Blue Nile Inc.

Executive Summary

This report examines Blue Nile Inc. to assess the company's competitive situation and recommend a set of actions to improve the company's future prospects. Blue Nile's unique business model has enabled them to succeed in this industry by keeping costs and prices low. While they have shown financial strength in sales growth and profits, stock prices have dropped. An analysis of the competitive forces they face reveals a threat of existing sellers entering the online market. Key success factors will depend on marketing skills, low prices and professional grading systems. Maintaining their current strengths is important to the company's future. Existing intense competition in the industry, with the possibility of new entrants, is compounded by the threat of a slow economy and a possible reduction in consumer demand. In comparison to other online competitors, Blue Nile has a limited number of setting options available and lacks some of the high tech search options some have. Blue Nile needs to continue marketing themselves to build a name and reputation in the industry. 4

Overview of Online Jewelry Industry In 2006, annual sales of diamond jewelry in the U.S. were in the $30-$35 billion range (Thompson Jr., Strickland III, and Gamble C-62). The market has grown at a compound annual growth rate of 5.7% over the past previous 25 years (Thompson Jr., Strickland III, and Gamble C-73). The industry sellers are highly fragmented between locally owned stores, jewelry chains department stores, online sellers, television shopping channels, superstores, clubs and general retailers. Competition is very intense among sellers. Due to the nature of diamonds themselves, there is little differentiation of product offered by rivals other than the level of quality offered. Grading reports by reputable industry professionals allow consumers to more easily compare the various product attributes. The selling of diamonds online is relatively new. Companies such as Zales and Tiffany's began offering diamond jewelry online in the late 1990's. They and