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Blue Nile: Porter's Five Forces Analysis

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This paper provides a Porter's Five Forces analysis of Blue Nile diamonds ( More...
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Blue Nile Porter\'s Five Forces Analysis Competitive Force Magnitude of Force Conclusion Intensity of Rivalry Relatively strong Reduces profit potential of the industry Supplier Power Relatively strong Reduces profit potential of the industry Buyer Power Relatively weak Increases profit potential of the industry Threat of Substitutes Relatively strong May reduce the profit potential of the industry Threat of New Entrants Moderately strong Reduces profit potential of the industry Overall Conclusions Most of the forces are relatively strong and should drive down the

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However, this will also increasethe risk that other diamond sellers will decide to appropriate Blue Nile'sapproach, thus increasing the risk of new entrants. In sum, although the industryforces mitigate against the possibility of profits, Blue Nile hascircumvented the industry's weaknesses in the face of those strong forcesby good business practices and innovative approaches. The threat of substitutes is relatively strong because buyers are freeto buy other gemstones. Blue Nile hasovercome this disadvantage by developing a unique approach to selling itsdiamonds and providing outstanding customer service. Thus, Blue Nile's excellentcustomer service is especially valuable, because most firms do not botherto offer similar service. However, Blue Nile has carved a niche for itself that no othercomparable company is presently matching, so it has a competitive advantagedespite the reduced profit potential of the industry. In recent years, the traditional diamondengagement ring has given way to other stones or the use of just one bandfor both engagement and wedding. Supplier power is relatively strong, with customers having strongpower to choose which company to do business with and capable of boycottingthe industry if desired and going to other gems. Customerservice also differentiates Blue Nile. Blue Nile ispositioned to dominate the industry when consumers find out how much betterit is to do business with them online. Blue Nile: Porter's Five Forces Analysis |Competitive Force |Magnitude of Force |Conclusion ||Intensity of Rivalry |Relatively strong |Reduces profit potential|| | |of the industry ||Supplier Power |Relatively strong |Reduces profit potential|| | |of the industry ||Buyer Power |Relatively weak |Increases profit || | |potential of the || | |industry ||Threat of Substitutes |Relatively strong |May reduce the profit || | |potential of the || | |industry ||Threat of New Entrants |Moderately strong |Reduces profit potential|| | |of the industry ||Overall Conclusions |Most of the forces are relatively strong and || |should drive down the profit potential of the || |industry | The research indicates that there are many competitors in the diamondjewelry industry in which Blue Nile competes, which makes rivalry intense,and overall the industry's profit potential is diminished due to strongforces. Overall in the industry, buyer power is weak due to fragmentation andlack of any threat to take over the industry. Threat of new entrants is high, since any diamond merchant hasrelatively the same access to suppliers and distribution channels, andthere is little proprietary technology associated with the diamondbusiness. Although there arenumerous diamond sellers, most have a much higher markup than Blue Nile, soBlue Nile provides more value for the money. In addition, being able toshop online is a huge advantage for consumers, who would otherwise have totrek to multiple retail establishments to try to find what they want ratherthan pointing and clicking to find it at far less inconvenience. Moreover, diamondsuppliers could threaten forward integration and become diamond merchantsthemselves, particularly in the online environment where Blue Nileoperates. Overall, the industry shows lowered profit potential.

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