Blue Nile Inc.

Business Analysis
Date: 08-06-15

1.Current situation
A. Past performance

Founded in 1999, Blue Nile has grown to become the largest online retailer of certified diamonds and fine
jewelry.Internet Retailer Magazine reports Blue Nile is bigger than the next three largest online jewelers combined.
The company is built on a unique idea: choosing an ENGAGEMENT doesn't have to be complicated. Diamonds can
be simple to understand. Making the right choice can be easy. This unique approach and reputation for excellence
has gained notice from publications such as The New York Times.
Blue Nile is a publicly traded company listed on the NASDAQunder the symbol NILE. The company has been
awarded the Bizrate.com Circle of Excellence Platinum Award, which recognizes the best in online customer service
as ranked by actual consumers. Blue Nile is the only jeweler to have ever received this award, and has done so every
year since 2002.
At Blue Nile you'll find high-quality diamonds certified by the most respected independent diamond grading labs.
You can create your own jewelry, choose the right diamond and we'll 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.
Although the company had $44 million in revenue in 2000, it lost $30 million because it spent $40 million in
television advertising. Itsinvestors contributed an additional $7 million in 2001. In 2006, Blue Nile sold $197 million
in engagement rings and wedding bands, compared to $186 million for TIFFANY & Co. In 2010, Blue Nile reported
net sales of $332.9 million. Net income increased 10.2% to $14.1 million and international sales increased 30.4% to
$43.3 million from $33.2 million. Full Year sales for 2012 increased 14.9% to $400.0 Million.
On Nov, 8, 2011, CEO Diane Irvine, who had been with the company for 12 years and its CEO since 2008, abruptly
resigned. Irvine was replaced on an interim basis by senior vice president and general manager of international Vijay
Trawler. In March 2012, Harvey Kantar, former CEO of Moose Jaw, was named the new CEO.

B. Strategic Posture
Mission
The mission of the co is to be the market leader in online selling of diamonds through more customer satisfaction,
the satisfaction from customer can only be achieved if the company is willing to tailor the products according to the
expectations of customers as well as by manufacturing those products that are required by most of the customers, in
the mean while the mission of the company is to gain competitive advantage.

Objectives

The objectives of the company is to make products of superior quality thorough cost savings that can be achieved by
manufacturing products of economic cost, as most of the diamonds of the company are to be sold online from the
website so the customers may demand the same product as they booked on the website, if the expectations of
customers are not met than customers may switch to other brands, so the overall objective of the co is to produce
products with lower economical costs without compromising on the quality of diamonds.

Strategies
The strategy of the company is to manufacture diamonds if there is recession in the economy, the investment should
be made on the website with having the knowledge in the market segment recession, also the co has edge over the
manufacturing of quality diamonds so the co is more willing to manufacture diamonds of higher quality in the future
as well to retain old customers & make new customers, this is one of the best marketing strategy that the co can use
in order to gain & retain competitive advantage in the market.

Policies
The policies of the co are to ensure that diamonds must be of a standard size & shape according to the pattern set in
the diamond market, the policies of the diamond market should be adhered to by the co so that there may be no fine
& penalties for the co to pay. If there are breach of policies by the co then the co may not be able to continue for
manufacturing diamonds in the diamond market if the size or shape of diamond is not according to the set pattern.

2.Corporate Governance
A. Board of directors
Harvey Kantar
Chairman, CEO and President
Mary Alice Taylor
Director
Leslie Lane
Director
Michael Potter
Lead Independent Director

Steve Shied
Director
Robert van Schoenberg
Director
Mindy Meads
Director
Scott Howe
Director
Chris Bruzzo
Director

B. Top management
Harvey Kantar
Chairman, CEO and President
Michael Potter
Lead Independent Director

3. External Environment
A. Natural Environment
Physical resources
The physical resources of the co are manufacturing tools that are needed for the manufacturing of diamonds & other
products of the co, the physical resources are a very important asset for the co to retain as they are to be used in the
manufacturing of branded diamonds as well as other key products of the co, the co should be able to inspect the
physical existence of the intellectual property & resources so that the co may not loose key tools in the
manufacturing process. EFAS in external environment is concerned with physical resources of the co. This should be
integrated into the system by understanding the environment.

Wildlife
Wildlife is an important aspect to consider by the co in assessing the external environment of the co, as the external
environment is extremely affected by the wildlife around the co, so these factors should be considered in advance
prior to the manufacturing of diamonds, wildlife has a material effect on the success & failure of a co so the co
should investigate the consequences of any wildlife impact in advance so that they may not has to see the face of
failure of manufacturing of the co.

Climate

Climate is also one of the most important factor for analyzing the external environment of a co, as the diamonds are
highly manufactured on high temperature, so the climate in which the manufacturing is in process should be
moderate to extreme hot so that perfect temperature is provided for the manufacture of diamonds, if the climate is not
according to the desired manufacturing of diamonds then diamonds may over burn that may result in injuries or
deaths to the co.

B. Societal Environment
Economic
This PhD study is part of the wider UNESCO-IHE and IVM-VU project Blue Nile Hydro solidarity. The project is
funded by the Netherlands ORGANIZATION for Scientific Research under the WOTRO Science for Global
Development Program. Due to unsustainable land management the Blue Nile faces significant soil erosion, causing
negative on-site and off-site externalities to different water users. The main objective of the PhD study is to assess
the economic value of the positive and negative externalities of sustainable soil conservation and watershed policy
and explore the possibilities of introducing payment schemes for watershed services. In particular, the study
examines the institutional-economic incentives and conditions needed to be in place for such schemes to encourage
sustainable land and water use across the whole international river basin.

Technological
Blue Nile got its start selling custom diamond rings online, working a supply of 130 wedding bands and 75 settings.
Then, last year, the company broke onto the physical scene with in-store displays at Nordstroms Seattle flagship
store and a store at Long Islands Roosevelt Field Mall in New York.
Today, the Seattle Company opened its first permanent brick-and-mortar space in Long Island. The store will operate
in a similar fashion as the previous displays, customers can get a feel for the Blue Nile quality, but still buy the ring
online through the companys Build Your Own Ring feature.
The low-pressure sales environment also carries over from the online experience. Blue Nile says its store employees
arent paid on commission, so you wont be hounded to buy immediately. Instead, they will guide customers through
ring building on in-store IPADS and show off some of the settings and bands available to customers.

Political/Legal
The political/legal environment around the co should be considered before making investment in that sector of
industry, as the political situation is the most important factor to consider an investment in a country, if the political
situation of the country is not good then the investment in that segment is not made if the selling of physical
diamonds is considered where customers purchase diamonds from the retail outlets, the legal environment should

also be considered in physically selling diamonds as well as legal environment should be considered if the co is
making online sale of diamonds, the rules of online sale of diamonds should be followed in order for the continual
success of the co.

Sociocultural
The social factors should also be considered in evaluating the external environment of the co, the social lifestyle of
the people living around the industry segment in which the co is selling diamonds should be considered, as the
diamonds are a rich item to purchase so the will power of the customers to purchase diamonds should be considered
before making investment in that segment of industry, the cultural environment of the segment should be considered
in order to assess the cultural factors around the industry of people living, the culture should be embedded in the co
before starting the physical sale of diamonds.

C. Task Environment
Threat of new entrants
Several of the existing firms have contracts with well-known diamond distributing companies. New entrants may
find it difficult to contract with these companies, because they lack the financial status. Also new entrants do not
have a reputable name, which may cause doubt from a diamond distributing company and thus no contract will be
created.The entry into this market is getting increasingly difficult due to the growth of companies already established
in the industry and due to high initial investment costs.
Existing firms experience economies of scale from large investments in research and development, brand
advertising, or in physical location of stores. The barriers to entry and to exit are very high in this industry.
Large economies of scale make it very difficult for new entrants to compete in an industry.The more assets a firm has
the greater the firms ability to take advantage of economies of scale.

Power of buyers
When there is a large market of buyers the industry has the ability to set its price points as high or as low as they
choose.
Customers have little bargaining power regarding price when they shop at luxury stores and refuse to search for
alternatives, because of such a limited selection.
However, when buyer power is strong, the relationship to the producing industry is near to what an economist terms
a monopsony- a market in which there are many suppliers and one buyer. (Quickmba) In this particular market
condition, the buyer sets the price.

Threat of substitute product

The threat of substitutes depends on the relative price and performance of the competing products and on customers
willingness to consider substitutes.
In this Industry there are millions of consumers who will not purchase a diamond unless they are absolutely certain it
is conflict free due to ethical and social concerns. Since conflict free diamonds are harder and more expensive to
obtain, this creates a high level of competition for the jewelry industry.
Products price elasticity is also affected by substitute products. For example, as more substitutes become available
the demand becomes more elastic because customers have more alternative choices. Therefore a close substitute
product constrains the ability of firms in the industry to raise prices.

Power of suppliers
Since diamonds are scarce, mining companies have absolute control over the selling price.
Diamond-mining companies such as DeBeers and Aber control the price of the diamonds that are supplied to several
firms in the jewelry industry, such as Tiffany and Co. Since these precious gems are of great value to the firms, the
power of the supplier is even larger.
The power of suppliers within the jewelry industry has skyrocketed within the last few years due to natural gemstone
scarcity.

Rivalry among competitors

In the jewelry industry companies that are considered mass merchandisers or limited line jewelers generally compete
on the basis of price.
Specialty jewelry companies have found great success competing on quality rather than competing on price. Brand
recognition is the greatest asset.
There is a high growth rate in the industry. As the jewelry industry expands globally, the industrys top competitors
are opening many stores in order to increase market share and capitalize on competition.
This has created a stagnant industry that now competes by taking market share away from the other players and
creates price wars among many of the firms in the industry.
The switching costs and degrees of differentiation lower as the industry grows. These low degrees of differentiation
lead to consumers purchasing items based on price rather than quality.

Power of other stakeholders

The power of other stakeholders is connected with influential power that exists in stakeholders of the co that can turn
around the current status of the co, the stakeholders are an important aspect to consider by the co in any situation
because they have the power to go against the co if the co is not performing according to the standards set by the
industry & the going concern status of the co may also be called into question if the power exerted by other
stakeholders is too high.

4.Internal environment
Corporate structure
Blue Nile specializes in educating first-time shoppers about diamond quality and making it easy for them to buy
engagement rings. Diamond rings account for 70 percent of Blue Niles sales, and other diamond jewelry accounts
for an additional 20 percent. They do not own or house their diamonds that are in their inventory but instead
utilize the common business practice of drop-shipping allowing for the company to purchase the diamond from the
supplier when the customer actually purchases it. In 2008, its share of the U.S. engagement ring market rose to 4.5%
from 4%. The average price of a Blue Nile ring dropped from $6,200 in 2007 to $6,000 in 2009, but the average
carat weight of 0.90 remained constant. In 2006, the site set an online diamond purchase record with the sale of a
$1.5 million 10-carat D-Flawless diamond. In September 2011, Blue Nile sold a diamond engagement ring that cost
more than $300,000 through its iPhone app. Blue Nile has announced plans to broaden the companys base to
include more female customers.

Corporate culture
The corporate culture of the co is dependent on the organizational culture or rituals on which the co is operating, the
rituals & cultures of a co truly reflects the image of the co in the industry in which the co is operating, corporate
culture is very much important from physical sale of diamonds as from retail outlets, the culture is set by the norms
of industry so should be defined by the co by any means in order to operate successfully, the culture should be

integrated into the rituals of the co so that co may be able to communicate with its staff frequently & easily, so as the
staff may also be able to communicate effectively. IFAS is connected with the internal environment of the co so
should be developed accordingly according to the plans of the co set at the start.

Corporate resources
The corporate resources of the co are defined as below,
Marketing is concerned with the appropriate advertising of diamonds to the relevant niche of customers; there
should be enough resources for the co in order for the marketing of diamonds.
Finance is related to the financing of the co, as the finance is the main part of the business to survive so regular plans
should be made in order to arrange finances for the co at the right time when the co wants the most.
R&D is connected with research & development of diamonds, as the diamond market is innovative so proper
research should be conducted in order innovate the manufacturing of new diamonds in the market.
Operations & logistics is evaluated by the manufacturing operations & product inbound & outbound logistics, these
should be operating effectively so that co may be able to achieve the objectives as set at the start.
Human resource is related to the recruitment department of the co, the staff should be highly skilled so that
appropriate recruitment is made of the new staff for the manufacturing of diamonds.
Information system is concerned with the IT department of the co, this should be highly innovative so that the co
may be able to benefit from new updates of latest change in the technology.

5.Strategic factors
SWOT analysis
Strengths
1. Low Price
Blue Nile has a unique warehouse in Seattle and employed 115 employees. The company sells exclusively jewelries
online. This strategy allows it to reduce considerably its operating expenses that occur with physical stores.
Furthermore by avoiding those costs, Blue Nile can charge customers 20 to 35% less than traditional retailers when
they are purchasing diamonds. Blue Nile offers very competitive price accompanying with a great customer service.
2. First Company to offer Customization

Blue Nile was one of the first companies to offer a service that allow customers to customize an engagement ring.
With Build Your Own Ring option, customers can choose the shape, the clarity, the size, and the color of the
diamond. Blue Nile has access to 7,000 loose diamonds and can ship the final product within 48 hours.
3. Category-Killer
Blue Nile is an expert in selling diamonds. It sells a wide assortment of different diamonds but it also provides
information on their website about the 4 Cs: cut, color, clarity, and carat. The customer might not have the in-store
experience but it can access to a wide range of information that could not be available in store.

Weaknesses
1. Blue Nile does not offer the Physical Store Experience
Customers shopping online are not able to see and touch the diamonds they purchase. Buying a diamond is an
investment. Online diamonds are usually sold at a cheaper price and some customers take the risk to buy diamonds
without having seen and touched the product to benefit the lower cost. The majority of purchases made on Blue Nile
website are below $5m, Customers seem to be more comfortable buying a pricy diamond at local stores or famous
stores, such as Tiffany's, than buying online from a relatively new and not so well-knownretailer, such as Blue Nile.
To encourage customers to buy with confidence, Blue Nile offers a 30-day money-back guarantee.
2. Brand Awareness
Blue Nile is definitely a growing and healthy company but it has to raise its profile. Blue Nile is well-known in San
Francisco and Seattle areas but has not yet a national recognition. This gives a considerable advantage to its wellknown competitors such as Tiffany that have strong brand awareness and attract more customers. Blue Nile needs to
find ways to promote its brand; advertising could be one solution.

Opportunities
1. Offering more Fashion Jewelries to Attract Women Shoppers
The site offers a lot of different jewelries such as necklaces, bracelets, earrings, and rings. It should consider the
opportunity of expanding their target market to women and to offer more everyday life accessories such as purses,
sunglasses, glasses, wallets, etc
2. Going Global
Two warehouses have opened recently in the world: one in Canada and one in United Kingdom. They have adopted
the same strategy as in the USA by selling online diamonds, especially engagement rings. The European market is
growing and could become an interesting place to do business for Blue Nile.

Threats
1. Competition
Competition is the biggest threat to Blue Nile. Local stores selling high-end jewelries are direct competitors to the
company. Tiffany and Co. is one of the most dangerous competitors since it also targets men and sells engagement
rings. Some online jewelries retailers are also dangerous competitors, such as diamonds.com, ice.com, and
ashford.com. SFAS is concerned with the strategic factors of the co in order to establish the strategies of the co.

Tows matrix
TOWS Strategic Alternatives Matrix
External Opportunities

External Threats

(O)

(T)

1.

1.

2.

2.

3.

3.

4.

4.

Internal Strengths
(S)
1.

SO

ST

2.

"Maxi-Maxi" Strategy

"Maxi-Mini" Strategy

3.

Strategies that use strengths to

Strategies that use strengths to

4.

maximize opportunities.

minimize threats.

Internal Weaknesses (W)

WO

1.

"Mini-Maxi" Strategy

WT

2.

Strategies that minimize

"Mini-Mini" Strategy

3.

weaknesses by taking

Strategies that minimize

4.

advantage of opportunities.

weaknesses and avoid threat

Recommended strategy
Brand awareness
When first entering the market, Blue Nile spent a lot of money on advertising its company through television, and
the Internet. However, the company did not put as much effort and money in advertising these last few years. As a
result, the company is not well-known around the United States as it could be. In 2005, it spent only 4% of revenue
on advertising (mainly through Google).12 Blue Nile should consider advertising its company through the United
States. Blue Nile does offer low prices diamonds but if a potential customer is not aware of the companys existence,
sales could be missed. The company has a lot of dangerous competitors such as Tiffany. Tiffany stores can rely on
brand recognition; however, Blue Nile is not as well recognized and cannot benefit of Tiffanys name advantage.
Exhibition of their collection
Blue Nile does not have any physical stores. Buying online makes it more difficult for customers to fully assess the
jewelries. Buying a diamond or other jewelries can be a real experience. How many people visit Tiffany stores just to
look closely at jewelries, to try them on, and to dream about having they? Blue Nile could organize regular-annual
expositions of their jewelries to give information about their products, brand and services but also to attract new
customers.
Opening Stores
The company could open physical stores in big cities and present their collection. Diamonds make people dream and
when they sparkle front of their eyes, they get the real desire to buy them. Selling jewelries online is a tough
challenge and I believe that opening stores in the future could highly benefit Blue Nile: it will spread out the brand's
name and it will increase sales due to more exposition to potential customers.

Conclusion
Few years ago, many people believed that only certain kind of products such as books and
CDs could be sold online. They thought that some products were too personal, too expensive, or too difficult to
visualize to be sold on the Internet. Today, many companies have proven them wrong. Blue Nile is a successful
company that became the largest online diamond retailer. They have succeeded in the virtual world by offering

competitive prices to their customers. On average, Blue Nile charges 35% less for jewelry than offline
competitors13.
Their e-tailing business model has been successful. They took advantage of their low operating expenses to pass
savings onto consumers and still make good profits. They also have successfully engaged virtually with their
customers. Blue Nile treats its customers with great importance. The company has understood that word of mouth is
a powerful tool to build their business and they work hard on making every customer happy. Blue Nile has proven
over the years that they are an expert in the field by offering a very informative and interactive website. They have
become one of the leaders the in diamond retailing sector.