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TECH TALK: Tech Trends: The Next Wave

July 14th, 2004 · 2 Comments

It would have been hard to imagine people buying jewelry online. Yet, according to Business Week, this is just what is happening as a new wave of transformation impacts industries:

Jewelry e-tailers are the leading players in the Web’s second act. Selling diamonds, double-strand pearl necklaces, sterling silver bangle bracelets, and more, online jewelers made up about $2 billion of the industry’s $45 billion in U.S. revenues last year. Startups such as Blue Nile, Ice.com, Diamond.com, and now Amazon.com are textbook cases of how the Web fundamentally undercuts traditional ways of doing business. The secret? Knock out the middlemen and expensive stores to lower costs, then slash prices. Amazon.com Inc. for example, is betting it can make money on 15% markups instead of the industry’s usual 60% to 100%. Amazon charges $1,000 for a pair of oval emerald and diamond earrings that it gets from a supplier for $850. Traditional jewelers typically charge $1,700. “We believe over time customers figure these things out,” says Thomas J. Szkutak, Amazon’s chief financial officer.

The diamond market is where changes are happening first, and Blue Nile is the leader there. The five-year-old Seattle company has become the eighth-largest specialty jeweler in the U.S. Last year, sales jumped 79%, to $128.9 million, and net income hit $27 million. Selling diamonds for up to 35% less than rivals, Blue Nile is not just profitable — it has higher margins than No. 1 chain Zale Corp.

Blue Nile packs a punch by streamlining a famously byzantine business. It has just 115 full-time staffers and a 10,000-square-foot warehouse. To sell $129 million worth of jewelry, a chain would need 116 stores and more than 900 workers, estimates analyst Ken Gassman of Rapaport Research. Blue Nile also bypasses the industry’s tangled supply chain, where a stone can pass through five or more middlemen before reaching a retailer. Instead, Blue Nile deals directly with major suppliers through its own network online.

To get to where they are, the Net upstarts had to defy conventional wisdom that diamonds couldn’t be sold online. The companies solved this problem by giving people the same information a jewelry expert would give them. They dish up educational guides in plain English and independent quality ratings for every stone. For example, a customer at Diamond.com can pore over the rating scales for cut, clarity, and color, pick out a one-carat stone with the preferred criteria — and then shop around for a better price. These resources are now standard practice, as is a 30-day money-back guarantee.

Self-Service Web

What can small businesses and retailers do to leverage the Internet and the presence of their customers online? Craig Danuloff writes about the emergence of the self-service web and what businesses need to do:

The brief history of the internet is that people are getting more and more comfortable making increasingly complex buying decisions entirely based on a web-based interaction. Several years ago, the argument went, books and CDs were the first ecommerce success stories because people knew what they were buying so the ‘trust’ hurdle was low. It took a few years for online clothing and financial transactions to take off. Today there is virtually nothing that isn’t sold online – and in substantial quantities.

If your business isn’t finding customers making purchase decisions based solely on interactions with your web site, then your web site needs more work. The first step: ask your sales people to list the most common initial questions and issues that customers bring when they first make contact. Take a look at your site and see if the answers to these questions are already there and need improvement, or (as is more likely) these issues aren’t yet addressed online. Improve the site to cover this ground, and re-poll the sales people in a few weeks. Repeat this cycle until the first thing your sales people hear when they pick up the phone is “I’d like to place an order”.

Then move ordering online…

Tomorrow: The Enablers


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