The evolution of the diamond electric business model

Wen/Huan Weijiang

China's diamond e-commerce companies, almost all from learning, reference or even copy the United States Diamond electric dealer Blue Nile began. American Mark Vadon in 1999 founded the Blue Nile (www.bluenile.com), which specializes in the online sale of diamond ring products, which was founded and developed rapidly and was listed on Nasdaq in the United States in May 2004. At that time, the price was 20.5 dollars, the highest stock break 90 U.S. dollars, the current share price in 29 U.S. dollars. According to the Blue Nile 2011 Annual Report, 2011 Annual operating income of 348 million U.S. dollars, net profit of 11 million U.S. dollars, the total number of employees about 200 people.

The success of the Blue Nile is a classic business story that inspires Chinese entrepreneurs. The core of the business model of Blue Nile is mainly embodied in two aspects of sales mode and supply chain management.

1, Diamond online sales. Customers online subscription payment, product delivery through the distribution of logistics, because of the absence of physical stores in the middle, the cost of a substantial reduction, sales prices and physical stores, with a very obvious advantage.

2, virtual inventory sales. Blue Nile Company and Diamond (bare drilling) upstream supply to enter into a cooperative relationship, upstream suppliers of diamond (bare diamond) data real-time on the Blue Nile Web site, the customer selected diamond and after the order, Blue Nile to the diamond suppliers to purchase orders, a substantial reduction in product inventory.

As a result of the above two modes of innovation, Blue Nile product costs and sales costs, and decency of the physical stores have a very obvious advantage, therefore, in the United States market has been recognized by consumers, quickly developed into a small professional, vertical business E-commerce Company, the site daily flow of about 60000. Blue Nile in the past three years of operation, see the following table:

The success of the Blue Nile attracts Chinese imitators, with the earliest diamond birds, Davigny, and nine diamonds. From the European and American markets replicated successful Internet model, is the early development of Chinese Internet companies more commonly seen phenomenon, such as Taobao imitation of EBAY, a century of imitation Google and so on. However, simple imitation or replication of European and American models may not be successful in the Chinese market, China's successful internet companies in imitation of American companies, in the Chinese market there will be a variety of forms of innovation or change. The same is true of diamond electric dealers. Although none of China's diamond-commerce companies have yet been completely successful, but also formed three kinds of more representative business model, namely Davigny Company's "net shopping" mode, Diamond Bird's "net Buys + Experience Shop" model and the wedding ring net "Promotion + ground chain" mode. In this paper, three models are analyzed in detail.

Davigny: NET Shopping mode

Davigny Company was founded in 2006, from the beginning to adhere to the model of net shopping, all sales are conducted online, hoping to copy a more consistent with the Blue Nile business model. Davigny's business assumption is the same as Blue Nile, that is, through the online sales model, reduce the cost of the ground shop, through the virtual inventory of supply chain management, reduce inventory costs, so as to significantly reduce the price of diamond ring sales, to rob the entity shop consumers, to establish their own customer base. Therefore, Davigny Company's external advertising slogan is "Spend the same money to buy bigger diamonds."

The mode of net shopping depends on the following key conditions:

1, the consumer can generate trust to the net purchase way, and form brand loyalty.

2, diamond ring sales of the main Sue is price, other aspects (such as customer experience and after-sales service) is not important.

3, the Internet has a multiplier effect, can be more rapid accumulation of customers, set up their own customer base, to form enough sales scale, and sustained growth and profitability.

4. The total cost of operation is lower than that of traditional diamond jewelers in the long run.

The success of the Blue Nile has proven that consumers can build trust in a commodity brand through net shopping. This kind of trust and Amazon mode is completely different, this is to a commodity brand trust. In other words, consumers should be persuaded to believe that what they buy in the Blue Nile is believable, and that they believe the products they buy are trustworthy. And Amazon is selling other brands of goods, it is only a sales shop, the credibility of the goods by the manufacturer to endorse, so Amazon as long as consumers trust it as an online sales shop. From this point of view, Davinico online shopping model, in the promotion of the face of double costs, that is to tell consumers what the brand is Davigny, but also to persuade consumers to buy online.

In terms of price factors, diamond ring as a luxury, low price may not be the most important factor to promote sales, of course, low prices can attract some of the pursuit of cost-effective customers.

In terms of the multiplier effect of the Internet, it is theoretically easier to promote and accumulate customers. such as Taobao daily Traffic reached 23 million (2012/9/9 Day query data), Jingdong Mall Average daily traffic 4.5 million (2012/9/9 Day query data). However, the daily average flow of Davigny is about 6000 (2012/9/9 day query data), description as a single category of vertical web site, attract and accumulate traffic is difficult, on the Blue Nile, the global market for the average daily flow of about 60000, compared with the comprehensive online shopping platform is very small. Of course, through the flow of the purchase can also make the average daily flow of several times, but the higher cost, and conversion to the proportion of orders will be lower.

Therefore, in the Chinese market copy Blue Nile Net Shopping mode, the most obvious is the price advantage, need to solve is the customer's brand identity can be established, network promotion cost and brand promotion cost is low within reasonable range, the overall operating cost is lower than the traditional store.

Diamond Bird: Online shopping + Experience shop mode

In the Chinese market to replicate the Blue Nile's net-shopping model, faced with a huge trust bottleneck in the early days, so the earlier diamond network to buy the company's business progress is relatively slow. Some companies began to try new business model, which is more common is the "online Shopping + Experience Shop" model, also known as "mouse + cement" mode. The reason why the store as a experience shop, because they open in the office, rather than in the shopping malls or commercial streets, the function of the experience shop mainly display products and reception customers, as well as customer orders after the scene to see the goods delivery.

"Online Shopping + Experience Shop" mode of representative enterprises have diamond birds, nine diamonds, such as Ke LAN. Nine drilling because of business reasons, in the transfer to a traditional jeweler, the cooperation between the orchid and Tencent business model is a trend of diversification, at present only the Diamond bird is more typical "online Shopping + Experience shop" model.

"Online Shopping + Experience Shop" mode is based on online shopping, increased the experience shop. This pattern has two basic assumptions, one is that net shopping can not overcome the trust of consumers to buy luxury goods online bottleneck, so, customers understand the relevant products on the Internet, how to go to the local experience shop face-to-face consultation and see samples or spot, will help dozen consumption of the network to buy diamonds concerns The second is that the rent of the experience shop than shopping malls shop or street shop cost low, coupled with the experience shop most of the customers are consulted on the Internet, appointment to the door, therefore, experience shop visitors are guaranteed.

Based on the above assumptions, "online shopping + Experience shop" as a whole, the cost should be lower than the traditional physical shop, at the same time, to increase the experience shop face-to-face consultation service link, the customer's order conversion rate should be higher than net purchase mode, and, the price can be sold than pure net to buy higher.

This model is also based on a strategic judgment that is, through the experience shop has accumulated sufficient scale of users and transactions, the future guide users all online transactions, the experience shop can be gradually closed, leaving only the net purchase, to become a real net shopping company; Experience shop in this kind of strategic judgment, it is only an excessive plan, a stopgap measure.

From the actual operating situation, "online shopping + Experience Shop" model is indeed in the promotion of sales scale growth, has a clear advantage. Diamond Bird Sales Scale has been ahead of Davigny, although the establishment of the late, Ke LAN, due to the adoption of "online Shopping + Experience shop" model, early growth faster.

But this model has been an unavoidable weakness, the most important question is whether the experience shop can reduce costs, or will increase costs? Does the experience store really help to accumulate customers for online shopping? Finally, can you cancel the experience shop and turn it into a net-buying company?

In fact, the experience shop opened in the office, the natural face of double cost. First, in the office of the Experience shop, it must through a large number of advertising, marketing promotion to the customer from the street to the office, the cost is far greater than the Office experience store in the rental cost savings. Or, to put it simply, the experience shop in office buildings will not only have to pay the normal rent, inventory and labor costs, but also pay the huge cost of pulling customers out of the street to experience the shop, which runs counter to the low cost of e-commerce. Second, for online sales, its own network marketing and promotion, has been a huge expenditure, at the same time, in order to solve the network sales of customer trust and experience problems, and opened the experience shop, but also increased the network to promote the additional expenses, that is, for the network platform sales, also face double costs.

To crack the double cost pressure, we must rely on improving the customer's conversion rate and the price of the transaction. Because of experience shop face-to-face service, improve customer conversion rate and sales price are possible to achieve. If the efficiency of customer conversion and sales price increase has been higher than that of the double cost of the experience shop, the model can be sustained at a certain stage. At present, diamond birds in the country has 12 experience stores, the official website daily traffic is 20000.

Wedding Ring network: Online promotion + ground chain mode

Davigny and diamond birds are based on network sales and the starting point to design their own business model. There are also some companies from traditional sales how to use the Internet to promote the perspective of the design of the business model, which is the most representative of the Wedding Ring network (hereinafter referred to as bloves). Bloves was founded in 2009, the establishment of the beginning also carried the concept of the diamond, but the nature of its business model is "online promotion + ground chain", which is online promotion, offline sales.

Bloves also opened a shop, but it is not open experience shop, but with the traditional jeweler not much different from the ground shop, but also in a chain of expansion, the only difference is that its stores are street shop, independent cashier, independent management. However, it has been promoting and maintaining the concept and image of the diamond dealers, in the brand propaganda with the help of the Internet and the potential energy of the electric business, in a relatively short period of time to obtain a relatively large popularity.

For traditional jewelry retailers, the speed of the shop is very slow, and even if a company in a certain city has opened 10 chain stores, but in the local may not have many consumers know it, if you want to open the main regional stores, and become a well-known brand in the country, basically a few 10 years of effort to achieve. And Bloves in a few short years, in the jewelry circle and the market to establish a well-known, the key is the use of the Internet in the promotion of the powerful potential energy.

But how do you see Bloves's business model as a diamond E-commerce company? If Bloves has been focused on expanding its chain across the country, it may be more like a traditional jewellery retailer, whose electronic commerce banner is more of a propaganda activity, and if the bloves is advancing the ground chain, the network sales can be built quickly, It could become a new brand of jewelry that is integrated online.

In fact, the bloves business model will also cause many traditional jeweler's attention and learning, how to use the Internet to promote the advantages of rapid expansion of brand awareness, and expand online sales business.

At present, bloves in 20 cities nationwide opened 32 chain stores, the site daily average traffic of about 3000.

Of course, as an emerging brand, Bloves's open shop strategy and Chow Tai Fook and other traditional leadership brand different, bloves in the central city, the general choice in the two-level shopping district open shop, in order to avoid the high rental cost of the core business district, while in the second-tier cities, the choice in the core business district Open Big shop, hope to and establish the brand image.

Evaluation and prediction

Taobao Mall or Jingdong Mall, their essence is online stores, they are other private brand dealers, they sell other brands to provide goods, such as Lenovo computer, Haier Refrigerator. For a comprehensive online mall, the key to winning is to create large enough sales, to attract enough customers, to provide enough goods for consumers to choose. This is the Beijing-east, Taobao, Suning easy to buy in recent years Crazy Horse rodeo reasons, the only thing they have to do is sales.

And for the Diamond Electric Company, no matter which kind of diamond electric dealer's model, its essence is the own brand model, namely, promotes and sells on the net, or uses the Internet the dissemination strength to combine the offline sale, creates a new diamond jewelry brand. The key to winning this model is: first, the ability to use the internet means to create enough

Sales, and marginal profit is positive; second, by means of the Internet, can successfully promote a new brand to consumers, so that consumers can have a lasting understanding of the brand, identity and loyalty, and product sales margin can cover the cost of brand promotion.

From the above three kinds of specific models of the company's operating situation, it seems that there is no way to absolutely distinguish the outcome, or three models are likely to succeed, or the three will eventually be decided. The development and evolution of the future depends on the following elements:

1. Comparison of operating cost under line

If the integrated operating costs are below the line, in that case, the Davigny Net-shopping model will prevail; if the integrated operating costs below the line, then the bloves will prevail; if the cost of operating online and offline is inferior, the specific cost structure depends on how the company operates, Three kinds of models need to be reformed in the future, and an optimal model is formed.

From the actual situation, the cost of online promotion, almost all have to account for 10% of the sales, some industries, category promotion costs higher. and the promotion of online costs, most of which are cast in the Baidu search engine promotion. As we all know, the cost of the search engine is getting bigger and higher, which is almost the real problem affecting the whole e-commerce ecological environment. For the diamond dealers, because the diamond jewelry product gross margin is relatively high, and the customer unit price is very high (the General customer unit price of more than 3000 yuan), therefore, still have the ability to cover the spread of the internet costs. The question is whether offline costs will be better.

It is understood that the diamond birds in the development process, has been in the "net shopping" or "Experience shop + network" Two ideas in the game. 2005-2006 Diamond Bird began to try the "experience shop + online shopping" model, through the experience center to solve the problem of integrity, 2007-2011-year rapid Replication Experience Shop, 2011 began to focus on online shopping. The focus of the game is still in the user access to cost control, its internal even a view that, if the electrical business model to obtain the cost of users open shop is still high, it is better not to electricity, directly open shop.

2. User Experience

And the problem of brand cognition the virtual nature of the network transaction mode determines its inherent bottleneck in the customer experience, so can you rely on, or rely on the Internet to promote the way, to establish a new brand of goods? In other words, will there be a successful "Shang brand" in the future?

This is a new subject in the history of human business and a new hypothesis that needs to be tested in practice. Prior to this, all of the successful brands we know are based on traditional methods of trade and promotion.

The foundation of a brand's success is that the consumer/user builds trust, identity and reliance on it, which is part of the relationship between the people participating in the market transaction. The traditional brand building process is the consumer to the brand of physical experience, the purchase, and in the purchase after the use of the process established. The shopping experience of the Internet environment has become a new virtual way, that is, online, but the use of the product after the purchase is the same as the traditional brand. That is to say, online brands and traditional brands in the process of building brand awareness, the biggest and only difference is the purchase process is different. If online brands can overcome consumers in the purchase of this link to the brand trust problem, but also to meet consumers in the use of products in the process of the product itself, the various requirements, it is possible to establish a successful online brand.

If this assumption is not tenable, then, the line of business integration becomes inevitable, necessary. Of course, this article discusses the Diamond Electric business model does not have the "ideal type" of the classification, in order to more in-depth to see some of the problems, clarify some points. From my personal point of view, the line under the integration of online mode, may be more able to optimize the cost, the cumulative customer, and ultimately win! Therefore, not only the above mentioned three models of three representative companies have the opportunity to win, and even the traditional diamond jewelers may emerge some dark horse, come from behind.