The Industry Environment Analysis
Porter’s Five Forces model considers five factors that can be used to formulate an effective strategy. The model offers a view of “how a firm can achieve competitive advantage in a particular industry by leveraging on five imperative forces of the industry” (Goyal, 2020, p. 150).
The aspects considered within its framework help to determine the positioning of a company in a particular industry. It is noted that the optimal conditions are the low bargaining power of both buyers and suppliers, there are no substitutes, high barriers to entry, and there are no threats to potential entrants (Goyal, 2020). Thus, it is possible to analyze the environment of the jewelry industry using this model. Based on the factors considered, it can be concluded that the jewelry industry is difficult to enter due to high competition, the extensive choice for customers, limited supply channels, and the high risk of substitution.
- High to moderate threat of new entrants: Entrants in the jewelry market should have connections with suppliers and wholesalers. Moreover, they need to have access to high-quality precious metals and stones. It is also necessary to monitor the origin of the materials used since the quality and value of the products depend on this. However, entrants in this industry do not need special certificates or permits. Thus, the threat ranges from moderate to high depending on the size of the business.
- High threat of substitutes: There are many substitutes in the industry for jewelry metals and stones, both natural and synthetic, which can be used to imitate. Although a substitution can be noticed with an experienced professional eye, this fact poses a serious threat to the company.
- High bargaining power of customers: There are many competitors on the market with a well-established reputation and a wide range of products. There is also nothing to prevent buyers from buying from smaller retailers selling jewelry at a comparatively lower price. Moreover, the development of the Internet and e-commerce has made it easier for customers to access various types of products.
- High bargaining power of suppliers: Suppliers of gemstones and precious metals have a well-established production and distribution network. Moreover, these materials are difficult to deliver to the market, which makes their position exclusive.
- High industry rivalry: There are limited opportunities for product differentiation in the industry as there are already a significant number of companies and retailers present. Major brands have high customer loyalty and can set their own prices for products, which makes the environment extremely competitive.
The main competitors of Blue Nile Inc. are Tiffany & Co., Signet Jewelers, and Charles & Colvard. Tiffany & Co. is the most serious competitor, as the company has a long history and loyal customers, as well as a worldwide reputation. Moreover, they also retail luxury watches, which also allows them to hold a significant market share. The revenue of Tiffany & Co. in 2017 exceeded $ 4 billion, making the company the largest in the industry in the North American and European markets (“Blue Nile competitors,” n. d.). However, in comparison to Blue Nile Inc., the organization does not focus on e-commerce, or developing physical stores, which can be an advantage for Blue Nile’s company.
Signet Jewelers is the most extensive jewelry retailer in the world. However, despite having higher revenue than Tiffany & Co., the company’s net income is three times lower (“Blue Nile competitors,” n. d.).
This fact indicates the high cost of production and distribution, which may be their main disadvantage. Moreover, Signet Jewelers does not focus exclusively on the North American market. Charles & Colvard is the smallest of the competitors but offers a wide range of products. Moreover, they specialize in engagement rings and developing e-commerce, which can be a major field of competitiveness. Thus, despite its size, Charles & Colvard appears to be the most significant competitor for Blue Nile Inc. Thus, the analysis identifies a highly competitive environment in which both old companies and new ones are present. Moreover, Blue Nile Inc. does not offer exclusive products and methods of distribution, which complicates the situation.
Internal Organization Analysis
The most significant competitive advantage is the offer to customize wedding rings. Blue Nile Inc. was the first on the market who suggested this feature. This opportunity increases customer loyalty and attracts new customers due to unique jewelry design and quality. The company also emphasizes the importance of customer service, offering various types of communication and convenient billing and insurance methods. A money-back guarantee and full shipment insurance are provided by Blue Nile Inc. to build customer confidence. Direct cooperation with many suppliers allows the company to avoid markups and purchase stones and metals at relatively low prices. Moreover, virtual retail allows having limited space for storing products, which additionally reduces costs.
The main disadvantage of Blue Nile Inc. is that there are no physical stores since customers cannot examine and touch the products. This fact reduces the confidence and attracts customers more to competitors such as Tiffany & Co. Engagement rings and other jewelry are expensive purchases, making physical contact is important. Despite the constant expansion and development of Blue Nile Inc., it is necessary to increase brand awareness. This point is also linked to the company’s previous weakness, as customers cannot see their stores on the street. This circumstance makes Blue Nile Inc. insufficiently strong to compete with other industry brands which already have a reputation.
The strategy which was chosen to grow the business of Blue Nile Inc. is differentiation. This approach is based on the uniqueness of the product and providing services that competitors cannot offer. Using this strategy, the company aims to attract a broader range of customers. The company’s functional competencies enable Blue Nile Inc. to achieve its strategic goals as they develop a unique type of e-commerce. On their website, customers have multiple options available not only for customizing the design but also for consultation, which makes their service attractive and reliable. In comparison to competitors, Blue Nile Inc. manages to deliver distinctive features, which is an advantage in the market.
The company maintains international standards of tracing and certification of diamonds prescribed by the Kimberley Process. Thus, all supplies they receive are “warranted to be conflict-free” (“Ethical sourcing,” n. d.). In case of violation of agreements by suppliers. Blue Nile Inc. terminates relations with them immediately. Moreover, due to episodes of human rights violations during diamond mining in Zimbabwe, the company refused to supply materials from the region. Blue Nile Inc. also regulates relationships with gold supply partners, assessing social, environmental, and humanistic factors of their activity.
- Due to e-commerce and the lack of physical stores, the company has fewer employees, which allows it to cut costs and offer products at a relatively lower price.
- The ability to customize jewelry makes it possible to produce unique products which are more satisfying for customers and appear to be a competitive advantage.
- The company provides the most detailed and transparent information not only about its activities but also about the industry, which increases the level of customer confidence.
- Exclusively virtual sales channels are the main disadvantage of the company, as they can lead to distrust of products. Customers will prefer competitors since in physical stores one can touch and evaluate the product, which is important for jewelry.
- Market diversification may help the company to expand its market share, as the product line is currently limited to rings, earrings, necklaces, and bracelets. Blue Nile Inc. can expand production to watches, sunglasses and frames, and other jewelry commodities.
- The company can also expand its global presence and grow beyond the North American market.
- The opening of physical stores can improve brand recognition and attract new customers.
- Due to e-commerce and a lack of diamond inventory, the company may incur losses when market prices increase. Whereas competitors with more extensive diamond storage will experience the least impact of price changes.
- The biggest threat to the company is presented in competing with more established brands such as Tiffany & Co. which have higher brand awareness and customer loyalty.
- Currently, more and more companies are moving to online retailing, which will also increase competition in the future.
Blue Nile Inc. should expand its customer base by introducing new products and market differentiation. Moreover, the company needs to open several physical stores which would allow increasing brand awareness and customer confidence. Expanding to the global market will also lead to more customers and sales. Thus, Blue Nile Inc. has a promising strategy, but they need to grow and increase brand awareness to compete effectively in the industry.