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Blue Nile’s Remedy

Posted on Tuesday, May 29th 2007

David Philips wrote an article on Seeking Alpha, called On Blue Nile’s Lackluster Business Strategy last week.

Those who have followed the company for a long time, know, that Blue Nile (Nasdaq: NILE) is one of those rare gems, a dotcom era survivor. In many ways, they are a posterchild of a business that exploited Context splendidly, their context being men shopping for diamond engagement rings.

If you hold them up against my Web 3.0 definition, besides Context, they do well on a number of other points.

Content is great. They figured out early on that selling diamond requires educating the consumer about the different grades of diamond, and their relative merit, invisible to the naked or untrained eye. Consequently, they created a fabulous body of content that does just that: educate.

Vertical Search is also great. Once you have educated yourself on the relative value of diamonds, and are ready to shop for one, you can specify ranges by cut, color, clarity, carat, price and more. It’s a fabulous vertical search engine.

The combination of great Context, Content and Search enables effective Commerce. Blue Nile knows its customer, and is aware that offering them the best prices would successfully steer them away from the Tiffany blue box. Indeed, they offer superb prices.

So, in the formula Web 3.0 = (4C + P + VS), they do great on 3Cs (Context, Content, Commerce) and on VS (Vertical Search).

What about the 4th C and P? Well, Community and Personalization are both lacking, and in this lies their problem, and their opportunity.

David writes, “In fact, more than 90% of business is still in diamonds, 70 percent being in engagement rings. In order to increase net sales and expand its product offerings, the Company must attract new customers or expand returning customers’ product purchases in a cost-effective manner.”

Well, people buy engagement rings once in their lives, may be twice, and in rare cases, 3 times or more. However, people buy jewelry many more times in their lives. Blue Nile’s problem is that they are stuck in the corner of the engagement ring Context, without ever switching out to those other Contextual opportunities where people might buy jewelry, like anniversary, birth of a first child, birthday, etc. This limitation explains why 70% of their customers are still, after all these years, engagement ring customers, and 90% are diamond customers.

This is where Personalization ought to enter. Once an engagement ring customer has been recruited, Blue Nile should switch on a Personalization engine, whereby, the customer can enter all the relevant details of birthdays and anniversaries, as well as occasions that might warrant a diamond / jewelry purchase. At least 50% of the engagement ring customers should be upsold via recommendations and personalized selling to repeat customers for other special occasion jewelry. The user interface that a new customer sees should, by no means, be the same as that which a repeat customer sees. A repeat customer needs a personalized store.

And what about Community? To crack this nut, Blue Nile should understand the psychology of gift-giving, especially jewelry gifts. Men, shopping for gifts for the women in their lives, often seek ideas from their female friends and family. So, while the Customer Segment for Blue Nile is Men, the influencer Community is Women. Today, BlueNile shows zero appreciation of this psychographic, and ignores the opportunity presented by social media techniques, to augment their service.

Thus, they leave lots of money on the table.

While looking at International market is an obvious, “me-too” method, there is perhaps a slightly non-obvious method of harnessing their existing customer base, and tapping into the repeat purchase potential of the segment.

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