliers: Supplier bargaining power is fairly weak in the jewelry industry. Blue Niles economical supply chain and lean operating costs allow it to sell comparable-quality jewelry at substantially lower prices than the leading competitor who market their products up by as much as 130% (Tiffany). Blue Nile developed multi-year arrangements with suppliers where only designated diamonds were offered only for purchase through Blue Nile. These arrangements limited their dependence on particular suppliers. Blue Nile also did not purchase inventory from suppliers until a customer placed their order. This allowed for their suppliers to have real-time market intelligence for which items were selling and a way for them to manage their inventory more effectively.

Substitutes: It is very difficult to substitute a product like jewelry since people are looking for the best quality of diamonds. Industries offering substitute products probably have a weak competitive force when confronting Blue Nile and other online retail jewelers since they would be offering very low quality products such as lab created gems or diamonds or "imitations."

Buyer bargaining power: Buyer bargaining power is moderate since jewelry is a luxury item and customers do not mind spending more money to receive a customized item. Blue Nile provides detailed product information that enabled the buyer to compare diamonds and review the five C's of the product (cut, clarity, carat, cut grade, and color). Additionally Blue Nile provides professionally prepared grading reports for their products and through comparison shopping Blue Niles also gives their customers the ability to compare their product prices to their competitors. Buyers also can receive an automatic appraisal and can return the item within 30 days. Buyers can be price-sensitive due to the recession but the cost of switching to competing brands or substitutes is fairly high. In some cases buyers are not concerned with price when purchasing luxury items and are willing to pay any price to receive the best gemstone/diamond.

Potential new entrants: Currently there is already a strong differentiation and brand loyalty, the industry is risky and uncertain since there are already thousands of competitors; so new entry threats are fairly weak. New entrants must obtain a great amount of capital to emerge into the diamond business. Government policies are also strict against "blood" diamonds, which would also deter new entrants.

Rivalry is the strongest of the competitive forces because there is such a great amount of competition in the industry with limited, if any at all substitutes available.

2) In the next 3-5 years the online jewelry business will be highly dependent on safe and reliable online network technology; to ensure customer safety in making high dollar purchases. The key factors of success in the industry are keeping up with the drivers of change, increasing globalization, and keeping track of the industry's long term growth rate. Other factors include is keeping up with the shifts in buyer demographics, new internet capabilities, product and marketing innovation, changing societal concerns on "blood" diamonds, attitudes and lifestyles in this recession. Companies will need to provide customers with educational information on diamonds through their website to ensure they provide the same level of service as standing jewelry stores and give them the same shopping experience.

3) Blue Niles strives to develop a brand based on trust, guidance and value. Blue Niles strategy consists of offering high quality diamonds and fine jewelry at comparatively attractive prices and providing customers with useful information and trusted guidance throughout their purchasing process.. Also, the companies supply arrangements and just-in time inventory management was key to their success. This includes overnight or daily shipping and a strong customer service. The best-cost provider strategy fits the closest to the competitive approach Blue Nile is taking. Blue Nile is also taking differentiation and low-cost and blending the two into their approach. This is the type of competitive advantage Blue Nile is trying to achieve with the addition of educating their customers on the five C's (cut shape, cut, color, clarity, and carat weight) which are the characteristics that determine the quality and value of a stone. By doing this they are giving their customer the same level of customer service as