Isaac Mostovicz writes...
We are irrational. After all, out motivation resides in our subconscious. We have passions and emotions that dictate our behavior and constantly overrule, block and blind our logic. Yes, we are human and that we are ashamed of it is human, too.
In spite of these obvious observations academia keeps on failing by trying to squeeze human behavior into this “logic” box. It tries to explain in logic terms why we behave in one way or another when the real answer is actually illogical and irrational.
I recently read an article by one of my favorite brand experts – Jean Noel Kapferer. Prof. Kapferer in his article addresses the challenge that luxury brands face when growth dilutes their luxury cachet. One key characteristics of luxury is rarity and when it is possible to find a product or brand all over it is not rare any longer, or this should the logic argument be.
I enjoy Prof. Kapferer because he has the knack for brands and luxury. In this article he actually explains what luxury is. I believe that he understands the term subconsciously and I have my doubt whether he paid attention to what he actually said. Here is the quote: “For centuries, luxury was limited to the happy few. It was the exclusive lifestyle of those in power: pharaohs; kings, queens, and their courts; and later merchants and industrialists. It was meant to express refined taste and impress crowds by the magnificence of the palaces, horse carriages, dresses, jewels, and so on.” It is a bit blurred but luxury is about unattainable dream. You can stay at Buckingham Palace but you’ll never turn into the Queen. All you can do is dreaming of it and that overnight staying allows you to dream more accurately. On the other hand, Ralph Lauren’s “value is created by prestigious retail stores made to resemble a mansion, materializing the American dream.” That’s the difference between prestige brands which allow people to materialize their dreams and true luxury which stay as a dream although it allow “excursionists” to experience how those legends live, sometimes on a regular basis and sometimes only for a short period. Luxury has a promise that you can enjoy the product and the brand but you’d never become the true elite – this will stay a dream.
Here is an example to what unfulfilled dreams are. In another publication of his, Strategic Brand Management, Prof. Kapferer points to that luxury brands, especially those named after the founder, Channel, Nina Ricci, YSL and so gain strength after the founder dies. Well, not always. However, Channel is a good example. Coco Channel did not create fashion – she was a fashion icon herself. She sold what she wore. You can buy a Channel outfit but you’ll never become Coco Channel, especially now when she died. That’s luxury.
Going to challenging issue of the above-mentioned article, it is clear that we need a psychological solution. Louis Vuitton, for example, would do best by promoting the legendary Louis who died long time ago. You cannot get his services for any price but you can dream on it. Louis Vuitton, the company would provide you with the closest-to-dream replica, you cannot get closer but you can have a more meaningful dream. If you hammer this message into people psyche you can mass sell your products. Irrational? Maybe but I believe that it will work.
Isaac Mostovicz writes...
It was a pleasant surprise to read a new article about the diamond industry, “Applicability of the high-performance organization framework in the diamond industry value chain” just to find out that the authors extensively used my article, “The diamond industry as a virtual organization: past success and challenging future” when describing the diamond industry. I am really fond of that article which was written by mistake. During my studies at the University of Northampton Business School one of the professors who did not grasp what I am researching insisted that I will write an article about the diamond industry. I had no choice but to do this work, which I considered unnecessary. Upon reading the work my mentor, Professor Nada Kakabadse told me that I have a good basis for an academic article introducing me to the academic publication industry. Well, my work was only the first part of the article and I was asked to add conclusions. These conclusions became longer than the article itself, appeared in a separate article and actually served as the basis for my PhD. Life are full of surprises, don’t you think?
Eight years passed by since I first authored that article about the diamond industry. The industry suffered from severe problems of cash-flow and inability of the banks to finance it any longer. For example, Russell Shor reports in recent GIA article that
“Last year, ABN Amro, the industry’s leading lender, announced it would limit credit to 70% of rough purchases, a break from past policy when they would finance the full amount. In short, diamond manufacturers and rough dealers must put 30% of their own capital up for each purchase, a move the bank feels will limit the speculative buying that has created an extremely volatile rough market during the past four years. In addition, the manufacturers must invest their own funds into rough that is much less profitable to cut in the current environment.”
This policy is similar to that the industry’s lending bank adopted past the economic meltdown back in 2008 when they limited the credit to 60% only causing the wheels of the industry to completely stop for three months.
However, within the same article Russell Shor paints another picture:
“After reasonably successful holiday sales of diamond jewelry in the U.S., De Beers allocated a large sight of about $750 million, with prices of medium quality goods rising 3-5%, higher in some cases. The price increases were apparently based on the assumption that demand for certain goods will increase in the spring when U.S. retailers will need to restock.
As soon as the news of the price increase reached the markets, premiums on existing rough supplies also began to rise, causing concern that a new round of speculative buying – and subsequent price increases unrelated to demand – may be in the offing.”
A large sight, a raise in rough prices and increased premium on goods? Doesn’t all this tell you that business is booming? So, what exactly happens here? Isn’t the industry living in La La Land? Successful holiday sales? Did you see the long lines of customers standing outside the shops trying to snap diamond jewellery off the shelf? Did I miss something?
The past eight years taught me invaluable lessons. Nowadays I know much more about the diamond industry, about its strengths and weaknesses about the mistakes, the wrong assumptions and misconceptions that shaped and continue to shape the industry. After delivering a series of three lectures that only cover the history of diamond marketing in the last eighty –five years I don’t think that another academic article is the right way for expressing my thoughts and broadcasting them. Are you interested in what I have to tell? What would be the most suitable medium to use and why?
Isaac Mostovicz writes...
Recently, a research by Frof. Eli Somer of the University of Haifa and Dr. Ayalla Ruvio of Temple University in Philadelphia PA. argued that the more materialistic people are, the more they will go on a shopping spree when exposed to trauma. I was intrigued by the claiming that materialism can predict how people cope with stress, asking what materialism is and how it is defined just to find out that we all are materialistic. We all acquire and own material goods, or goods that have some monetary worth to achieve life goals and desire states. Put it simply we all spend money unnecessarily not only for satisfying our basic needs but for achieving higher goals. Sounds familiar? Isn’t this an example of luxury behaviour when we overspend needlessly?
Somer and Ruvio conducted their research in Sderot, a southern Israeli town which was exposed to non-stop rocket and missile fire from Gaza terrorists for over eight years. I had an opportunity to host children from Sderot and witness how much those children suffered from this long-term exposure to stress. To alleviate this taxing stress people went on shopping spree time and again. While the less materialistic people coped with the continuous exposure to danger by seeking social support the more materialistic ones were more oriented toward objects than humans.
Did this materialistic consumption help people to cope with their stress? The authors posit that “The results of this study also suggest that the pleasures of shopping cannot attenuate posttraumatic distress, and that maladaptive shopping behaviours increase with the level of traumatic exposure.”
Do you agree with these results? In my opinion, the researchers stopped too early and didn’t ask the “how” and “why” questions. Materialism is part of our life and people need it and use it to satisfy their needs, especially that of enhancing their self-esteem. With continuous exposure to danger it is a never-ending fight and people need to remind themselves of the importance of their self. Some seek professional support and some turn to purchasing objects. However, the purchasing activity, per-se won’t help in extreme situation such as non-stop terroristic aggression over many years. What might subconsciously help in mild situation won’t help in these extreme cases without understanding consciously why we overspend needlessly and how this overspending can help us coping with stress.
I don’t think that materialistic behaviour is counterproductive as the researchers argue. I do agree that the behaviour by itself might even increase the post-traumatic stress symptoms if people do not deeply understand the “why” and “how” of luxury. And from materialistic point of view it is possible that it would be cheaper to let people go on conscious and deeply understood buying spree than sending them to therapy. What do you think?
Isaac Mostovicz writes...
I am happy to announce that Janus Thinking is now offering its first free webinar. The webinar’s title is, “Are you Really Serious when it Comes to Diamonds?” The webinar is an attempt to put together answers to questions I am constantly asked about. You can have flair of those questions when you visit Janus Thinking’s Facebook page. I was mainly asked to comment on three topics, general knowledge about diamonds, value and prices of diamonds and “blood diamonds”. While I might not cover all the questions I was recently asked I believe that the answers and discussion would be interesting and look at those questions from a novel angle.
The webinar will be of interest to all of you, whether diamonds are your topic or not. We will discuss issues such as marketing, luxury and behavior as well. You can send requests and questions prior to the webinar either by commenting here or to firstname.lastname@example.org.
Here are the details. The free webinar will be held on Tuesday, October 22nd, 20:00-21:00 Paris time, 19:00-20:00 London time, 2 PM- 3 PM New York time. Please register even when you cannot attend so I can send you a link to the webinar’s recording via email.
Please, click here for registering to the free webinar. Don’t forget to invite your friends as well.
Christopher Columbus estimated the globe to be smaller. However, even when we live nowadays in a global village we still did not succeed to cover over the time gap. I had to find a compromise between Europe and the US knowing that the gap of time is five hours or more.
I am looking forward to meeting you in two days.
Isaac Mostovicz writes...
Last week a friend of mine, Cristina de Azevedo Rosa, shared with me a very interesting presentation of Harvard professor Clayton M. Christensen named “How will you measure your Life”.
Christensen claims that we all look to succeed in our lives. However, the way we measure this success in life is flawed for three reasons. Firstly, we tend to invest in immediate achievements that in many cases stray from our values as humans. Secondly, this measure is quantitative. Since we cannot grasp data in detail we tend to aggregate it. If we run an organization, for example, we cannot grasp the notion of the individual and we refer to people who work for us as “human resource” – we aggregate the data to render it meaningful and manageable for us. Thirdly, we are comparative creatures. We cannot measure in absolute terms but in relative ones. Having more money than the other or controlling more people are some of the indications for success.
However, how useful are these yardsticks for measuring success in life? Christensen asserts that God does not employ accountants. In other words, when we are going to face God at the end of our lives these measures won’t help us much. Firstly, our short-term achievements will be reviewed for their long-term benefit. Secondly, God does not employ accountants or statisticians for aggregating the data. He is able to address each individual encounter to assess success without losing the overall sight. Last, God measures in the absolute – God is not relative.
Consequently, Christensen suggests us to measure our life along measures that can be used when we will encounter God. Is this going to happen? Using Christensen’s arguments I doubt very much. We tend to cede long-term great goals for short-term perks. Secondly, we are human and cannot grasp large data bases – we need to aggregate them to render them sensible and last, as humans we cannot think in absolute terms – we need to compare and contrast.
Is there another way to live life worth living? How should we measure it? Allow me to suggest two measures, pointing to the trap Christiansen fell into. The first is the pursuing of achievement. The question is whether what we call achievement can be considered as such by Him. Is our myopic, narrow and relativistic view suitable for clearly defining what true achievement means? Jewish sages posit that we will not be measured for what we achieved but for our efforts to get there, regardless to where we arrived to at the end of our life.
The two other flaws that Christiansen point to form my second measure which is a measure of leadership. We tend to measure the degree of leadership using measures of comparing and contrasting. When comparing we check people along their relative hierarchical position. When contrasting, we check people along the type of the issues they deal with. Are they deal with strategies and policies or do they deal with the individual. We tend to see the leader as the one who deal with what we consider important and fundamental issues ceding the mundane ones or delegating them to others. Leadership is grasped as being responsible for other, more important issues.
Fortunately, I was educated differently. My masters who were and are grate leaders never closed their doors to anyone. Many of them created fundamental changes that made the world look differently thereafter but at the same time each individual, being a small child or a public figure found his place by them, got their empathy and care. They did not change the issues they dealt with; they just enlarged their scope of responsibility. We do not need to wait for our meeting with God for finding out how to measure our lives. Having these two measures in mind – investing ceaselessly in progressing toward our goal and being truly responsible can turn our life into something worth living for.
Isaac Mostovicz writes...
Tomorrow evening we will celebrate the Jewish New Year. This is a moment of reflection at what we achieved in the past and what our plans for the future are. Looking back to where I was last year I am happy to see how plans start to take form, how fuzzy ideas start to get shape and I am looking toward the coming year with enthusiasm and with hope in the coming weeks we will be able to start participating more using various means, deepen our understanding of us and the world around us.
I wish you happy New Year. Let’s hope that the coming year would bring to all of us health, wealth, prosperity and enjoyment.
Isaac Mostovicz writes...
I had an interesting experience last week. We are currently working on a webinar that will help people to shake off their intimidation when dealing with diamonds, that would enhance their confidence and help them dealing with diamonds in a joyful manner. This is pretty interesting concept that we were testing in the last few months. When we finalize the technical details I will share it with you, hoping that you will join me on this webinar.
We didn’t have problems with the concept or with the content of what we offer. We tested it on dozens of people in different group setting and they were pleased with what they got. We knew the reason for the intimidation. In a nutshell, the customer’s concern is an equation with three unknowns. He has to find a product which he totally does not understand about and offer it to someone, suiting her taste, while relying on someone who never met the lady who is going to get the diamond ring. Moreover, even when and if the jeweller finds the right diamond, the customer would propose the jeweller’s choice of a diamond, not his. It is always a pleasure to speak to people and to see how their eyes lit even when we only empathise with their problems. And you have to see how happy they are when they start to see how they can solve these issues.
However, publicizing the webinars was a challenge. Advertising is joining an on-going, already existing discussion and introducing something new. My basic assumption was that people who come to us did already some research and went through what the industry calls “diamond education”. After all, it is enough to check on Google “how to buy a diamond” only to get over 346 Million entries. Most of this education is about the 4C’s of the diamond (Colour, Clarity, Cut and Carat). I can share with you that knowing the 4C’s won’t take anyone too far. It is like providing a partial list of ingredients instead a full receipt of a dish. Therefore, people were still intimidated and frustrated because they did not know where next to head. They wanted to expose all the ingredients and to learn how these are put together to make the final dish. My conclusion was that the on-going discussion should be the frustration and the intimidation of the diamond customer.
I was overruled. “You should offer a webinar that explains the 4C’s”, I was told. Of course, during the webinar I could and should go beyond and further explain how to proceed but the on-going discussion of the customer was what the 4C’s were and there where I should start. It sounded strange to me that people would commit to a specific time and pay $25 to listen to an expert when they can get similar information on the internet for free and when they want. However, as I finished the discussion I was asked in one of the forums exactly this: “what are the 4C’s of the diamond?”
Coincidence? I don’t know. Nevertheless, it is clear that in spite of the abundance of information people still go to basics and what the 4C’s are is the on-going discussion. The interesting question is why is it so? Why aren’t they happy with what is available on the Internet? Why isn’t their on-going discussion taking a different shape? I can assume but can you, the potential customer, tell me why did not you move your discussion further?
Isaac Mostovicz writes...
After more than 4 years of manning the US State Department conflict diamond desk, Brad Brooks-Robin stepped down and was interviewed by JCK magazine. Apart from appreciating the very honest answers Brooks-Robin gave, I was left with some questions that I could not find answers to.
Kimberley Process Certification Scheme, established ten years ago, is a structure set up to ensure that diamonds sold internationally do not finance wars or other conflicts. Countries subscribing to the Kimberley Process must put in place regulations requiring diamond dealers to buy diamonds only from known sources. Brooks-Robin considers the scheme to be effective, but believes it does not cover all aspects. Its lack of comprehensiveness was the reason the NGO Global Witness decided to leave the Kimberley Process.
However, the interview fails to address the most fundamental question. Is there any evidence that diamonds finance wars or other conflicts? Was there a raison d’etre for such a huge bureaucratic mechanism to start with? Everyone was mobilized for the scheme – the US government and Senate, the European Union, the Security Council of the UN and even Hollywood. Everyone went forward to protect the market from an evil that never existed.
Well, I would not say that it never existed. When the UNITA wanted to finance its war against the government, they sold diamonds on the open market, but that was a different story. Financing a body the size of UNITA means that they had to sell a lot of diamonds. Actually, the size of the smallest parcel they sold was over $1 million and the goods were openly traded. It would have been quite easy to stop such a trade, had those who were interested been willing to do so; however it seems they were not since they used the money to sell arms, which have the nasty nature of killing and maiming people.
The reasons behind creating this huge scheme were in reality different, but that is another story. Ten years later we now have a mechanism that works smoothly, though aimlessly, and everyone is happy. We have a car with an excellent motor but without a gearbox allowing us to drive it to our destination. We have a set of rules that is followed to the letter of the law, but no one cares whether they achieve anything at all.
The rules on the regulation of the Kimberley Process were doomed to be unsuitable for the needs of the diamond industry to start with. After all, how can rules dictated by someone who does not even know the industry — its strengths and weaknesses, its ethical code and its motivators — dictate rules? Listen to what Brooks-Robin says:
“I don’t understand why KP meetings don’t have a session on the state of the industry. There are too many diplomats and bureaucrats who come into the KP and know zero about the industry. […] There are too many people who come into the industry like me and don’t know anything about it, and KP meetings don’t give you much of an opportunity to learn about it.”
Well, this is hardly news. In early 2000, based on advice from Bain and Co. consulting firm, De Beers decided that the industry needs brands. Nobody really knew what brands meant or how to create them or whether diamonds can be branded at all. Brand was in the air and as De Beers said, we don’t know what this drive means either or how it will revive the industry, but we will learn together with you. According to Varda Shein, the general manager of the Diamond Trading Company – the marketing arm of De beers – about $5 billion in cash went up in smoke without selling one single diamond.
How well did Bain and Co. know the industry? These consulting firms have tools for analyzing corporations, however when dealing with an industry that is exclusively entrepreneurial, one needs different tools and rules, that are not taught in business school. I personally witnessed this when I was in business school, when I realized that I need a very healthy measure of creativity and commitment to apply what I learned to my business. At least if there is a positive lesson to learn from the branding fiasco, it is that the diamond industry is quite flexible and ready to adapt to any trend or move. Well, one cannot expect less from entrepreneurs.
The diamond industry is clinically dead. The mechanism works and its body is supported by life-support machines, but its soul – the personal responsibility for its actions – went away a long time ago. How long will it take before a true leader brings life back to this beautiful industry?
Isaac Mostovicz writes...
This is the second part of my previous blog and proposes a strategic marketing approach for the diamond industry.
As in 2008, I was approached with an important question. It is easy to criticize, but are there suggestions you can share with the diamond industry about what steps it should take to pull itself out of its misery? This is an honest question and while I cannot outline a full plan here, I will draw people’s attention to some basic ideas that I think they should follow if they are really concerned with the diamond industry’s future. Actually, these ideas are basic to any marketing strategy in any industry with any offer.
Sounds simple? You’d be surprised to learn how many companies do not know their customers. Decisions are made high in the supply chain while the customer is at the end. How many executives really bother to go out and meet their customers, to talk to them and learn what’s on their minds? How many know how to ask the right questions? The old marketing adage says that we buy by our emotions, but justify the purchase with logical arguments. How many know what the emotional motives behind a purchase are? How many know how to identify those motives? How can we make a marketing decision when we do not know what motivates the customer and how we can satisfy the customer with our offer? Know your customer, figure out his emotional needs and see how you can answer them with your offer.
This is the other side of the marketing coin. In 1938 De Beers understood that it had to create demand for its diamonds and invented the market for diamond engagement rings. The diamonds used were relatively large and were suitable for solitaire rings. However, with the discovery of the small Russian diamonds which did not fit the engagement offer, De Beers developed the idea of the anniversary ring which used those tiny diamonds. The anniversary ring was a derivative of the original offer of the diamond engagement ring and those tiny diamonds were found to satisfy the needs typical for a couple a few years into marriage.
However, when Indians proved that they could polish diamonds that were previously considered unpolishable, nobody came up with a suitable marketing offer. The diamond customer today has a variety of emotional needs that need to be mapped. Next, the diamond stock needs to be mapped as well. Different diamonds are suitable for different emotional needs. We know about two types: the relatively larger diamonds, mainly solitaires for diamond engagement rings, and the smaller ones suitable for anniversary rings. However, we need to map the diamond stock more carefully and in detail so as to get a clear picture of what diamond is suitable for satisfying which particular emotional need. Are we sure that any polished diamond is actually a diamond that can be offered as one, once we take into account the emotional needs of the customer? Can any polished crystalized carbon be used in jewellery?
I should point out that in general, marketing offers like I’m describing are not common in the diamond industry. A marketing offer reflects the answer in the market found to the emotional needs of the customer. Answering these needs creates a “pull” effect, or true demand. By comparison, when the diamond market became totally unaware of the emotional needs of its customers and was concerned merely with disposing its wares, it created a “push” effect. The reason behind this practice is financial – pleasing the bankers and competing on supply. The sad result is that nobody pays attention to whether the customer really wants the product in the first place.
Do we have a loyal diamond customer? Most customers are excursionists who go to the jeweller for their engagement rings and disappear from the horizon for the rest of their lives. Even when we bring them to purchase again, it takes a few years. Most jewellers act as supermarkets as opposed to carving out a niche for themselves. They sell an engagement ring today, tomorrow another piece of cheap fancy jewellery and will even replace a watch battery. However, in acting as supermarkets, they become supermarkets – providing no personal attention, no brand identity or affinity, with shelves packed with indistinguishable offers and cashiers at the end waiting only for the customer’s money.
Has anyone asked himself what he really wants to do? What market he wants to concentrate on? Many years ago I was sitting at a panel with the London jeweller Theo Fennell. Theo argued that he does not want to cater to the engagement ring market since the emotional, social and financial burden that lies on the man’s shoulder is so enormous. A representative of De Beers stood up and claimed that this approach is insane since statistics show that the market for engagement rings is the most important by far. To this Theo very gallantly offered that this woman shove her statistics up somewhere, since he was dealing with real people and not with numbers. Theo had a clear idea of who he is and who he would like to meet. Occasionally he would sell a diamond engagement ring but this was clearly not his market. He does not replace watch batteries either.
To sum up, if we are really concerned with the future of the diamond market, we have to take three strategic steps, by answering these very fundamental questions.
Firstly, we need to ask whether there is a market out there for our product or if we can we create one. Are there any emotional needs that are worth pursuing and providing an answer to? De Beers realized in 1932 that there was no diamond market and went about creating one.
Secondly, can we satisfy these emotional needs with our products and how? Is it a single need that we need to satisfy, an entire range of needs or maybe a single need that keeps on changing its face according to socio-demographic concerns? Which of our products are appropriate for which emotional needs? What products do we still need to search for the need that it will be the answer to?
Finally, are we looking to satisfy the entire range of desires or are we interested in carving our own niche? What would this niche look alike? What do we have to know? What supply channels do we need to secure? Most importantly, how can we communicate our existence to our customer of choice?
If the diamond industry or any other industry would follow these guidelines, I think they would succeed. One of the people who inspired me most was Steve Jobs who had a clear vision and could answer these three elements of proper marketing fully. Unfortunately, it seems that Steve Jobs took his vision with him and did not leave his legacy in Apple. This does not mean that we cannot turn the diamond industry or any other industry around. After all, what I describe here is what I call luxury marketing.
Isaac Mostovicz writes...
I was at the JCK show in Las Vegas last week. The JCK show is one of the largest diamond and jewelry shows in the world and almost everyone in the diamond industry attended either as a presenter or as a visitor. One of the highlights of the show is Martin Rapaport’s review of the diamond industry. Rapaport’s speech recalled for me the immortal Pete Seger song, “Where Have All the Flowers Gone?” because it seems that the industry has not changed its practice despite reality continuing to slap it in the face.
Let’s start with a bit of history. Before the big discoveries in 1882 there was not a diamond industry to speak of. Upon the discovery of the large mines in South Africa, Ernest Oppenheimer and Sir Cecil Rhodes established De Beers. Their major fear was that there might be a surge in diamond supply that the world wouldn’t be able to absorb. So they offered to buy the entire world supply, and act as a buffer, releasing diamonds according to need. Of course, De Beers wanted to profit from their position but they never withheld diamonds just to create artificial demand in a typical monopolistic manner. Following the Great Depression in 1932, De Beers risked becoming insolvent when it could not sell a single diamond while, on the other hand, could not raise enough money to honour its obligation to purchase the diamond production any further.
Fortunately De Beers survived and realized that its responsibility was to create a diamond market, or to create the consumer demand for diamonds. In 1938 Harry Oppenheimer, Ernest’s son, hired N.W. Ayer to help De Beers market diamonds. This move proved to be a tremendous success and the “A Diamond is Forever” slogan was coined, which is arguably considered one of the best marketing slogans ever. De Beers grew based on its ability to control the diamond rough market and to sell the production according to the real demand, taking care not to clog the industry’s arteries. In the 1950’s when the Russians started to sell their diamond production to De Beers, it presented a problem since the Russian production was of much smaller diamonds. Nevertheless, De Beers successfully started to market the anniversary ring as a means for marketing these small diamonds. Prices went up gradually, but in a sensitive way that reflected real consumer demand.
Things started to change in the late 1970’s. There were many factors involved. The introduction of grading reports (or “certificates” as they are known in the industry) increased the categories diamonds were divided into tenfold. Instead of ten categories the industry now had a hundred, and each had to be priced differently just to justify the grade. In no time, prices increased dramatically, but this time the reason was different. The increase in price was no longer geared by true demand but by internal market forces. People started to speculate and with the help of the bankers the industry bought rough with the hope of selling it later at higher prices. De Beers did not want to see a diamond stockpile grow outside their control and in August 1980 they managed to cut this speculative trend abruptly. As a result, the market came to a halt and started to build itself back slowly. Manufacturing of rough, on the other hand, did not stop and De Beers found itself in a position where it had to buy diamonds without clients to sell to.
Into this scene, Nicky Oppenheimer, the third generation, entered. Unfortunately, Nicky did not have the view of his ancestors who knew that the success of De Beers depended on the success of its market of true consumers in which they had invested money and energy to develop. Instead of building a healthy consumption that would eventually benefit De Beers, Nicky Oppenheimer was concerned with his company’s success – he wanted to make money. Looking at his stockpile, Nicky realized that the lion’s share of the value of it came from a very thin sliver of the goods – the better quality. Well, De Beers could survive by creaming its stockpile and hoping for better times to sell the rest. De Beers embarked on faulty market research that created the infamous 4C’s, promoting larger and more expensive diamonds.
Shortly before the 1980 crash, the Indian polishing centre started to grow. The Indians found ways to polish diamonds which only a few years earlier were considered unpalatable. However, De Beers effectively stopped looking for solutions for the diamonds polished from its rough. No marketing idea was introduced to promote the cheap Indian polished diamonds. This revealed the lack of basic marketing thinking in the diamond industry, which is about understanding the unique link between the consumer and its supplier. Local or international, the consumer needs to see what unique offer he gets at the retailer. However, by writing off the consumer, the focus switched to the retailer, and suppliers wondered how they could build loyalty.
Especially with the cheap Indian goods it was difficult to differentiate between supplying offers: they all looked the same and there was an exit barrier and no loyalty. These diamonds were approached as commodities where the cheaper offers won. To offset this problem, programs were created with the aim of tying up the retailer long-term, forcing them to buy goods that reflected the production needs of the supplier, but which were not relevant to the market situation. Instead of appealing to customers’ emotional needs, retailers followed typical push tactics by offering discounts and promoting sales similar to other retail sectors. With the help of De Beers, the suppliers helped those retailers promote these programs. As a result, the bigger the retail account, the more support they got as they had the ability to push more goods down the supply chain, at least theoretically.
Over time and especially when the Internet became an integral part of the business, sellers of larger and more expensive goods followed suit, turning the entire diamond market from luxury into commodity. People started to trade “paper” or “certificates” and nobody bothered to use a loupe and tweezers, the tools of the industry. To counter the price erosion, more and more programs were created. Suppliers were ready to act as bankers and extended lavish credits without knowing what they were doing, with the hope that they would manage to tie up their retail customers who would eventually sell their goods and send the money upstream. Instead of focusing on the diamond consumer, the industry looked the other way, trying to please its bankers.
Toward the beginning of the 1990’s I started to gain interest in the diamond consumer market, realizing that the reasons behind people purchasing diamonds are totally different from what the industry that trades and sells their production believes. I could not find answers to why people really buy diamonds within the industry. Nobody knew or even cared to know. The diamond industry totally lost contact with the diamond consumer.
Meanwhile, De Beers went into strategic review and came up with two results. Firstly, its $5 billion unsellable stockpile was worth nothing and secondly, it officially ceased to be the custodian for the industry. The industry which fully relied on De Beers to create its consumer market found that the captain had abdicated the ship.
Nobody seemed to care. As early as 1998 I warned whoever wanted to listen that the industry was heading toward insolvency but nobody really listened. Without much understanding of what they were doing and with the encouragement of De Beers, the industry went into branding itself just to see how $5 billion in cash and bank money, or a third of the industry capitalization, can evaporate within three years without selling one extra diamond to make up for the loss.
Meanwhile, De Beers tried to push its dead stockpile down the industry’s throat. Abdicating its role as the industry marketer, De Beers’ relationship with the market took a new turn. Companies were put into competition based on who could better please De Beers’ bottom line. Which customer had the financial muscles to purchase more diamonds long-term? Companies were not required to show that they could sell but that they could buy from De Beers on a steady basis. Most of the goods were the cheap Indian type and with bank generosity, Indians bought the entire stockpile, polishing it and creating a new unsold stockpile, this time of polished diamonds. The industry was operating completely in reverse — instead of focusing on the end of the supply chain, it was trying to please the beginning.
The industry was now at the mercy both of its bankers and De Beers, totally disregarding the diamond consumer and his needs. With the financial meltdown in 2008, banks were at a very shaky point and needed to justify the credit they extended to the diamond industry, which they could not do, and the industry started to panic and called for an emergency meeting which I attended. I must admit that I was wrong as eventually the industry survived, again with the help of its bankers.
However, five years later things haven’t changed. The industry owes $15 billion to the banks, or more than the annual cost of rough. From another perspective it owes 65% of its polished diamonds’ value to the banks and still it hasn’t realized that there is only one way to do business – by satisfying the consumer’s needs. Visiting the JCK show tells the story. On one part of the show floor you find the manufacturers, dealers and distributors – the diamond industry insiders who keep on dealing among themselves and complaining that they do not make any profit, as if living in a bubble and totally disregarding the retailers. The retailers are found on the other side of the floor, checking new packaging, software and other materials for their stores. These two parts of the supply chain do not meet.
And as for marketing, in his last slide, Rapaport had two important lines. The first was “We need marketing,” and the last one was “He who owns the customer owns the industry.” Well, Mr. Rapaport and my dear colleagues in the diamond industry, you have no marketing and it seems that you don’t care about it at all. Consequently, you do not own the customer and, according to Rapaport you don’t own your own industry.