Running head: TIFFANY & CO 1

Tiffany’s Little Blue Box

Names: Al Anoud Al Mutlak ID# 1110040

Kenza Chater ID# 1110105

Razan Kattan ID#1110166

Ranya Shams ID# 1110034

Course: Strategic Management

Submitted to: Dr. Lee Colins

Date: 28/12/2014

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Table of Contents

Intoduction………………………………………………………………...3

Strategically Relevant Factors in Macro-Economic Environment………...4

Porter’s five forces analysis …………………………………………….5

Jewelry Industry’s key success factors…………………………………….8

Tiffany & Co strategies and competitive advantages…………………….10

Tiffany & Co SWOT analysis…………………………………………….12

Appraisal of Tiffany & Co’s Financial Performance ...…………………..15

Weighted Competitive Strength Assessment of the Company……...….....16

Strategic Issues that Tiffany & Co needs to address………….…………...18

Recommendations & Conclusion………………………………………….19

References………………………………………………………………….21

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Tiffany’s Little Blue Box

The importance of marketing cannot be understated as far as the sustainability and

profitability of a business entity is concerned. Marketing, with no doubt, comes as a fundamental

aspect of any business entity as it popularizes the commodities and services that are on offer to

current and potential consumers. This has to be done with proper cognizance of the conditions of

the macro-environment, as well as the strengths and weakness of the business entity so as to

ensure that it has the capacity to take advantage of the opportunities available for the same.

Different companies use varying strategies to safeguard their distinctiveness in the market, with

Tiffany & Co. using the little blue box that is offered to clients after they have bought an item

from the stores. Questions emerge, nevertheless, regarding the efficacy of the little blue box in

the company’s overall strategy.

The case presented offers a glimpse into the varied aspects of Tiffany & Co’s business

strategy since its establishment more than 175 years ago. The main focus is on the little blue

box’s efficacy in enhancing the overall strategy of the company. Established in the 1837, the

company has grown to become one of the most reputable jewelry retailers across the United

States and other parts of the globe particularly Europe and Asia. As part of its strategy, the

company has retained its luxury brand and service, while still offering its products to all buyers

in spite of targeting the wealthy. Like other companies in the same industry, however, Tiffany &

Co was affected by the recession and the depression of the 20th and 21st century and responded in

varying ways. While there may be differing opinions, it is evident that the company’s strategies

are working in enhancing its profitability and competitiveness in the industry.

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Strategically Relevant Factors in Macro-Economic Environment Affecting the US

Jewelry Industry’s Attractiveness.

It is noteworthy that the 10 percent growth in the value of jewelry in 2011 emanated from a

combination of constrained demand and increased prices in the course of the economic downturn

of the recession. Indeed, the speedy increase in the prices of silver and gold forced companies to

increase the prices of their real jewelry. Once the demand was unrestrained, the consumers did

not incorporate the same preference for purchasing jewelry.

The macro-environment may influence the attractiveness of the United States Jewelry

Industry, which is primarily situated in the Mid-Atlantic and Southeast regions accounting for

around 45% of the entire industry sales. This concentration primarily depends on the per capita

income of the population. High population and per capita income in a particular region would

mean an increase in the concentration of retail merchants in the area. In essence, the capacity of

Tiffany & Co’s capacity to produce more jewelry would be dependent on the demographics of a

particular area, as well as their likely income. Further, there are varied social factors that affect

the allure of the United States Jewelry Industry. It is noteworthy that Tiffany & Co primarily

targets wealthy Americans. Further, the company produces almost unique or distinctive

commodities, which would ideally cater for the likes and preferences of the consumers where the

stores are located. In general, the macro-environmental conditions are favorable to the existence

and business of jewelry and particularly Tiffany & Co.

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Five Forces Analysis of the Strength of Competitive Forces Confronting Tiffany &

Co. and other Retail Jewelers.

The Porter’s five forces analysis underlines a framework used in analyzing the level of

competition that exists in a particular business strategy development and industry. This would be

used in determining or evaluating the potential for making profits in a particular industry. The

Porter’s Five Forces analysis would involve examining aspects such as threat of new entrants,

threat of rivalry, barriers of entry, threat of substitutes, bargaining power of the suppliers and the

bargaining power of the buyers, all of which have a bearing on the profitability of a particular

business entity.

Threats of New Entrants (Low-medium)

Threats of new entrants in Jewelry industry is consider low to medium. Where businesses

that aim to enter this market are required to have substantial capital to start especially if it targets

the wealthy society such as in case of Tiffany & Co. However, it is noteworthy that there exists

no single dealer who owns more than 10 percent of the entire market share, in which case there is

a low likelihood that other retailers will get into the industry and offer substantial competition.

On the other hand, the online segment of jewelry market allows small businesses to enter the

market with less required capital.

Threats of Rivalry (High)

Recent times have seen heightened usage of the Internet in the market, which considerably

increases the rivalry, as numerous retail jewelers will be competing for the same markets both

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nationally and internationally. The advent of the Internet would give consumers the capacity to

compare the prices at which different commodities are being offered by different jewelers. This

underlines the fact that the buyers are experiencing low costs of switching since it is

considerably simple for them to shop for jewelry online and locate competitor websites.

It is also noteworthy that rivalry would decrease in instances where there is an increase in

the market growth rate. The sale of jewelry through the Internet seems to be experiencing a brisk

growth, where sales are increasing at the expense of physical jewelry retailers. It would be

reasonable to suspect that the online segment of jewelry market is an emerging business in its

infancy (considering that the buyers are more likely to feel comfortable making big purchases

from brick and mortar jewelers), in which case there is a high likelihood that online jewelry sales

will grow at a considerably higher rate compared to the jewelry sales in general, a situation that

would regulate the rivalry among online jewelers.

Threat of Substitutes (High)

As much as it would be noteworthy that fake jewelry may not offer a substantial threat, it is

noteworthy that other factors come into play as far as determining the significance of threat of

substitute goods on the business’ profitability. Indeed, the existence of commodities beyond the

common product boundaries would increase the consumers’ propensity to switch to other

alternatives. In this regard, factors that have to be considered would include the switching costs

of buyers, perceived product differentiation levels, the propensity of buyers to substitute and the

relative performance of substitutes with regard to price.

In the case of Tiffany & Co. it goes without saying that the substitutes offer considerably

low chance of challenging its profitability in the short-term and long-term since most buyers can

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tell a genuine one from a fake. However, it is noteworthy that the buyers would incur

considerably low switching costs and would have a higher propensity to substitute, particularly

due to the entry of the internet and online jewelry stores. This means that consumers have a wide

range of options for purchasing jewelry other than from retailers such as Tiffany & Co. It is

noteworthy that there exists quite acceptable alternative sources for purchasing jewelry, some of

which charge prices that are reasonably competitive. Further, an immense proportion of

consumers are perfectly comfortable and familiar with purchasing jewelry from other jewelers

both online and offline.

Bargaining Power of Suppliers (High)

It is worth noting that suppliers of jewelry items weld immense leverage and bargaining

power as far as determining the terms and prices at which they supply the products is concerned.

Of course, there exists quite a number of alternative suppliers, in which case it seems

considerably easy for retail jewelers such as Tiffany & Co to change from one supplier to

another. However, the fact that the suppliers do their own jewelry cutting, polishing and crafting,

as well as distribution means that it would be highly unlikely for a retailer to switch suppliers

and still end up with the same quality of gems at a lower price.

Bargaining Power of Buyers (Low)

Buyers incorporate little capacity to bargain and demand lower prices for the jewelry items

that they aim at purchasing, of course, apart from the extremely expensive items where it is

normal to have some price haggling. As much as individuals have the capacity to decide to buy

or not to buy in the stated price, no person or consumer has the capacity to initiate direct

negotiations with the jewelry retailers with regard to the terms and conditions under which they

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can obtain a jewelry item from retailers. Of course, individuals may decide to switch from one

retailer to another, whether online or offline, but this would not be tantamount to exerting

leverage or bargaining.

Conclusion

It is evident that the competitive pressures pertaining to jewelry retailing are considerably strong

but are yet to be overwhelming as seen in the capacity of Tiffany & Co’s capacity to attract new

clients and compete with other forces. It is noteworthy that the competition from the substitutes

and rivalry come as the strongest competitive forces. On the same note, the threat of new entrants

may be significant in instances where the party concerned is trusted and well-recognized brand

and in instances where such entrants choose to offer their products at competitive prices.

Factors that will determine the success of a company in the next 3-5 years.

The success of any business entity is primarily determined by its profitability in the long-

term and the short-term. Quite a number of factors have a bearing on the profitability of the

company, depending on the industry within which the company operates. The jewelry market or

industry comes with its own distinctive features and, subsequently, a unique set of factors

determining the success of companies in the same.

One of the key determinants of success would be the brand image or reputation of a

company in the industry. It is well acknowledged that reputation is everything as far as the

appeal of any business to potential consumers is concerned. For jewelry shoppers, it is always

imperative that they purchase from companies that have a strong brand image and name, as there

is less likelihood of purchasing fake items since they have much more to lose.

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In addition, the increasing growth of the online segment of the industry will play a key role

in determining success of companies. Needles to say, the online segment increased the reach of

business entities to potential consumers and reduced the cost of establishing businesses or even

marketing their products. The capacity of a particular business entity to incorporate or take on

the online segment and use such facilities well will determine its capacity to grow in the

contemporary markets. This is the only way that businesses can compete in this market.

Moreover, the capacity of businesses to customize their products will determine their

success. It is well acknowledged that numerous individuals in the contemporary societies are

vouching for products that have been customized to suit their needs and specifications. The

customization may be in terms of shape, color, or even the combination of gems that are offered

in a particular item. This has emanated from the fact that jewels and gems are essentially a status

symbol, in which case the more unique and distinctive, the higher the likelihood that it would be

expensive and less common. Given that jewelry businesses primarily attract the middle and

upper class individuals in the society, their capacity to customize the items would determine their

attractiveness to such individuals and, essentially, their success in the markets.

Another key success factor in this business will be the presence of an effective

collaborative arrangement with the gem supplier enabling the jewelry retailers to display a wide

range of stones and gems particularly in their websites without necessarily having purchased

them and only obtaining them once a customer has placed an order for the same. It has well been

acknowledged that the jewelry business requires quite a substantial amount of capital to start.

This has been considerably prohibitive as few entities have the financial capacity and the

requisite brand reputation to succeed in the market. However, online jewelry stores may have

considerably chances for success if they manage to enter into collaborative agreements with the

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suppliers, where they would simply use images of the gems in their websites to attract consumers

and only purchase them after an order has been placed for the same.

Tiffany & Co.’s Strategy, Competitive Strategies, and Competitive Advantage it

aims at Achieving.

Tiffany’s & Co. follow a best- cost strategy, where it gives customers more value for money

by incorporating good-to-excellent product attributes at a lower cost than competitors. On the

other hand, we believe that Tiffany’s & Co. also follow a differentiation strategy not only in its

products but also in its process of selling. Where Tiffany & Co. provides a wide range of unique,

valued and high quality products to satisfy the various tastes of customers unlike other

competitors. Also, Tiffany & Co. provide a unique buying experience for customers where

customers enjoy the knowledge received through the purchasing process and offer the products

purchased in a unique blue box that consider the sign of Tiffany’s & Co.

Tiffany and Co’s strategy incorporates two fundamental elements. First, it offers fine

jewelry and high quality diamonds at considerably competitive prices. Secondly, the retailer is

known to give jewelry shoppers some educational information, trusted guidance, grading reports,

as well as in-depth information pertaining to the product throughout the process of purchasing

the products. This would ensure that the consumers have perfect knowledge regarding the

products, in which case they can determine its value and distinctiveness in the market.

There are varied generic competitive strategies that would fit into the competitive strategy

that the company is taking. First, Tiffany & Co offers a wide selection of products from which

consumers can choose the most appropriate for them. Currently, the company incorporates quite

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a wide range of styles of fine jewelry, as well as independently certified diamonds such as

watches, bracelets, necklaces, earrings, wedding bands, rings and pendants.

In addition, the company incorporates the capacity to customize the products, as well as

deliver them within a number of days, which plays well into the likes and preferences of the

consumers.

Further, the company has made it its business to always offer consumers a blue box upon

purchasing an item from its stores. This gift or after-sales-service comes as a symbol of the

company’s high-quality products, its pristine reputation, deep respect for the consumers and their

needs, as well as its commitment to excellence. It goes without saying that it cements the

company’s reputation in the eyes of the consumers, both potential and current.

On the same note, the company has strived to increase its market reach by opening its

doors to all types of consumers. As much as its stores are located in wealthy neighborhoods, it

also offers a substantial amount of products, a large proportion of which are low-priced such as a

“deck of cards’ for individuals who are seeking to have a glimpse at the company’s experience.

Moreover, it has sought strength in the market by specializing in a particular line, with

around 90% of its sales emanating from the jewelry selection. The jewelry, however, is divided

into varied segments, with a third of the company’s revenues coming from the sale of silver and

gold, while another third emanates from the quintessential engagement rings and wedding bands.

The company’s main strategy currently revolves around persisting in the expansion of that

product line in a manner that would not compromise the prestigious brand name that it has built.

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This has necessitated being extremely selective with regard to the type of products that it carries

while persisting in its expansion of its target market.

Tiffany & Co.’s SWOT and its capacity to nullify external threats and seize market

opportunities

Undertaking a SWOT analysis would undoubtedly be crucial to evaluating the current

position of a company or business entity and determining the opportunities that it has at its

disposal, as well as the things that it needs to do so as to increase its profitability and

sustainability. Indeed, a SWOT analysis would allow for the identification of the company’s

internal strengths and weaknesses, and the external opportunities and threats.

Strengths

One of the key strengths of Tiffany & Co is the incorporation of a strong direct selling

strategy, where it makes use of numerous direct distribution channels. The retail sales of the

company in the United States include direct sales via its stores in the country or via business-to-

business direct selling operations in the country. Further, the business entity has been selling its

offerings online and also undertakes catalog sales. It is noteworthy that the cost-effective selling

strategy that the company has adopted has allowed it to come off as one of the most prominent

players in the specialty and jewelry retailer segments.

In addition, the company has a wide range of offerings to its consumers including a broad

selection of jewelry, accessories, fragrances, sterling silverware, stationery and timepieces.

Indeed, the company has gained an impressive reputation for the wide range of diamond

offerings, as well as other precious and semi-precious stones. On the same note, the company is

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known to refresh its range of products at a regular interval thereby keeping the consumers’

interest always up. The wide range of offerings allows the company to meet the divergent needs

of its clients.

Further, the company has built an immensely strong brand name and reputation for itself

in the jewelry industry. It is well acknowledged that reputation is everything in any market or

industry as it has the capacity to make or break the business in both the short-term and the long-

term. Fortunately, as one of the leading jewelry retailers in the United States and the world at

large, the brand name of the company works in its favor as it gives it an edge over the numerous

competitors. Indeed, clients are more or less sure that they would be guaranteed to get the most

authentic and distinctive or unique jewelry offerings in any of the company’s stores across the

globe.

Lastly, the company prides itself in having a strong balance sheet. Not only does the

company have numerous branches and stores across the United States and Europe, but has it also

been reaping immense rewards from the same. It is noted that in 2012, the company celebrated

175 years of excellence with sales that totaled more than $3 billion. In spite of the slowing down

of its sales during the depression at the beginning of the 21st century, the company managed to

rebound in 2010 and even outperformed the jewelry market with a 10.9% growth. By 2011, its

sales in the United States alone had grown to $1.8 billion, a 15% increase, while the total sales

rose by 18% to $3.6 billion, as its net earnings got to $439 million or 19% increase. Such a

strong balance sheet enables the company to undertake immense initiatives that would allow it to

enhance its profitability and competitiveness in any market.

Weaknesses

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Some of the weaknesses that the business entity has include a decrease in its cash flow in

the last few years, which could negatively affect the financial position of the company, limit the

investment options and capacities to pay dividends in the future, as well as impact the

performance of the company in the stock market.

Further, the business has not been performing that well in some of the markets where it

has expanded its reach particularly the Japanese markets where the consumer confidence has

been on a steady decline. Such an underperformance in its foreign markets may affect the

company’s revenue growth.

Opportunities

The company is presented with numerous opportunities, the exploitation of which would

enable it to remain relevant and competitive in the market.

First, the company has the opportunity to expand its retail outlets. Tiffany & Co has

persistent in its pursuance of store expansion strategy that it initiated in 2007 and managed to

open new boutiques and stores in varied locations including New Jersey, Mexico City, Hong

Kong, Kuala Lumpur and Belgium among others. These new retail outlets would not only

increase the geographical reach of the company but also enhance its position and

competitiveness in the market.

In addition, there are impressive opportunities emanating from online sales. As earlier

stated, the online segment of jewelry market is an emerging business in its infancy (considering

that the buyers are more likely to feel comfortable making big purchases from brick and mortar

jewelers). This, however, does not undermine the immense strength that the Internet holds for

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business entities. Online shopping is, in fact, on an upward trend in the United States and the

world at large. It is not only easy and cheap to set up but also has the capacity to reach an

expanded size of the market in all corners of the world. Such an opportunity would allow the

company to increase its sales while decreasing its costs particularly in marketing.

Furthermore, there has been a considerable growth in the men’s fragrances market. It is well

acknowledged that the fragrances market is being favored by the lifestyle trends that include an

increase in the willingness of men to spend their money and time on their appearance. This

positive outlook of the market in men’s fragrances and toiletries is bound to boost the business

entity’s revenues in the long-term.

Threats

Unfortunately, the capacity of the company to excel is curtailed by some significant

threats. First, there is the prevalence of counterfeit accessories. This is particularly in the case of

fashion accessories such as rings, watches and necklaces, with the market for the same increasing

in the long-term. Needless to say, an increase in the counterfeit trade would result in a loss of the

company’s brand equity. The resultant consumer dissatisfaction would be detrimental to the

image that the company has built over time.

On the same note, the company’s financial capabilities are threatened by the slowdown of

the United States economy. The United States forms the fundamental market for the company, in

which case a slowdown in the same would depress the growth of its revenue and its margins.

Appraisal of Tiffany & Co.’s Financial Performance

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Using the Earnings before Interest and Taxes, it is evident that the company’s financial

performance has been improving in the recent past despite the recession that the world

economics have experienced. It is noteworthy that in 2006, the company’s EBIT amounted to

$250.3, before increasing in the following year to around $343.4. The EBIT fell in the

subsequent year to $228.3 and further to $226.4 in 2008 and 2009 respectively, a trend that may

be attributed to the recession with which the entire globe was grappling. However, 2010 saw a

complete turnaround of the company’s fortunes, where it registered $352.1 in EBIT and $477 in

the subsequent year (2011). Of particular note is the fact that the revenues of the company within

the same time followed a similar trend. However, the increase in its revenues may be attributed

to the increase in the price of its products and the decline of recessionary effects. This could

imply that the strategy of the company has been working in its favor.

Weighted Competitive Strength Assessment of the Company

An examination of the financial position of the company reveals that it has sufficient

competitive strength that would allow it to defend its position in the industry. A weighted

competitive strength assessment allows for an examination of the key success factors of an

industry and the rating of a firm and its key rivals on every factor using a scale of 1 to 10. One

would decide the weight that would be given, with the weights being multiplied by the rating,

after which they are summed up to obtain every company’s competitive strength. In this regard,

Tiffany & Co will be compared to two of its rivals namely Blue Nile and Zale’s

Weighted Competitive Average

Strength Rating (Scale: 1=Very Weak; 10=Very Strong)

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Key success

factor/ Strength

Measure

Tiffany & Co Zale Blue Nile

Importance

Weight

Strength

rating

Score Strength

rating

Score Strength

rating

Score

Diamond

quality

0.40 10 4 7 2.8 9 3.6

Capacity to

customize

products

0.30 8 2.4 6 1.8 10 3

Image of the

company

0.30 10 3 8 2.4 8 2.4

Sum

importance of

the weights

1.00

Weighted

overall

strength

rating

28 9.4 21 7 27 9

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Evidently Tiffany & Co is way above its rivals as far as competitiveness is concerned. Tiffany &

Co is rated 10 since it is the leading provider of rings and has a reputation for quality diamonds.

While Zale’s and Blue Nile have quality diamonds, they are not as reputable as Tiffany’s. As

much as Tiffany & co has the capacity to customize rings, the trait is yet to be the main attraction

to consumers. Indeed, the company has a high rating for image since consumers prefer it due to

its reliability, prestige and quality, unlike the case for Zale’s

Strategic Issues that Tiffany & Co needs to address

There are a number of strategic issues that have been eating into the competitiveness of the

company in the recent times and threatening to push it into oblivion in the jewelry market. First,

the company has been fairing extremely poorly as far as the management of commodities is

concerned. Like a wide range of its luxury-goods-and-retail counterparts, the company’s bottom-

line suffered immensely due to the high prices of commodities. As much as it increased its

process so as to offset the effects of the increasing costs of precious metals and diamonds, the

wealthy shoppers may have increased their expenditure with no subsequent increase in the

bonuses of businesses. The company’s strategy of increasing the prices of high-ticket items so as

to remedy its gross margin issues may be driving away potential consumers.

On the same note, its strategy of expanding into other markets seems a bit ill-informed and

ill-timed. Indeed, it is noteworthy that an immense part of its expansionary efforts have been

carried out in the Asian and European markets, areas that have been facing possible recession.

The company’s aggressive expansion plans came at a time when the debt markets and global

credits were commencing their contracting, thereby causing undesirable economic effects.

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Recommendations and Conclusion

It is evident that as much as the company has great opportunities and chances for

enhancing its bottom-line and competitiveness in the markets, it has to overcome some

challenges both within and without. First, its impressive balance sheet provides it with the

capacity to undertake any projects that would enhance its bottom-line. However, these projects

and expansionary efforts have to be undertaken on the basis of proper research and market

analysis. This would allow for an examination of the most appropriate time to invest in a

particular market and how to win consumer confidence in the same.

In addition, the company needs to change its focus from profits to profitability. The

company seems to have been focusing on top-line growth while compromising on the health of

its bottom-line. Indeed, its efforts to expand consumer markets and product lines seem to have

stretched the company thin, increasing its revenue while reducing its gross margins.

Further, the company must make itself sufficiently flexible to exploit emerging

opportunities particularly in the world of Internet and online shopping. Its expansion should be

supported by impressive online presence, as numerous consumers seem to prefer online shopping

rather than the offline or brick-and-mortar-stores.

In conclusion, a SWOT analysis of Tiffany & Co. reveals that it still holds tremendous

capabilities for exploiting the varied opportunities and suppressing its threats so as to enhance its

capabilities in the future. However, this would necessitate a considerably more weighed

approach that is based on facts and research on the issues at hand. In the past, the company has

responded in a manner that has resulted in undesirable outcomes. For instance, its decision to

increase the prices of its diamonds and other jewels may have increased the profits of the

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company but undermined its capacity to attract other consumers. This, however, does not

undermine the fact that it still has considerable chances for survival, particularly since it has

numerous strengths such as good image and reputation, impressive balance sheet and even a

wide range of offerings. These may be sufficient to take on the challenges it may encounter and

take on other opportunities particularly in the online shopping aspect and expansion into

emerging economies.

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References

Tiffany’s Little Blue Box case study, Retrieved from

www.ebook.com