As the largest on-line retailer of certified diamonds and jewellery Blue Nile Inc., has been in business even after most of the dot com companies have shuttered their doors. Founded in 1999 by Mark Vadon, the Seattle, Washington based company caters to customers in 44 countries in addition to United States. Holding about 4% of the US diamond engagement ring market, Blue Nile is noted for two opposite laurels. On the negative side, financial press often reports its CFOs quitting in quick succession. Counterpoised to this is that, the business model has stayed put in almost in the same condition Mark Vadon has designed it. Here is the Bizmodel, described in ten components:
1. Business Concept: “No pressure, No commission, you’re too smart to shop in a Jewellery store” goes the welcome statement of Blue Nile web page. True to this concept statement, Blue Nile is anchored on three limbs. Firstly, choosing engagement ring is not complicated. Secondly, diamond is simple to understand and designing jewellery is within customer reach. Thirdly, making choice is easy and affordable. All these add to a simple theorem: effective customization
2. Value Proposition: Basking on the glory of Blue Nile brand the company offers customers quality diamonds and jewellery at an affordable price with lot of convenience. The bundle of product is in two classes:
a) “Build your Own “diamond and jewellery in the form of rings/earrings/ pendants
b) “Just-in- time” diamond and jewellery in an array of products including rings, earrings, pendants, necklaces, charms and other accessories
3. Key Activities: Designing jewellery piece as agreed by the customer is the key activity. To assist this, a display of more than 60,000 individually cut and polished diamonds is exhibited for the customers to choose from. Orders for the selected diamonds are then placed with the suppliers. The design activity is also customer driven but aided and assisted by the Blue Nile jewellery consultants
4. Key Resources: Human resource is the key in this operation. About 206 employees work on full time and are supplemented with temporary hands in busy seasons. Intellectual resources in the form of design and designers are another resource. As a cash rich company, inventory policy is attuned to keep quantity of diamonds in store at lower levels in order to reduce holding risk
5. Key Partners: Exclusive relationships are struck with strong and reliable suppliers of diamonds worldwide. In addition, services of reputed diamond labs are procured as and when necessary
6. Customer Segments: The major segment catered to by Blue Nile is young, educated men with good earnings even though they may be low in assets. This segment needs help in choosing, verifying and buying diamond rings and other jewellery pieces. Quite a number of them may wish to design their own jewellery or suggest improvements in standard designs. They also wish to be in control of their buying decisions
7. Channels: Internet is the basic channel where customers are identified through search engines and initiation is made via email or chat. Telephony is another tool that is employed. A key responsibility of the channel is to make customers aware of the products in the Blue Nile catalogue and make them evaluate the products and designs and thereafter to lead them to choose the ones that they are willing to buy. Once this is done the item is ordered and delivered within 3 working days. After sales is meticulously followed. The proverbial middle-man is entirely eliminated
8. Customer Relationship: Anchored on the maxim of ‘attract, obtain and satisfy customers’, Blue Nile is doing just that in a cost-effective manner. Customer Service Groups in different product lines are formed and jewellery consultants are used. When orders are placed these are processed and shipped within three days free of charge to the address indicated by the customer. Additional frill allowed is that the customer can opt for insurance of possession of diamond and jewellery. Customers are free to return the goods, if they are not satisfied, within 30 days of purchase
9. Cost Structure: Several pluses accompany the cost structure. Working capital efficiency is indicated by its turnover. For the Fiscal 2011 cost of sales is US$ 276 Million while working capital is US$ 20 Million leaving a turnover of almost 14 times. Out of current assets of US$ 125 Million cash alone accounts for US$ 89 Million; in comparison inventory is low at US$ 29 Million indicating a mixture of cost-driven and value-driven strategy weighted more towards the former. Blue Nile is scalable in that at higher levels of sales it can reduce the cost further downward. Moreover, economies of scale is observed in the way its inventory is controlled and costed
10. Revenue Stream: Net sales is US$ 348 Million cost of sales is US$ 276 Million leaving gross profit of US$ 72 Million and returning an excellent GP ratio of 21%. Operating cost is controlled at US$ 55 Million leaving an operating profit of almost US$ 17 Million. Entire sales is booked by sale of diamond and jewellery sold at list price.
Muthu Ashraff
Business Adviser
Mobile : +94 777 265677
E-mail : cosmicgems@gmail.com
Web : http://www.cosmicgemslanka.com
Blog : http://cosmicgemslanka.com/blog/
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