(Week 4) Wednesday, April 10th, 2013 Topic Readings: (Internal Analysis and Routes to Competitive Advantage) Case Study:

y: Blue Nile Inc. - Group or Individual paper, 5 page limit - (See Written guidelines) - Prepare written responses to the following questions: 1. How strong are the competitive forces confronting Blue Nile and other online retail jewelers? Which one of the five competitive forces is the strongest? Do a five-force analysis to support your answer.
Forces
Impact on competition in the industry Impact on the profitability of the industry Perspective of industrys insiders Perspective of industrys outsiders Perspective of Company

Rivalry (Fairly strong) Because, *(+) Price Competition *(+) Growth Declining *(+) Brand Image *(+) Appealing Taste *(+) Distribution capabilities *(+) Product Innovation *(-) Low buyer switching costs The competition is intense because of the growing presence of brickand-mortar jewelers in online business. Also, because of the marketing efforts of other online

(-) All rivals will use advertising and promotion aggressively to try to attract customers. Blue Nile and its competitors are not satisfied with their present market position result to intense competition.

(-) The best competitor will have better profit margin, and less one will suffer. Blue Nile enjoys good reputation; that could be a plus to maintain better profit margin than competitors

It seems industry insiders are not happy because strong competitions are affecting the profitability of the companies involved especially weak companies

Industry outsiders are happy, because the more intense is the competition, the better the price to be paid

Blue Nile is performing well. It has strong image, good customer service, and has user friendly website. It might need to restructure its strategy as the brick-andmortar jewelers are moving their business to online-based

jewelers.

Competitive force of substitute products/services : (Very strong) (Because): *(-) Traditional

(+) Several traditional brick-and-mortar jewelers might enter into online market, and probably reduce the market share of current online jewelers. Also, the impact would be effect on the revenue

(-) It would have negative impact because many consumers are familiar and comfortable with buying jewelry from other than online jewelry retailers.

, , The industry insiders are not happy because they still lose some potential markets to brickand mortar jewelers

, , The industry outsiders are excited because they have options either buying diamond online or from the stores

, , Blue Nile is not really happy because the company faces both the brickand mortar jewelers and other online jewelers challenges

brick-andmortar jewelers. The reason is because brick and mortar jewelers still maintain the largest jewelry market share. *(+) other online jewelers There are other online jewelers that offer jewelry for sales

Bargaining power of suppliers: (Moderately Strong) (Because): *(+) Price of suppliers are almost the same

(+) Jewelers would not have option than to continuing dealing with their suppliers because switching to other suppliers will not add value from the price point of view.

(-) Online jewelers cannot profit from making a decision to switch to another suppliers so as to maximize profit

The industry insiders are not happy because they cannot save cost of purchasing diamond as a result of switching from one supplier to another. In other words, switching suppliers is unlikely to lead to acquiring a particular gem of particular quality at a lower price.

The industry outsiders are happy because they (suppliers) can exploit their strength to make more profit.

Blue Nile has strong supply chain arrangements with suppliers. Its collaboration with diamonds suppliers helped the company to have low-cost value chain

No evidence is given in the case that suppliers compete on diamonds based on price

Bargaining power (-) of Buyers: (Weak) Bargaining power (Because): of buyers have no *(-) Price little or minimal impact power to bargain on the industry competition. Consumers have no bargaining power because there is no possibility of entering into negotiations for terms and conditions on a particular diamond want to be purchased

(+) The weak bargaining power of buyers is a plus to the industry. There is unlimited potential profit to be made depending on how decision is made on the entire business rather than consumer negotiations.

The industry insiders are happy because there is no power for buyers to negotiate on the terms of the products

The industry outsiders are not happy because the industry can exploit and charge exorbitant price.

The weak bargaining power of buyers put Blue Nile Inc. in a good position to generate revenue, and make profit.

The Threat of potential new entry: (Moderate to weak) (Because) : *(-) Website development cost *(-) Costs of website advertising and promotions The cost of developing a website is low

(+) The impact on the industry would be high because the cost related to entering online jewelry business is low. Also, completion might be turned the way supply chain is managed

(-) Entry of more competitors would reduce the market share of individual competitors, and also decrease the profit. More companies would be sharing the profits that were used to be for few companies.

The industry insiders are not so happy because the more company enter the industry, the more they lose the market shares, the less the potential profit.

The industry outsiders are happy because intense competition might drop the price down.

Blue Nile has built network of clients, and has a good reputation in the market. It would be harder for new entrants to compete with Blue Nile, especially if there is delayed.

compare to cost of constructing brick for jewelry store sales. The cost of advertising online is low as well.

Overall Competition Conclusion:

Fairly Strong(+)

, ,

(+) The competition would be strong but not so intense and devastated.

(-)

Online jeweling business would probably still remain small part of total jewelry sales, and cannot drive out brick-and mortar.

Consumers would still have the opportunity to either buy diamonds online or from brick- and mortar.

Blue Nile model and strategy are attractive. The fairly strong overall competition of online jewelers cannot inhibit Blue Nile from making profit.

The online jewelry retailing is attractive from the standpoint of promising growth and attractive long-term profitability

Conclusion: The overall collective strength of the five competitive forces is becoming fairly stronger because the online jewelry retailing is attractive from the standpoint of promising growth and attractive long-term profitability. Overall competition would appear to increase and therefore profit potential will likely not change for industry but likely increase for Blue Nile. This will result in the market becoming more attractive.

Insider Conclusion: The Online Jewelry market appears to be attractive because the impact in total that the five forces will have on competition and profit potential is low, and maintain only lower portion of the entire jewelry industry. Outsider Conclusion: The Online Jewelry market appears to be attractive because the costs of developing websites and online advertising are cheap compare to conventional one. Company Conclusion: Blue Nile business model and strategy are good. It has strong supply chain relationship with its suppliers which have helped the company to keep the costs low. Also, Blue Nile image/reputation is paying to attract customers.

2. What key factors will determine a companys success in the online jewelry business in the next 3-5 years? An informative and educational website, with good search features and purchasing guidance A varied product line Customization ability Ability to offer attractive price Strong reputation and brand image 3. What is Blue Niles strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Blue Nile is taking? What type of competitive advantage is Blue Nile trying to achieve? 4. What do you like and dislike about Blue Niles business model? I like Blue Niles business model. It informs the shopper on why and how their product is valued. Customer service not being pushy, fast delivery, customized jewelry, and 30-day return policy are some more things I like about the company. One thing I dislike about their business model is that everything is online. Blue Nile should provide physical business other than an online business 5. What does a SWOT analysis of Blue Nile reveal about the overall attractiveness of its situation? What is your appraisal of Blue Niles financial performance based on the data in case Exhibit 5? How well is the company doing financially? Is there evidence that Blue Niles strategy is workingwhat is the story of the numbers in case Exhibit 4? Use the financial ratios in Table 4.1 of Chapter 4 as a guide in doing the calculations needed to arrive at an analysis-based answer to your assessment of Blue Niles recent financial performance. Calculate their EVA for 2008 and 2009 using Interest Expense = 21 (2008) and 19 (2009). Convert your calculations to a percent and interpret.

6.

7. Does Blue Nile have adequate competitive strength to go head-to-head against its rivals? Do a weighted competitive strength assessment using the methodology presented in Table 4.4 on p. 123 of Chapter 4 to support your answer. Has Blue Nile built a sustainable competitive advantage in the online retail jewelry business? Why or why not? 8. What do you consider to be the major obstacles from your external and/or internal analysis that this organization needs to address? 9. What strategic issues and problems does Blue Nile management need to address? 10. What recommendations would you make to Blue Nile management to strengthen the companys competitive position and future strategic and financial performance?