Isaac Mostovicz writes...
Permit me to acquaint you with the Ultra-Orthodox Jewish society. While by most measures – morally, intellectually and educationally – this might be considered elite. However, many choose to live in poverty seeking high social standards. Their budgets are tight, but properly feeding their family is important, seeking out cheap solutions. Suppliers to this sector know that money talks –selling food staples with low margins, benefiting instead from economy of scale. The average household is 8-10 heads.
Furniture needs to be durable and long lasting. IKEA is well designed but won’t survive years of active children. Carpenters serving this sector learned how to manufacture what is best for this society. Most apartments are tiny with no extra space. The measurements need to be concise, or the carpenter will need to start again.
A recent debate in Hamodia, the only one newspaper that the Ultra-Orthodox utilize, discussed complaints about dishonest furniture stores. These stores asked for payment in full when ordering, but didn’t properly deliver. The examples were many. Delivery time was not respected, the furniture didn’t fit, or the color wasn’t right. One of the recommendations people gave was to always buy at a store that has a sign above it. Many stores keep costs down in this community by not having a sign.
Next, the store owners came with their stories. Payments canceled and custom-made furniture refused and could no longer be sold. This at the cost to the store owner. Two sides of the story, the customers and the suppliers.
The newspaper brought one best-practice example. The story is about a woman with a shop without a sign or a name. She has run a successful business for over thirty years. She insists her relationship with the customer is purely business, friendship is not part of the deal. She asks for a down payment upon ordering and for a moderate payment plan allowing for prefixed instalments. Over the years she has had a bad experience or two, but nothing dramatic. Mistakes happen and she offers customer service to make it right. Above all, she delivers on time. Her secret is paying her suppliers in full and in advance, motivating them to deliver as quickly as possible. The last principle that she shared was that trust is paramount. She believes in what she offers and trusts the customer.
Many lessons can be learned from this story. Instead of competing on price she competes on insecurity, a common theme. The customer delays payment and the supplier wants full payment up front both trying to reduce their risk. After all, nobody can really guarantee the furniture will arrive as ordered and on time. This woman does exactly that – she does whatever is needed to reduce the insecurity factor. Delivery is on time and if it’s not right, she makes it right. Her margins are high because she has removed the risks, keeping her customers and suppliers happy. That’s how she is successful in this competitive business for over thirty years.
The final point is interesting. She is a supplier not the customer’s friend. No birthday cards or occasions celebrated with her clients, no fancy store and not even a sign. She focuses on what she offers –her customer’s peace of mind. She knows what they need –remove the uncertainty – and that’s what she successfully delivers in this highly competitive market. This is luxury.
Isaac Mostovicz writes...
A common misunderstanding about luxury is that it is part and parcel of certain products or services. This is the wrong approach! Luxury is, in reality, a specific approach to marketing a good or service so that it touches the deeper needs of a customer. For example, in my article “Why diamonds stink more than fertilzers?” the term used to describe the success of ICI– Fertilizers was “segmentation.” Nevertheless, a close examination revealed that fertilizers were marketed as a luxury. Yes, even that stinky substance could successfully become a luxury item by following the rules. How about your business?
There are a handful of factors which characterize luxury. One prominent factor is price. A luxury item is expensive and is never sold at discount. ICI-Fertilizers managed to sell fertilizer as a luxury at higher prices while their competitors sold fertilizer as a commodity at prices that barely covered their costs. Many times almost an entire industry lowers their profit margins to a dangerous level while one company maintains high prices, Apple, under the guidance of Steve Jobs, is a good example. Many companies left the market because they couldn’t compete any longer, but Apple kept selling PC’s at high margins, becoming the largest and the most profitable company in the industry. This was possible because they followed the rules of luxury.
Let’s examine the PC, they are bulky, ugly and tend to have a narrow range of colors and designs, and the software is not great. On the other hand, Apple asked themselves what were the customers’ needs. They realized that nobody needed a PC, and a PC was just a means to a goal. By understanding the deeper needs of the customers Apple designed its computers to deliver those inner needs creating its legendary interface. The end result was a machine whose role was to satisfy the user’s needs. Apple doesn’t charge for its PC’s, it charges for satisfying deep needs, something that no other company had managed to do. This approach brought in more money, higher margins, and loyal customers.
On the other side of the coin we have diamonds. What should be considered the pinnacle of luxury has turned into commodity. Instead of understanding why the customer wants a diamond and satisfying that particular need, the entire industry is focused on offering a product that actually doesn’t have much use. Consequently, diamonds became commodities and people slashed prices to a point that brought the industry to a state of bankruptcy.
To turn something into a luxury is not easy. On the one hand, if one follows a limited number of rules it is possible. Following those rules calls for commitment, changing our mindset, high moral values, and ultimate responsibility for what we are doing. In my workshops I stress the importance of personal values and caring for the customers. Do it right and commit to it and your offering will become a luxury, providing you with tremendous satisfaction. Do you have the courage to jump into the water and start swimming?
In the next few articles I will explore other aspects of luxury. Stay tuned.
Isaac Mostovicz writes...
Let’s talk about fertilizers which are probably the most unglamorous stinky product exist. The reason for it is my mentor, Professor Malcolm McDonald, one of the world’s leading marketing experts. Prof McDonald was engaged in 1988 by the International Fertilizers Association. Before starting, the president of the association told Prof McDonald that “we have declared officially fertilizer as a commodity”. Prof McDonald responded that this explains why, when going on the internet, he discovered that there was not one single manufacturer of fertilizers in the world making one dollar of profit.
A member of the association was ICI Fertilizer, part of the Imperial Chemical Industries (ICI), the largest manufacturer in Britain throughout its existence. ICI Fertilizer was on a brink of collapse and they reached Prof McDonald for help after trying everything else. When asked who buys from the merchants the answer was that “they all buy on price” and “that’s what our sales force tells us”. Prof McDonald made a point that in all research he’s done on every continent in the world and for all of big companies in the world he couldn’t find any market anywhere in the world where the price segment was greater than ten percent. Actually, fertilizer companies were ignorant of what the true needs of the farmers were.
Ninety percent of the consumers had totally different needs that weren’t addressed by ICI Fertilizer who was focused on price. Prof McDonald segmented that ninety percent into six segments, each following a different marketing approach.
Within six months ICI Fertilizer became the most profitable subsidiary of ICI and the only profitable fertilizer company in the world.
All one needs is to replace “fertilizers” with “diamonds”. Commoditization is the main problem of the diamond market today. We know that we are right because we did it. Even nowadays we manage to successfully service our customers and we don’t suffer from any of the current market malaise. I am sure that Malcolm McDonald is proud of me, his student.
Until now we ran a boutique operation gaining knowledge and experience nobody else has. It is now time to try and to help our colleagues and to revive this beautiful industry. Are you ready to join us in our trip?
Isaac Mostovicz writes...
In my previous article I discussed De Beers’ new initiative that targets the married couple. However, while this approach is new to De Beers, my partner Randy Pearson and I have claimed for years that the married couple is the natural customer for diamonds.
Recently, we created a boutique operation, Kahro Diamonds in Raleigh North Carolina that is exclusively designed for the married couple. I am aware that not everyone can visit us and learn first-hand how to serve the married couple. Therefore, I created a short list of ideas that might help my colleagues serving the married couple better. The most important point to keep in mind in the following is that the married couple has needs that are fundamentally opposed those of the engagement ring customer.
- Don’t educate. Listen! Since the introduction of the faulty 4C’s concept the sentence every diamond customer will constantly hear is “you need education”. My dear colleagues, stop educating your customer and feeding him faulty information. He is already educated. All you need to do is to listen to him. The customer knows what he wants and needs – though most of the time, his language is different. Listen to him and try to understand what he wants.
- Find out the job of the diamond! As Professor Clayton M. Christensen puts it, customers want to “hire” a product to do a job. Figure out what job the diamond is being hired for. A customer who looks to propose marriage is looking for a diamond to do a totally different job than the one who hires a diamond to celebrate his mutual bond with his spouse. Do you know what job the married couple is hiring their diamond for? Do you know how to satisfy that precise need?
- Don’t confuse the customer! Remember that the customer is looking for one diamond only. Why do you confuse him with an endless list of diamonds that even you don’t really know how to choose from? Why confusing him with the useless letter soup that the 4C’s approach entails? Why depend on diamond “certificates” that don’t certify anything, especially when the paper contains a lot of meaningless information? By the way, do you know what is essential and what is superfluous on the diamond grading report? Spend as much time as necessary to figure out, together with your customer, what diamond you should look for to satisfy his needs.
- Don’t run a circus! I am referring here to the visual aspect of any typical jewelry store. Usually, jewelry stores heavily invest in the show. They tend to be large, with a lot of merchandise on display and, the owners hope, crowded. These stores are noisy, both aurally and visually, and make the customers feel as if they are in a jewelry-story version of the three-ring arena of Barnum & Bailey. They don’t know which show to watch and adding to confusion, all three rings seem to offer a similar show. Noise and glitter might appeal to those whose communication style is shouting over the noise of the dancing floor. Married couples look for a relaxed, quiet and warm venue. Can you create this atmosphere in your store?
Kahro Diamonds follows these guidelines and more. After all, it does serve the married couple. My best advice is to visit this boutique operation in Raleigh, North Carolina. Simply contact Kahro Diamonds at Raleigh@kahrodiamonds.com or 919- 649-6528. But, if you cannot pay a visit, at least you should think on how to apply these rules in your store. It took us years to fine-tune our strategy. You should start revisiting your approach now.
Isaac Mostovicz writes...
Over the past decade the financial situation of the diamond industry has badly deteriorated. As I said here, this is because the industry lost all contact with its customers. However, there is hope for revival if the industry will leverage recent developments to its own benefit.
Seven years ago, I participated in an emergency meeting organized by the leaders of the diamond industry. The industry had arrived at a standstill and banks refused to bankroll its operations anymore. This did not surprise me. For ten years preceding this, I had been warning my colleagues that this catastrophe was imminent. At this meeting I was challenged to present a plan to put the industry back on track.
Seven years passed and the industry went from bad to worse. The lack of cash flow is so severe that De Beers saw its first-half 2015 sales plummet by 21%. Worse, customers of De Beers have the right to defer 75% of the goods allocated to them for six months following the sale.
Nevertheless, I see a light at the end of this tunnel. Recently, De Beers has announced a holiday marketing campaign to increase consumer demand for diamond jewelry. Described as a “call to action” advertising campaign, it will target men purchasing diamond jewelry for their partners and is intended to “create a sense of urgency.” De Beers has finally recognized that the natural customer for diamonds is the married couple. Gone is the image it has cultivated over the past century of the young man on one knee, engagement ring in hand, as the ultimate diamond consumer.
For a long time, my partner Randy Pearson and I were aware of this truth. Over the years we have developed a marketing strategy that would fit the needs and wants of the married couple. Recently, we created a boutiqueoperation – Kahro Diamonds – in Raleigh North Carolina that is exclusively tailored to the married couple. We have created a unique toolbox founded on our extensive experience and supported by my academic research, which turns out to be diametrically opposed to the current best practices which are incompatible with the needs of a married couple.
Kahro Diamonds is a boutique operation, currently operating only in Raleigh, North Carolina. We welcome anyone wishing to learn more about serving married couples. Contact us at Raleigh@kahrodiamonds.com or 919- 649-6528. For those who cannot pay us a visit, I will publish some guidelines here to help you turn your business around.
Isaac Mostovicz writes...
It has taken me some time to correctly position the “Kahro Diamonds” brand – a new venture of mine in the Raleigh, North Carolina area of the United States.
It would have been easy to turn Kahro Diamonds into just another local diamond dealer, but it is so much more than that, and I wanted to capture this in how I talk about our work.
Ever since Randy and I began in our careers in the diamond business, we have kept asking ourselves what exactly it is that our diamond customers are actually seeking. As with most purchases, it typically begins with the desire to satisfy some need or to overcome a feeling of unease in their current lives and to move forward in their lives. It has less to do with the product or service itself, but rather the symbolic “attributes” which align with the psychological state of the customer who wishes to improve his or her position, for instance, a person who isn’t satisfied with their current age and wish to buy something which helps them appear older or younger, or a person who believes that they will be happier with a higher level of income or a different occupation. In short, it is for people who feel unhappy or unsettled with where they are at in their lives and who wish to move elsewhere psychologically.
In the marketing world, this is called the “tension differential”, and it leads to actions that would fulfill people’s need for a change. Once marketers identify this tension differential, they can offer products and services that can be used as a solution to try to overcome it.
Most jewelers do not bother to check the psychological reasons behind the will of the customer to purchase a diamond. Instead, they are happy to have a customer who asks for one and then they simply do their best to satisfy his request. However, do they know what the true need behind this request is? Does the customer know how diamonds can answer to such a need?
One of my academic publications addressed this issue and I commented on it several times in my blog. Unfortunately, nothing has changed. The situation within the diamond industry has been going from bad to worse for some years already, and it seems that the more reflective of these jewelers are not visible.
It’s this observation that sits at the heart of the “Kahro Diamonds” brand. The life mission of Kahro Diamonds is to help our customers to clarify their “tension differential”, whether it’s someone who is looking to propose to his girlfriend, or a married couple wishing to bring back the passion into their relationship. We aim to explore with our clients together what it is that is keeping them from their goals. This work has to be done very carefully, and in many ways, the work of Kahro Diamonds is not much different than that of a marriage consultant or therapist. However, Kahro Diamonds asks an additional question: “How have you got to where you are now?” For example, nobody expects or plans his marriage to falter after some years. This is an unwanted result – perhaps due to the stresses of everyday life or the routine of work. And even if we can help get the couple back on track, how can we ensure that they won’t find themselves back in this unwanted situation in a few years’ time?
Here comes Kahro Diamonds with its one-of-a-kind knowledge of diamonds. In the same way that every relationship is unique, so is every diamond. By helping couples to carefully choose the right diamond for them, the couple sets off on a process that helps them understand and capture that same uniqueness and beauty in their relationship. This connection not only brings back the sparkle into their relationship but it will turn it into an eternal flame. After all, diamonds are forever.
Kahro Diamonds currently works locally in Raleigh, North Carolina. But we hope that this initiative can eventually serve to inspire the entire diamond industry to transform itself and reinvest in a diamond’s true value – namely, its ability to lead people to new discoveries.
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 email@example.com.
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.