Blue Nile Sparkles for Your Cleopatra

Looking for that special gift for your Cleopatra but don’t want to spend a lot of time shopping? Want to give the “Big Rock” without spending a mountain of cash for the engagement experience? Not sure about the future value of diamonds? Then how about pearls, gold, or platinum?

Your answer has arrived: BlueNile offers you an online selection of over 160,000 diamonds for that special someone. You can buy them cut and polished or put them into settings like rings, bracelets, earrings, necklaces, pendants, watches, and brooches that you choose online. All the diamonds are graded by the 4 C’s: carats (size), cut, color, and clarity, and a report for each diamond prepared by the Gemological Institute of America is available online.

BlueNile.com started out as RockShop.com in March 1999 in Seattle, Washington, changed its name to Blue Nile in November 1999, and opened up its website, BlueNile.com, in December 1999. In 2004, it went public. In 2007, Blue Nile sold the most expensive item in Internet history at the time, a $1.5 million single diamond of around 10 carats, a size that would cover your finger with a penny-size rock. In 2015, another diamond sold for $1.8 million.

Back in the early days of e-commerce, no one ever thought that the Internet would be a place where fine jewelry was sold. Shopping online hardly matches the emotional impact of walking into Tiffany’s or another established retail store, with clear glass cases filled with brilliantly shining baubles, attended by a small army of sales clerks that make you feel like royalty. Diamonds represent a significant cost and are associated with significant events like engagements and anniversaries, and there is often uncertainty about their value and pricing. Surveys show that most shoppers believe jewelry is highly overpriced, but they lack the knowledge and information to negotiate a better price or even to judge the quality of what they are buying. Most experts thought that few consumers would feel comfortable going to a website and plunking down $5,000 or more for a diamond they could not see or touch for several days. But as it turns out, the retail jewelry industry is an ideal candidate for web sales.

The $70 billion fine jewelry industry in the United States is a byzantine, fragmented collection of about 21,500 specialty jewelry stores and another 100,000-plus that sell jewelry along with other products. Diamond jewelry and loose diamonds together constitute more than 50% of retailers’ sales. Several layers of wholesalers and middlemen serve this market, from rough diamond brokers to diamond cutters, diamond wholesalers, jewelry manufacturers, jewelry wholesalers, and finally, regional distributors. The fragmented supply and distribution chains add to huge markups based on monopoly-set prices for raw diamonds. Currently, the typical retail store markup for diamonds is between 50% and 100%. Blue Nile’s markup is only 18%.

Blue Nile has simplified the supply side of diamonds by cutting out several layers of middlemen and instead dealing directly with wholesale diamond owners and jewelry manufacturers. Blue Nile also minimizes its inventory costs and limits its risk of inventory markdowns. Instead of expensive stores, Blue Nile offers a website at which it can aggregate the demand of thousands of unique visitors for diamonds and present them with a more attractive shopping experience than a typical retail store. The result of rationalizing the supply and distribution chain is much lower markups. For example, Blue Nile will purchase a pair of oval emerald and diamond earrings from a supplier for $850 and charge the consumer about $1,000. A traditional retailer would charge the consumer $1,258.

Blue Nile has improved the shopping experience primarily by creating a trust- and knowledge-based environment that reduces consumer anxiety about the value of diamonds. Blue Nile’s website contains educational guides to diamonds and diamond grading systems, and each diamond receives an independent quality rating from a nonprofit industry association. There’s a 30-day, money-back, no-questions-asked guarantee, and in 2017, Blue Nile also began a buyback program that allows customers to sell diamond jewelry back to the company. The average customer visits the website repeatedly over several weeks, views at least 200 pages, and typically calls Blue Nile’s live customer service line at least once. In 2018, Blue Nile announced the creation of a new, cutting-edge facility for its jewelry consultants near its Washington state headquarters, and revamped its packaging from plain cardboard boxes to fully customized packaging with a jewelry pouch, custom-sized ring box, and packaging for marketing materials.

In 2010, Blue Nile introduced a mobile website and iPhone/iPad app. The iPhone app provides users with a quick way to set specifications for a diamond and see the price as well as a Call button that provides a direct link to the Blue Nile call center for phone orders. Blue Nile has also dived into social media marketing, with a Facebook page that has around 1.9 million followers, a YouTube channel with over 5.7 million views, a Pinterest page with about 110,000 followers, an Instagram feed with over 145,000 followers, and a Twitter feed with almost 20,000 followers. Users attracted to an image of jewelry posted on these sites can click links that take them directly to a purchase page for the item. In 2017, Blue Nile hired Target’s former head of e-commerce, and soon after the company completely revamped its website servers and improved to the top ten among online retailers in website performance on a desktop. In 2018, the company ranked highest among jewelry retailers for website loading times, clocking in at just 1.4 seconds per page.

Blue Nile has moved toward branded jewelry and higher price points and away from simply offering the lowest prices, concerned in part by many states starting to collect sales tax on Internet sales. Blue Nile has begun offering a proprietary line of high-end jewelry, and has added a design director and a new chief merchant to retool its product offerings. Still, even with additional sales taxes, Blue Nile’s Internet-based distribution methods and lack of overhead from physical stores will allow them to continue to offer competitive prices. Although Blue Nile has taken steps to avoid remitting taxes in most states, the South Dakota v. Wayfair, Inc. Supreme Court decision of 2018 has forced the company to begin collecting sales tax in several more states, including Hawaii, Maine, Oklahoma, and Mississippi, to go along with the three states where it already has a physical presence, Washington, New York, and Virginia.

In 2013, Blue Nile announced a partnership with Nordstrom that allows prospective customers to see rings before they buy them online. Rings in the Nordstrom outlets are for display only, but Nordstrom jewelry experts can use iPads to help customers purchase rings that appeal to them from the Blue Nile site while in the store. The response was very positive. Buoyed by this success, Blue Nile opened its first physical store, which it calls a webroom, in 2015 in Long Island, New York. The webroom allows customers to see and try on products before actually purchasing them online. The webrooms are small (about 400 square feet) and lack any capability for in-store sales, with customers still making any actual purchases online. This allows Blue Nile to offer many of the services that bricks-and-mortar jewelers can provide without forcing them to raise their prices to account for inventory management and a large sales force. In 2016, after experiencing significant upticks in online sales in the region around its first webroom, Blue Nile expanded its webroom initiative, adding locations in New York, Washington, DC, and Oregon. In 2017, it opened its sixth webroom, in New Hampshire. According to Blue Nile, its initial webrooms have generated strong conversion rates and increased online traffic in their respective areas, and a 2018 study corroborated this, suggesting that brands less than 10 years old can experience boosts in web traffic of 45% within a physical store’s market. Blue Nile leadership foresees establishing as many as 50 webroom locations in the near future. Blue Nile is part of a larger trend that has seen many top online brands begin to open bricks-and-mortar storefronts with the intent of improving brand awareness and generating additional online traffic. Blue Nile customers’ chief complaint is the inability to see and touch the products, and physical storefronts are a great way to meet that need while also driving profits.

In 2017, Blue Nile was purchased by private investors for over $500 million dollars. Blue Nile’s earnings and growth had been lackluster for several years. Although its launch of high-fashion branded jewelry and webrooms have helped, neither of those strategies changes the fact that Blue Nile sells primarily unbranded items at extremely low margins. As a result, Blue Nile has not grown as fast as investors in the stock market want to see. However, the company posts consistent profits, which many other companies in online retailing like Warby Parker and Dollar Shave Club have struggled to do. It’s possible that Blue Nile’s new owners will be content with continuing to run a profitable business, or they may seek to employ a longer-term growth strategy, including more aggressive international expansion. Blue Nile still has to contend with big retailers, like Tiffany and Zales as well as online upstarts like James Allen and Brilliant Earth, whose ethical sourcing of products is very popular with Millennials. If Blue Nile doesn’t remain aggressive, it could easily lose its edge.

Practice Question 1

For 2019 Edition only

 Required:  Read opening Case Study: Blue Nile Sparkles for Your Cleopatra (Laudon, p. 597-599) and answer the following questions:

Why is selling (or buying) diamonds over the Internet difficult? (2 marks)

How has Blue Nile reduced consumer anxiety over online diamond purchases? (2 marks)

What are some vulnerabilities facing Blue Nile? (2 marks)

Practice Question 2

Required:  Read Case Study: OpenTable: Your Reservation Is Waiting, (Laudon p. 653-656) and answer the following questions.

Why will OpenTable competitors have a difficult time competing against OpenTable? (2 marks)

How did OpenTable change its marketing strategy to succeed? (2 marks)

Why would restaurants find the SaaS (software-as-a-service) model very attractive? (2 marks)

Expert Partial Solution

Why is selling (or buying) diamonds over the Internet difficult? (2 marks)

There are various challenges associated with selling and buying diamonds over the internet. For example, this jewelry represents huge costs and there is always a challenge determining is value and pricing. This issue raises trust issues since most buyers believe diamond is overpriced but they do not have the necessary information and knowledge to negotiate for fair prices. Besides, ….Read more

How has Blue Nile reduced consumer anxiety over online diamond purchases? (2 marks)

Blue Nile has significantly enhanced shopping experience mainly by creating a favorable environment that lessens consumer anxiety concerning the pricing and value of diamonds. In its e-commerce sites, Blue Nile has educational guides that enlighten shoppers on diamonds and their grading systems. Each diamond is given an autonomous quality rating by non-profit organizations…Read more

 

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