Blue Nile: Internet Disruptor Makes the Virtual, Real

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\"BlueFounded in 1999, Blue Nile set out to disrupt the way people buy diamonds, with a special focus on the engagement ring business, skimming the cream off of traditional jewelry stores’ business.  The idea of selling engagement rings online grew directly from founder Mark Vadon’s personal experience trying to buy an engagement ring.  After doing preliminary research into the 4Cs, the traditional gold standard for buying a diamond, Vadon went to a well-known jewelry store to make his purchase and was stymied by the fact that two seemingly identical diamond rings had a $5,000 difference in price.  “Why the difference?” he asked, and got a mealy mouthed non-answer from the sales clerk.

From that bad experience a business plan was hatched around the idea of providing in-depth and non-intimidating education on the diamond buying process. He created a marketplace where the pricing was fully transparent, all without the operational overhead of a brick-and-mortar store. Blue Nile offered customers a new way to buy diamonds:

  • To tap an inventory of GIA-certified diamonds that take much of the guesswork out of the selection process.
  • To offer those diamonds at a significantly reduced price thanks to the efficiencies of an Internet-only business.
  • To use new Internet-powered marketing tools to spread the Blue Nile message virally.

That business concept has grown into a half-a-billion dollar company, which claims to be one of the world’s largest online retailers of engagement rings.

But after 16 years, Blue Nile is reaching a tipping point that now requires solutions to new business challenges. Blue Nile needs to transform from a transactional retail model into a branded, market driven business.

Pivot

Why? The marketplace is changing. The diamond engagement ring market, the platform on which Blue Nile’s business was based, is very different today than it was back in 1999. Today, the marriage rate stands at a historic low of 6.8 marriages per 1,000 people, down from 8.6 in 1999. Not only are fewer people choosing to marry, but many are deciding to forgo the diamond tradition all together in favor of other stones or other symbols to mark their engagement.

What’s a diamond ring retailer to do? Blue Nile decided to make the leap from virtual Internet retailer into the real world with a store front they call a Webroom.  The whole concept is to help customers navigate the vast online diamond inventory and design options Blue Nile offers in a personal one-on-one setting.  They are testing their first concept at Roosevelt Field Mall in Garden City, NY.

It is not a traditional jewelry retail store by any stretch of the imagination. Blue Nile CEO Harvey Kanter explains, “We wanted to create a three dimensional, even more compelling experience which is really important to Millennial consumers today.  We did this in a store environment that we call a Webroom, where customers come in, look at many of our actual settings and wedding bands, and try them on.  They pick several different settings and then sit down at a table, which is similar to Apple’s Genius Bar.  They look at the rings, try them on and take pictures.  More importantly, they have a diamond and jewelry consultant to help them explore the website. Ultimately, the quest we had to ask was ‘Will we convert materially higher in the Webroom than we do online if customers can see, touch and feel?’”

Counterintuitively, the product samples on display are not real diamonds, but CZs.  The concept is to provide an environment where customers can examine the settings and try them on before they buy online.  It also matches young people’s preferred way to make the diamond ring purchase, together as a couple. Blue Nile’s Webroom is banking on the popular see-it-in-store, buy-it-online model

The challenge for Blue Nile is to take that step from a virtual Internet marketer to building a connection with customers.  It must build a real brand.  It must build trust. But they are taking a big risk. Millennial customers that Blue Nile targets are already quite confident buying online, even an expensive purchase like a diamond ring. The real opportunity is to establish Blue Nile as a brand that means more than just diamonds for less.  It must connect with the customers in emotional and meaningful ways. It’s got to become a partner in the purchase process. The Webroom is Blue Nile’s big bet that a face-to-face, person-to-person experience will lead to more online sales.  It’s working for Warby Parker. Let’s see if Blue Nile can realize the same success.

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