Designing Distribution Networks and Application in Retail

Logistic and Supply Chain Management

Lavinia Celina Rahmawati (1306438620)
Sania Humaira (1306438173)
Shanti Rachmawati (1306438652)
Tristan Jansen (1406562964)

Blue Nile and Diamond Retailing

Overview
The year 2008 was the lowest point of diamond industry both for wholesalers and
retailers. World Federation of Diamond announces to reduce the supply of new gems
entering the market as an effect to reduce the supply. The situation worsened as
competition for the shrinking number of customers became fiercer. In such a difficult
environment, it was hard to judge which factors could best help different jewelry
retails succeed.

Blue Nile

Blue Nile established in 1999, by Mark Vandon and Dough Williams. It is

headquartered in Seattle, WA and is one of the leading online retailers of diamond
and fine jewelry. When it comes to selling the product, the company has it own
philosophy as follows: Offer high- quality diamonds and fine jewelry at
outstanding prices. When people visit their Web site, people can find
extraordinary jewelry, useful guidance, and easy-to-understand jewelry education
that perfect for occasions. This jewelry company also offers a low pressure
selling tactics that entirely focused on education. With explaining the four terms
of Cs- cut, color, clarity and carat- the company allowed their customer to build
their own ring along with the four Cs terms.
In 2008 turned out to be a challenging year for Blue Nile due to the sales drop by
just under 10%. However, in year 2009, the company can retrieve the company
sales and income.

Zales
This company was found by Morris Zale,
William Zale and Ben Lipshy in 1924. The
marketing strategy of this company is to offer a
credit plan of a penny and a dollar a week.
Within the success, it allows them to expand the
company with 12 stores in Oklahoma and Texas by
1941. Unfortunately, after a decade running the
business, the company hit the problems from a
delay of new merchandise until the lost of their own
customers. Within the problems, the company has to lay off some of their workers
with the hope to enhance the company profitability and improve its overall
effectiveness. However, with all the plans, the company lost more than $200
million.

Tiffany

This jewelry company opened it first flag on 1837 as a stationery and fancy
good emporium in NYC. Thanks to their silver designs, the company enjoys their
tremendous success all over the world. After more than a century enjoying their
success, the company went public in 1987. There are several high-end products
that this company offers included diamond rings, wedding bands, gemstone
jewelry and gemstone bands with diamonds as the primary gemstone.
Tiffanys has its own manufacturing facilities in Rhode Island and New York
but also continued to source from the third parties. Until 2003, the company
never purchased a rough diamonds, because they want focus entirely on the
purchase of polished stones. Since than, the company established its own
diamond processing operation in Canada, China and many more. But, not all the
rough diamonds will be use by the Tiffanys. Furthermore, they will do the
quality control and separate the diamond that not meets the company standard.
Because of that, the important parts of the success associate with quality, luxury
and exclusivity.

Case study Blue Nile and diamond retailing

Question 1:
What are some success factors in diamond retailing? How do Blue Nile, Zales, and
Tiffany compare on those dimensions?
Answer 1:
Some key success factors in diamond retailing are having a good supply chain (to
ensure quality), having a strong pricing strategy, having a clear market distinction,
having a strong brand name, and having a extensive array of diamonds and diamond
related products.
Blue Nile has especially a strong pricing strategy and a extensive array of diamonds
and diamond related products. Zales has also lots of choice when it comes to its
product collection partly because it has so many stores. Zales supply chain is also
working well, since it is able to provide a lot of different diamond product to very
different groups of customers (from teens to high-end). Tiffany has a very strong
brand name and a clear market distinction, it serves mostly the upper market segment.
Especially with its in-store retailing.

Question 2:
What do you think of the fact that Blue Nile carries more than 30.000 stones priced at
$2.500 or higher while almost 60% of the products sold from the Tiffany web site are
priced at around $200? Which of the two product categories is better suited to to the
strengths of the online channel?
Answer 2:
Blue Nile sells all its stones online because it is their strategy and business
model. By selling all their products online it tries to get a competitive advantage over
the brick-and-mortar jewelries. Blue Nile is by saving on costs, able to give customers
a lower price for the same (or similar) product. Tiffany has a strong brand name and is
worldwide known for its in-store strategy. Tiffany focuses on high-end in-store
shopping experience rather than online retailing. People who purchase their product at
Blue Nile care less about experience and more about getting the best price. When a
company like Blue Nile completely focuses on online retailing and provides, along
with good pricing, adequate and good service it is a concept that can work very well
and has already proven it can work well. Online retailing can also work out for
Tiffany, but since their main focus is on in-store retailing for high-end customers, it is
advisable that it keeps the online retailing to a side focus and does not put too many
resources into it.

As said before, people who purchase diamond products online are not looking
for the experience but for buying the product for the lowest price. For its own market
segment I think Blue Niles business model is very suited. When you fully focus
solely on online retailing you have to make sure that you provide the required service
and the wide choice of products. This way the strenghts of the online channel are fully
exploited by Blue Nile. For Tiffany and other old fashioned stores it is a different
story since online retailing is not their main focus. Since Tiffanys main customer
group is high-end, online retailing may seem more as a burden than a blessing. But, as
Tiffany now does, where it just uses its web site for inexpensive, non-diamond,
products it can catch two birds with one stone, that is still focusing on high-end
customers, but also caring about lower-end customers. In the end, I think that when
you want to make full use of the strenghts of the online channel, you have to fully put
yourself to it, otherwise it may not be efficient and effective enough.

Question 3:
What do you think of Tiffanys decision to not sell diamonds online?
Answer 3:
I think it is a good decision from Tiffanys marketing strategy point of view. It already
has a strong brand name with an upscale outlook. Selling products online is often
associated with a lowerr level of exclusivity. This way you keep customers coming
back to your stores and possibly buying more products than they intially came for.
People are often reluctant to purchase very expensive goods online since they think it
comes with some risks. Also, this marketsegment is relatively very small, and it would
not do any good to the image of Tiffany when it would start selling its more expensive
products online.

Question 4:
Given that Tiffany stores have thrived with their focus on selling high-end jewelry,
what do you think caused the failure of Zales with its upscale strategy in 2006?
Answer 4:
The upscale strategy of Zales was totally took wrong moves. The new strategy caused
the delays of bringing in new merchandise and dropped same-store sales. They are
also losing their own traditional customer as they lower its product qualities. The
strategy applied changed customer perspective to their brand that the diamonds were
not as high-quality as Tiffanys.

Question 5:
Which of the three companies do you think is best structured to deal with weak
economic times?
Answer 5:
Among three companies, Blue Nile, Tiffany and Zales, within the tightened economic
period of 2007, the most efficient structured company might be Blue Nile since it has
24% jump sales in 4th quarter while the other 2 companies experienced dropped sales.
Blue Nile applied single warehouse in the United States so that they would reduce
inventory and warehousing cost and success in applying a quick network supply from
supplier to its customer. Blue Nile also launched its own web sites which facilitate
worldwide shipping.

Question 6:
What advice would you give each of the three companies regarding its strategy and
structure?
Answer 6:
Blue Nile: Continue focusing on their selling tactics and could re-structure their
marketing strategy to reach out to new customers
Zales:
Need to gain control in their inventory and limit their lower demand
Higher cost production in their inventory
Selling lower cost diamonds at retail stores
Tiffany: Continue focusing on their brand image by offering outstanding products and
great service.

Bibliography
Book:
Chopra, Sunil., Meindl, Peter. Supply Chain Management. New Jersey: Pearson
Prentice Hall, 2013
Internet:
https://prezi.com/crohoisdcw8r/blue-nile-and-diamond-retailing/
accessed on Sunday, September 20th 2015 on 11:00 am
http://www.slideshare.net/lokre_sneha/blue-nile
http://www.slideshare.net/ebayworld/blue-nile-paper
accessed on Sundau, September 20th 2015 on 9:00 am