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Diamond Retailer Business Plan

Market Analysis Summary

We divide the market into "Future Grooms," "Suburban Husbands," and "Young Working Women." Men will be our priority target because according to our research, "surprise factor" is still what makes the engagement ring market flourish in the U.S. Engagement rings are considered an essential investment in any marriage proposal in the U.S. Also, thanks to De Beers' recent campaign, we can now easily market the three-diamond anniversary ring to the audience.

4.1 Market Segmentation

The "Future Grooms" category is composed of young men, age 28 to 45, with annual income above $40,000, living in metro area. Most men in this age group are in their prime career and about to start a family of their own. Many of them are still dating their college sweethearts and living together, ready to embark on their new journey in life.

Judging from the income, we concluded that most of these men are computer literate, of course connected to the Internet, and living a bachelor’s lifestyle, probably engaging in high profile sports, such as rock climbing and skiing.

We also include sports car in their life, supposing the mid 30s bachelor's lifestyle. They are likely to be active people with cruising as parts of their daily plan. They do not tend to be extra price-sensitive. With this psychographic profile of our audience, we can develop some recommendations for RBR's strategy.

The "Suburban Husbands" are a slightly older demographic than the previous segment, consisting of men from age 32 to 55, with annual incomes above $80,000, living in the suburbs. Most of these men are already going for their fifth year wedding anniversary. In the celebration of their marriage, many of them are "tangled" with the idea of the three diamond ring (past-present-future). As romantic as it sounds, these suburban husbands are spending more than $5,000 on an anniversary ring for the occasion.

The third category is "Young Working Women." As women are now becoming the majority of Web surfers, due to the popularity of women's community websites, such as iVillage and so forth, they represent the strength in e-tailing. Women pay more attention to detail than men do. In choosing their diamonds, women would like to see firsthand before charging the bill to their credit cards. Now, with the option to examine the diamond at their nearest jewelers, RBR is perhaps the one and only destination for women purchasing diamond jewelry on the Internet.

Market Analysis
2006 2007 2008 2009 2010
Potential Customers Growth CAGR
Future Grooms 20% 1,700,000 2,040,000 2,448,000 2,937,600 3,525,120 20.00%
Suburban Husbands 20% 900,000 1,080,000 1,296,000 1,555,200 1,866,240 20.00%
Young Working Women 20% 350,000 420,000 504,000 604,800 725,760 20.00%
Total 20.00% 2,950,000 3,540,000 4,248,000 5,097,600 6,117,120 20.00%

4.2 Target Market Segment Strategy

RBR has been focusing on the "Future Grooms" market since 2002. The main reason behind the selection of this target segment is that the engagement ring market has been the largest segment in diamond purchasing in the U.S. for the last three decades. In a partriarchal tradition, men offering their marriage proposal usually accompany it with a gift. The gift has to represent something that is valuable to both families or parties. In Western culture, a diamond ring fulfills this "value" requirement both by its monetary value, and its sentimental or romantic associations. A diamond ring is so connected to the idea of engagement that it in itself can signify the proposal; simply by presenting a diamond ring, men in the U.S. make an offer of marriage.

This had been the focus of RBR's marketing campaign. RBR emphasized loose diamonds, meaning that the company let customers choose various settings from their own trusted jewelers. Loose diamonds are attractive to RBR's main target segment, as they are simple and do not require customers to limit themselves to what setting is available from the merchant. For instance, if the customer does not find the setting he likes at one jeweler, he can go to other RBR-partnered jewelers to find the exact setting required.

The female target market segment had been showing a significant growth in the last three years. This trend has contributed to the RBR's expansion plan by adding innovative setting design into the sales strategy.

4.2.1 Market Needs

Recognition and Exclusivity
Selling diamonds is the same as selling image, individuality, and luxury. At traditional jewelers' shops, many customers want their engagement rings to be unique, custom-made, the one-and-only. Future brides would not want their rings to be generic. Traditional jewelers made this possible by building close relationships with their customers who probably know them through word of mouth or family networks. Bride and groom could spend hours and hours to make sure the design is fabulous.

Security/Absence of Fear
Trust is the key to achieve customers' assurance in purchasing diamonds from RBR. The relationship between RBR and its customers begins with customers who go to the website and find out about the company and how to deal with the company. The part with the words "no money down" and "no obligation" is the starting point in establishing trust, along with "money-back guarantee," as claimed by other diamond e-tailers. It is as fundamental as traditional jewelers when they say, "Look around and take your time." 

Love
A diamond engagement ring represents love in a material form. And this is an exclusive love, which can only be represented in one unique diamond.

4.2.2 Value

The basic idea for RBR's e-commerce strategy is to sell loose high quality diamonds at wholesale prices. It is essential to motivate customers with high buying power in getting the best value for their money, without depreciating the character of the merchandise.

So, how are we going to sell a high quality diamond at the best price offered (wholesale price), and at the same time not cheapen the image of our company?

The answer is exclusivity. As we know, customers who are in the market of buying an engagement ring are concerned with appearances. Men want to look good by giving their fiancee the best quality diamond ring. No one wants to give his fiancee a diamond ring from a wholesaler, warehouse or cheap outlet. So, upper echelon retailer is the answer. This is where Blue Nile, Diamonds.com and RBR come in, presenting themselves as upper-end retailers, instead of wholesalers. With a good and "high-end" look on the front-end website, we transformed the personality of the companies into high-end retail.

How does an e-commerce business support the high-touch feature in selling high-end product such as diamonds? Unless we have a total virtual reality environment, the high-touch feature can still be done by utilizing the real (physical) store as the interface to see and touch the diamond. There is nothing that can surpass this combination. Customers can select online, then inspect their selection physically, when RBR ships the maximum of two diamonds to local jewelers in the area.

Credibility

Other diamond e-tailers on the Web today do not come from generations of credible jewelers. Most of them are publicly traded companies, such as BlueNile (listed on NYSE), or an extension of existing brand such as Mondera. RBR offers a unique blend of technology and old tradition in diamond buying. Offering a convenience of local jewelers and the efficiency of high tech era. These two factors are the keys to success in the aftermath of the dot com era.

4.2.3 Market Growth

As the baby boomer generation retires in the near future, the demographic landscape in the U.S. is changing; Generation X (born between 1963 to 1979) is beginning to make up the largest working class in the nation. Often portrayed by the media as cynical, extreme-sports lovers, and body piercing slackers, Generation X (now roughly 22 to 36) is actually characterized by independent, career-minded, and technology-savvy young adults.

More and more Generation Xers are now getting married, or are planning to do so soon. With more than enough disposable income, they are gaining the majority of purchase power in the U.S.

4.3 Industry Analysis

Currently, total diamond sales in the U.S. have reached $5.5 billion, out of total jewelry sales of $40 billion. This number includes everything from engagement rings, anniversary jewelry, watches, and so on. In the engagement market alone, there are approximately $400 million in diamond sales annually, with 10% of them being distributed through the Internet. Our opportunity is the two million weddings annually with prior engagement in upper-echelon diamond rings.

The diamond market itself is fragmented (signified by the volume of vendors targeting "mass" market) and seasonal, during holidays in particular, when gift-giving traditionally takes place. As many vendors are now offering almost similar products, customers want more than just a mere solitaire diamond ring, they want innovative design with their 1 carat, round-cut engagement ring. The market is divided into three echelons: premium end, middle end, and low end. The premium end is dominated by top brands such as Tiffany & Co., Cartier, Bvlgari, and most of the European diamond retailers. The middle end is dominated by Zales and other local jewelers, while the low end market is being distributed to "mass" retailers such as Costco Jewelry or Wal-Mart Jewelry.

Online diamond retail also has different categories, parallel to the brick-and-mortar stores. BlueNile is typical of the upper-echelon vendor for high-end online diamonds, while Best Gem targets mostly middle end customers.

RBR only deals in the upper echelon of high quality diamonds, with an average sale of $3,500 per loose diamond.

Our initial target is the top 35% of the diamond market, including the top ten percent of upper-echelon buyers, for total sales of 250,000 diamonds per year. We will also market to the 50% of buyers in the mid-echelon, as they will eventually shift their buying from chain jewelers to high-end engagement diamonds.

25% of the total online diamond sales are currently held by Blue Nile. Diamonds.com is second, with 12% market share. RBR and other players share the remaining 63% of the online market.

4.3.1 Distribution Patterns

The products (diamonds) move from diamond mines to diamond cutters, then either directly to large retailers, or to wholesalers, who further distribute them to smaller retailers (mom and pop jewelry shops).

In short, major jewelry stores could sell much cheaper diamonds than the mom-and-pop shops, as they purchase larger quantities than their local counterparts. However, the mom-and-pop jewelry shops do consignment sales with their diamond suppliers to compete with large jewelry chains.

Customers who already have a long-term relationship with their local stores usually trust their local jewelers more than the large brands. The consignment business strategy had enabled mom-and-pop jewelry stores to compete with large, middle-end diamond retailer giants such as Zales Corporation.

4.3.2 Competition and Buying Patterns

As mentioned in earlier chapters, RBR has a fierce competition in the online diamond retail area, but competition is just as strong in the traditional brick-and-mortar market. Big names such as Tiffany & Co., Zales Jewelers, and Cartier currently dominate the high-end diamond market in the U.S.

In 2001, Tiffany & Co. sales had reached $1.6 Billion, while Cartier and Zales had reached $3.2 Billion and $2.8 Billion, respectively. All three of the major players have their presence online (and ship worldwide), which is a major threat for RBR and other online diamond retailers. With multiple brick-and-mortar locations around the world, Tiffany & Co., Cartier, and Zales are sure to continue dominating the diamond business for the next decade.

However, new opportunities are opening up for online sales. Thanks to the government intervention in online fraud and e-commerce policy, more customers are now confident in the safety of purchasing via the Internet. Customers are using these online stores as an alternative, to access good value for their diamonds, rather than buying the top-tier, overpriced diamond brands.

4.3.3 Main Competitors

There are several players in the diamond e-tailing market today. Some of the big players are www.diamonds.com, www.bluenile.com, www.diamond.com (an Odimo company), www.mondera.com and www.bestgem.com. These companies are similar in their fine quality of products, GIA Certification, and warranty in their diamond selections. The scope of this analysis is the slight and unique differences in their business strategies gaining share in the online diamond markets.

Diamonds.com

The company's product lines are not limited to loose diamonds. Business strategy used is similar to those traditional brick-and-mortar jewelry stores with a "touch" of e-business' connectivity, interactivity, and speed. Product lines offered on the website vary from rings to earrings, which can later be set with customers' diamond selections, or without if customers wish to buy just the settings.

The website offers the convenience of online shopping with features such as "proceed to checkout" and "shipping method." Like most e-tailers and direct competitors, a toll free number is listed at the bottom right corner to assist customers with questions and concerns from 9 – 5, Monday – Friday. If customers hesitate to call in, Diamonds.com also offers FAQ and e-mail addresses of different departments, such as general inquiry and sales. In addition, it displays the BBB (Better Business Bureau), JVC (Jewelers Vigilance Committee), and Trust-E endorsements to enhance customers' trust in the business and site.

A new feature, "Create your own," is still under construction that will enhance high-touch aspects, as customers will later interact with the website in the customization of their orders. "Special Request" button is also available for customers who could not find specific merchandise online and need assistance in finding them.

Diamonds.com is currently opening its online financing program for greater purchasing options. Sizing and repairs are also available from time to time, as customers may need to reset their stones or clean their jewelry. Since it does not state an affiliation with local jewelers, as RBR does, sizing and repairs are probably done with prior arrangement made by the company's customer service department.

Blue Nile

Currently, Blue Nile is largest online diamond seller in the market, with gross revenue of $50 million USD yearly; 30% of sales are from loose diamonds. The company is publicly owned with high capital to be spent on advertising campaigns.

Blue Nile carries more product lines than its competitors, not limited to rings, necklaces, earrings, and other jewelry related products, but also including apparel and accessories, such as watches, pens, key rings, and money clips.

Similar to Diamonds.com, Blue Nile also offers the convenience of online shopping with its checkout and shipping method features. Its "build your own ring" feature is similar to Diamonds.com's future "Create your own," where customers can choose their rings and virtually set their diamond selections into them in order to see what the final product would look like.

The website has more features than its competitors, such as Gift Ideas, a suggestion site for special events in order to attract customers to not only look, but book. Blue Nile's online personality maintains a  “classy” look and strong brand, enhanced by the website's technical capabilities. As brand is the name of the game in today’s new economy, Blue Nile has developed a logo that represents the company with the "B" inside two symmetrical "N"-shaped boxes.

Loose diamonds are mostly made customized for Blue Nile. Financing is also available to give customers more purchasing power in shopping with Blue Nile.

Diamond.com

Under its parent company (Odimo Inc., formerly known as DiamondDepot.com), Diamond.com has maintained its presence among competitors in the online diamond retail.

Similar to Diamonds.com in character, Diamond.com offers a slightly wider product range, with its collection of watches. Most of its online features are similar to both Diamonds.com and Blue Nile. It has a highly interactive, design-your-own ring feature on the website like the others, although it is almost hidden, which will show the feature only after you select your diamond.

On the other hand, Diamond.com does offer a tracking feature of customers' order like most e-tailers, such as Amazon.com and Barnes & Noble. This is an advantage, particularly in dealing with first time customers who are eagerly awaiting the merchandise from their expensive online purchases. According to one study, tracking systems in online retailers would enhance customers' trust by providing an estimated time of arrival for the merchandise.

Repairs could be performed by filing out an online form, which must be sent out, along with the products, to its corporate office.

One distinct feature is that the company ships the merchandise to limited countries outside the United States, whereas the others mostly serve only the U.S.

Best Gem

All of its loose diamonds come from its own inventory, to avoid conflict if more than one customer accesses the site and wants the same diamond in the database. However, the down side of it is that the company does not display its own diamonds from the inventory, instead using generic types of graphic to show its collection. This strategy will create a doubt in customers' mind as to whether to buy the merchandise as shown on the website and about getting the same goods as showed on the picture. Although a warranty of return if not satisfied is offered, some customers might not want to go through hassle of dealing with unsatisfying merchandise.

Mondera

Mondera creates its personality as a "traditional" diamond retailer on the Internet by portraying the value in New York's diamond district and their family history. As a company established under an internationally known parent company, Mondera has no problem in gaining customers' trust in its selection of fine diamonds and jewelry.

The company is also serving customers worldwide as Diamond.com does, and offers wide selection of product lines from cuff links to money clips. The website has a "Create your own" feature for higher interactivity between customers and the site in customizing orders. The website also offers a complementary advice from Mondera's gemologists who are standing by to answer customer questions and concerns about the diamonds. The company is spending a lot of money in advertising and has an excellent promotion strategy such as celebrity features in many of its collections.

Competitive Analysis Table

Competitors

C

I

S

Simplicity

Trust

Customer Service

High Touch

Selection

Price

Diamonds.com

+

++

+

Yes

Yes

Yes

No

Good

Wholesale

Blue Nile

+

++

+

Yes

Yes+

Yes

No

Very Good

35%

Diamond.com

+

++

+

Yes

Yes

Yes

No

Very Good

N/A

Best Gem

+

+

+

Yes

Yes

Yes

No

Very Good

Wholesale

Mondera

+

++

+

Yes

Yes+

Yes

No

Very Good

35%+

C= Connectivity; I= Interactivity; S= Speed

4.3.4 Industry Participants

There are two main categories of players in the diamond industries: online retailers and traditional brick-and-mortar retailers. Both are subdivided into three classes; premium end, middle end and low end market.

Individual competitors are described under "Main Competitors," below.