B l u e N i l e S p a r k l e s - f o r Yo u r C l e o p a t r a

Men: 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 almost 230,000
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 4Cs: carats (size), cut, color, and
clarity, and a report for each diamond prepared by the Gemological Institute of America
is available online. To make it easier, the carats are translated into milligrams, and one
carat is exactly 200 milligrams of mass (if that helps). Just ask her what size she wants,
and then look in your wallet.
BlueNile.com started out as RockShop.com in March 1999 in Seattle, Washington.
In November 1999, the company launched the Blue Nile brand and changed its name to
Blue Nile Inc., opening up its Web site, BlueNile.com, in December 1999. In 2004, it went
public. In 2007, Blue Nile sold the biggest item in Internet history, a $1.5 million single
diamond of around 10 carats, a size that would cover your finger with a penny-size rock.
In 2010, another diamond sold for $500,000.
Back in the early days of e-commerce, no one ever thought that the Internet would
be a place where fine jewelry was sold. Typically, gifts of jewelry such as diamonds are
associated with a significant emotional event, such as an engagement, marriage, or
anniversary. Generally, the event is shared with a significant other and often involves
shopping together for the gem. 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 oh
so special. Diamonds represent a significant cost, and there is significant 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, given the
emotional significance and uncertainty involved in purchasing diamonds, few consumers
would heighten the built-in anxiety by going to a strange Web site and plunking down
$5,000 or more for a diamond they could not see or touch for several days.
But jewelry and high-fashion retailers are leading the second act of online retailing,
bursting on the scene with high-growth rates and spectacular average sales transaction
levels. As it turns out, the retail jewelry industry is an ideal candidate for Web sales. Here’s
why.
The $69 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. To supply this fragmented market, several
layers of wholesalers and middlemen intervene, from rough diamond brokers to diamond
cutters, diamond wholesalers, jewelry manufacturers, jewelry wholesalers, and finally,
regional distributors. Oddly, the source of raw mined diamonds is monopolized by a single
company, De Beers, which controls around half of the world market. 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 around 30%.
Blue Nile’s 2014 revenues were $473.5 million, up around 5% from $450 million in
2013. International sales (in more than 40 countries worldwide) grew from $73 million in
2013 to $81 million in 2014. However, net income declined slightly, by 11%, to $9.7 million
from $10.9 million in 2013. As Blue Nile continues to grow into new regions, including the
lucrative China market, it expects its revenues to hold mostly steady. Through the first
quarter of 2015, its net sales and net income grew slightly from 2014 levels.
Blue Nile’s online competitors include Tiffany, Ice, and even Amazon. Together,
these companies are transforming the jewelry business. Blue Nile, for instance, 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 minimizes its inventory costs and limits its risk of inventory markdowns.
On the sell side of distribution, Blue Nile has eliminated the expensive stores, sales clerks,
and beautiful, but expensive, glass cases. Instead, Blue Nile offers a Web site 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 $1,020. 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. In essence, Blue Nile and the other online retailers give the consumer as much
information as a professional gemologist would provide. The Web site 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. The company’s focus is
“empowering the customer with information.” And empower they do. The average
customer visits the Web site repeatedly over several weeks, views at least 200 pages,
and typically calls Blue Nile’s live customer service line at least once. Repeat business
accounts for around 25% of revenue.
 In 2009, Blue Nile rebuilt its Web site, strengthening its appeal to its mostly male
customer base while attempting to draw more women to the site. In 2010, it introduced a
mobile Web site 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. In 2013, Blue Nile’s mobile
revenues were about $22 million, almost 2.5 times what they were in 2012. In 2014,
mobile revenues continued to soar, almost doubling to approximately $42 million. The
majority of its mobile revenue is generated from its mobile Web site, accessed via tablet
computers. The biggest mobile sale to date: a $300,000 engagement ring! Blue Nile has
also dived into social media marketing, with a Facebook page that has over 1.2 million
Likes, a YouTube channel with 2.5 million views, a Pinterest page with over 85,000
followers, an Instagram feed with 43,500 followers, and a Twitter feed with over 14,000
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 2012, Blue Nile began a shift in its strategy driven by the possibility that online
retailers will have to begin collecting Internet sales taxes in most jurisdictions (see the
Insight on Business case, Internet Sales Tax Battle, in Chapter 8). The company is
moving toward fashion jewelry and higher price points and away from simply offering the
lowest prices. 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.
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 using iPads, Nordstrom jewelry experts can help customers to
purchase rings that appeal to them from the Blue Nile site while in the store. As of early
2014, Blue Nile reported that the early response was positive, with a $95,000 purchase
representing the largest transaction yet at an in-store display case. Over 90% of visitors
to the Nordstrom displays came specifically for Blue Nile products. Buoyed by this
success, Blue Nile announced that it would open 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. Initial results have been so
promising that Blue Nile plans to open three or four physical locations in 2016.
So far, the “Blue Nile” effect of lower margins and Internet efficiency has mainly
impacted the small mom-and-pop jewelry stores. Many small retailers have disappeared
in the last few years due to rising diamond prices and pressure from larger companies.
The big retailers, such as Tiffany, Zales, and others, sell more than Blue Nile, and
continue to benefit from consumer interest in diamond engagement and wedding rings.
But Blue Nile has grown more in the past three years than its closest online-only jewelry
competitors. However, Blue Nile will still have to keep a keen watch on its competitors to
keep its edge online.
 Q1.Mention the business model used by Blue Nile.com & critically compare the
model with Caratlane.com
Q2.Do you think a shift in strategy was the right move by Blue Nile.com,give
reasons for your answer.
Q3.What are the strategies you would suggest Blue Nile.com that will help them
boost up their sales in E-Commerce market