When will they ever learn?

Isaac Mostovicz writes...

Back in 2013 I visited the JCK show in Las Vegas. 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.

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How to profit from likes

Isaac Mostovicz writes...

Gary Gilmore was executed on January 17, 1977, at 8:07 a.m. by firing squad at Utah State Prison in Draper, Utah. His last words were “Let’s do it!”

These words inspired Dan Wieden to coin Nike’s slogan “Just Do It.” It is considered one of the best taglines of the 20th century. Nike’s campaign based on this tagline propelled Nike’s American market share of sport-shoes from 18% to 43% within ten years.

Jerome Conlon, then Nike’s Director of Marketing Insights & Planning illustrates the challenge. America faced increasing obesity, a recession and reduced funding for school sports. Nike was popular among male athletes, but it was losing the female market share to Reebok’s aerobic shoe line. To win in the game of business, Nike needed to become popular with women, youth and baby boomers.

Nike’s aim wasn’t the one million professional athletes; it wanted to unleash the athlete within 150 million Americans. It appealed to the dreams of people, and their inner yearning for healthier life. All they needed was to put on a pair of runners and start jogging. All Nike wanted them was to purchase a pair of shoes and “Just Do It.”

Did this campaign help the US to combat obesity and procrastination? Not at all. Wearing Nike’s sneakers became a statement. Not an athletic statement, as one might think but a “me, too” statement. One million professional runners used the shoes to compete, and the rest were just clicking a mental like every time they saw a Nike ad. Eventually, these likes turned into purchases.

Every time people wore their Swoosh labeled shoes, they sent out a share, and their friends got a mental notification.

Eventually, these likes turned into purchases.

How can you financially benefit from the likes to your posts?

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One Question

Isaac Mostovicz writes...

Any call for creativity or innovation intrigues me. So, when I got a call to join a brainstorming event with tens of thousands of participants I expected to get some stimulating ideas, some exciting questions to bite in.

I managed to find this post which claimed that the 100 questions on its list inspired 454,000 ideas. The call for action was to add more to this long list of ideas. Well, I stopped at the first question wandering what I am missing, what went wrong with me and why I couldn’t be triggered by any one of those questions?

Here is the first question on the list. How might we increase the productivity of Singapore?

Well, I cannot answer this one but at least I have a few questions:

1. Why is it so important to increase the productivity?

2. What might happen if we didn’t increase productivity?

3. What are the hindrances that blocked productivity?

4. How do you know that these hindrances are what block productivity?

5. Why were these hindrances created /imposed on in the first place?

6. Why weren’t they removed until today?

7. What are the untapped or underdeveloped capabilities of Singapore that might help us increasing productivity?

8. Why were they left untapped until today?

I can go on and on but one question nagged me, and it can be developed further: Why do you consider this type of question “innovative” or “out of the box”?

Moreover, checking the above list of questions you can apply them to most of the 100 questions presented.

This leaves me with one question?

What can be the one tough question that will really force us to think out of the box, to delve deep inside and to let our creative juices run? Maybe we won’t find a remedy for Singapore but a good question will broaden our horizons and allow us to think differently. Isn’t this what this group about?

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Transform yourself

Isaac Mostovicz writes...

I am so happy to move forward with the new initiative of Janus Thinking. We are creating a new community for all those who are interested in my ideas about luxury, marketing, management, leadership and diamonds. Looking at what I discussed in the past it is clear that the call is for you to transform yourself. But, how can you do it?

The first lesson is here – a video that will introduce you to how to think about transformation. Above appears the trailer to this video and to get the full video please go to
www.janusthinking.com/video .

Join our community for more ideas and insights.

Yours,

Isaac

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Becoming a Creative Warrior

Isaac Mostovicz writes...

I recently had the honor of being interviewed by Jeffrey Shaw on Creative Warriors Unite. We spoke about the behaviors behind luxury marketing, reaching people’s deeper desires, and creating memorable experiences.

It was interesting to learn Jeffrey’s insights into my ideas. He shared how as an experienced photographer, clients would ask him to take “family photos.” Many people could take basic photos, so why would they call him? People were really seeking a photographer who would capture the emotion of moments that they would treasure for the rest of their lives.

You can listen to the podcast at
http://creativewarriorsunite.com/behavior-luxury-market/

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This is luxury, too!

Isaac Mostovicz writes...

dining-table-1348717_960_720 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.

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Turn your business into a luxury one

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.

 

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Why diamonds stink more than fertilizers?

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?

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Serving the married couple

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.

  1. 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.
  2. 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?
  3. 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.
  4. 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.

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Hope for the diamond industry

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.

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