Using the five forces model of competition, list the profit potential of each force and determine the attractiveness of the jewelry industry.
Blue Nile, established in 1999, is the biggest online Jewelry seller worldwide. Blue Nile operates as a jewelry retailer based on the Internet exclusively. Such a business enable Blue Nile gain huge market share in the field of Internet jewelry market. Meanwhile, it allows customers to experience the jewelry through their expert interactive website. The new shopping model integrates the traditional elements into the convenience, high quality, professional and high valuable shopping experience. It is rational and necessary to do analysis through Port’s five forces.
Threat of new entrants
In global world, every industry has new entrants anytime anyway. These new entrants to some extent will threaten the current market competitors. New entrants often make efforts to grasp market share and compete with prior sellers. Specifically, new entrants may have special resources. That is, new competitors usually force existing firms to be more efficient and to learn how to compete in new dimensions. As the largestonline jewelry seller, Blue Nile achieve competitive advantage through its convenient order schedule, high quality of diamond and qualified after selling service. However, we have identified that new entrants such asDavidNile, Little Bird and so forth. These new entrants compete in the market through low price or more qualified service. All these will grasp certain market share from Blue Nile. Also, many other brand jewelry sellers also establish its online selling service. Implications of constant new entrants for the market are prominent. Through competition, new technology, improved service, high qualified products and lowest price will bring more consumer surplus, producer surplus and even market surplus. Meanwhile, it will stimulate more potential customers to consume in the industry.
Bargaining power of suppliers
Suppliers often exert power on the competing company through increasing prices and reducing the quality of products. If a firm is unable to recover cost increase by its suppliers by its own pricing structure, its potential profitability will be impaired. As for some diamond sellers, the suppliers of diamonds and silvers are important. The price of materials will decide the total potential profitability for Blue Nile. In order to compete in the market, they have to establish a good relationship with its suppliers. In this way, they can enjoy a relatively low price and high qualified materials. To ensure the just-in-time shipment, Blue Nile should also take care for their transportation suppliers. The long-term relationship or solid reliance on its suppliers will increase the power of suppliers. If all suppliers are combine to increase the supply price, the profitability of Blue Nile will be reduced and then loss profits. In this way, we can try to set standards for each suppliers over price increase. Also, changing suppliers is also necessary.
Bargaining power of buyers
Sellers want to maximize the profits while buyers often want to buy products with the lowest price. In this way, buyers can be combined to establish bargaining power. Blue Nile operates as jewelry sellers would face strong bargaining power of buyers. Specifically, as online store, the jewelry sellers mainly conduct its business through website or phones. In this way, customers will unit together to bargain the price. They may demand low price through complaining no chance to commute with sellers physically. They can combine together to bargaining price if they purchase a certain quantity of diamonds. Competing with so many jewelry sellers, customers may switch to other products if the cost is too high. Having amounts of products information and power of Internet, they are capable of bargaining with sellers. Based on this condition, sellers should specify the demands of customers. For this, customers will increase their willingness to pay for their favored products.
Threat of substitute products
If outside products or services can function well as the sold products in Blue Nile, these substitute products will capture the market share of Blue Nile. Substitute products refers to those goods and service from the outside a supposed industry that perform similar or the same function as the products that the industry sells. No products can avoid its substitute threats. Blue Nile also face the treats of substitute products. Specifically, it many other online sellers such as Tmall in China, Amazon and ebay and brand jewelry’s online selling business are also available to sell jewelers. Also, Jade, gold and silver products will distract customer’s attention from the diamond rings or jewelries. In this way, Blue Nile should introduce their uniqueness to consolidate its market share. Blue Nile display their concern for customers through educate people with detailed diamond information, convenient navigation and human-oriented suggestion for potential customers. It translates its website into different language to compete globally.
Intensity of rivalry among competitors
In the sector of jewelry, the competition is quite fierce. To illustrate, competitive rivalry intensifies when corporate is challenged by a competitor’s actions or when a company recognizes an opportunity to improve its market position. Numerous balanced competitors will respond their competitors’ action in the market similarly. Most competitors for Blue Nile are capable of producing jewelries. Blue Nile and Tiffany both are available to produce high qualified jewelries. The market share will be split by these providers. High fixed costs or high storage costs will impact also. To maximize the productive capability, excess capacity is established on an industry-wide basis. In this way, the attractiveness of products will reduce. As the inventories increase, producers of jewelry will lower the price to capture market share. Consumer surplus will be maximized to the most possible extent.
Attractiveness of Jewelry industry
In conclusion, selling Jewelries is attractiveness as it is profitable. That it, businessmen for jewelry will make profits through the large price difference. Much sellers with enough capital competitively engage into the jewelry industry. Although the entrance into the market is conditional and the competitive is fierce, it cannot reduce the number of entrants each year. However, in my view, if jewelry businessmen want to maximize the possible profits, they should be unique or even irreplaceable in the market. Then, the sellers should be consistent on the high quality products. If possible, new technology can be used to provide the products. Creative and innovative products can add competitiveness to the products and ensure sustainable development.
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