Discuss what is the competitive advantage of Blue Nile? Whether Blue Nile is a threat to Tiffany& Co's business? Should Tiffany sell diamonds online? What should Tiffany do to compete with Blue Nile?

Blue Nile: A hidden gem in the diamond and fine jewelry online marketplace

Founded in 1999, Blue Nile positioned itself as the company that would disrupt the diamond and jewelry marketplace by de-mystifying the consumer experience of buying diamonds online. With this idea in mind, Blue Nile focused on creating an innovative and disruptive business model that would deliver the most value to consumers through superb diamond education, customer service and most importantly lowest price guarantee. Since 1999, Blue Nile has grown to become the leading online retailer of high-quality diamonds and fine jewelry with over $470mm in revenue with virtually almost no inventory thanks to their remarkable integration of their business and operating model.

What is Blue Niles business model?

As the leading online diamond and fine jewelry retailer, Blue Niles business is educating consumers throughout the complex process of buying a diamond online from the search phase to the actual checkout. Historically, this education process had been performed by the local jewelry commissioned driven experts yet Blue Nile managed very effectively to provide the same service through its online experience. Blue Niles online platform focuses on providing a user friendly process where consumers are educated on the key components to buying a diamond and compare products objectively to make informed decisions for purchase.

Once educated, Blue Niles customers are offered a selection of more than 250 thousand diamonds equivalent to approximately $2bn of virtual inventory for the customers to purchase from at a significant discount, usually around 20% to 40% versus traditional jewelers. Their proprietary search technology provides easy access to this inventory in their website with very convenient filters to search the key components of a diamond purchase (ie. Price, Cut, Color, Clarity, Carats). Additionally, the sales process is supported by diamond specialists available on call twenty-four hours seven days a week to make sure customers feel accompanied throughout the process should the need to talk to a specialist arise. Once a purchase has been made the diamond is then delivered to the customers doorstep in what could be labeled as the easiest and most convenience diamond shopping experience.

How can Blue Nile provide the best online experience with the lowest price point and no inventory?

The answer to the question is precisely the link between the companys business model and the operating model.

From an operations standpoint, Blue Niles strength is its long standing relationship with its more than fifty suppliers. Such strong relationship allows Blue Nile to display suppliers diamonds for sale on the Blue Nile website without having the physical inventory and only procured from the supplier once a customer has made an online purchase. The relationships with the suppliers are governed by robust multi-year contracts with favorable terms that allow for negative working capital benefits given the just-in-time delivery of supplier inventory with supplier payment terms between 30-120 days and cash collection from customers upfront. Additionally, given the large volume of diamond purchases and the importance of Blue Nile to each of its suppliers, the company can procure diamonds at significant savings that it passes to its customers by providing the lowest prices available in the marketplace.

From a logistics standpoint, Blue Nile delivers value to its customers by having a secure and efficient supply chain. Client customized orders on average are fulfilled between three to seven business days from the client purchase and require just in time accurate handling of the precious stones and its setting in the following process: (i) Client purchase triggers immediate procurement from supplier inventory by Blue Nile of the selected diamond and setting (ii) Diamond is shipped from supplier to Blue Nile and inspected upon receipt in a process that takes between one to three business days (iii) Diamond is assembled in setting and sized accordingly by Blue Nile promptly and shipped to customer via FedEx with customer signature required within the seven business day target.

Who gains with such a disruptive business model?

Without any doubt Blue Niles customers are currently the beneficiaries from such efficient use of supply chain management and low cost operating model that translates into 20% to 40% savings versus purchases at traditional jewelers. However, as the online retail market for jewelry continues its rapid growth, Blue Niles shareholders are best positioned to capitalize on this proven business model that has delivered joy to many couples