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.
Know your customer
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.
Map 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.
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.
According to the economic news, Graff Diamonds, founded by Laurence Graff, recently pulled its IPO offering just before its deadline. At the time it had orders for just half of its $1billion initial public offering.
Who is Laurence Graff? Allow me to share a short story with you. Between 1998 and 2000, Enea Galucero, the late David Kiets – one of my colleagues at De Beers – and I tested the high-class jewelry market by sending people to pose as diamond jewelry shoppers along Old Bond Street in London. For the most part, they had horrible experiences in the most glitzy shops. But one of my “shoppers” had a great experience at Graff. She entered the shop, telling the salespeople she couldn’t afford a thing and that she was probably in the wrong place. Laurence Graff was present and, making her feel like a queen, managed to turn her initial impression on its head and almost convinced her to buy.
When the group of “shoppers” met afterwards, everyone wanted to know what Graff diamond she had been offered. However, even though she was a pro in diamond lingo, she was not sure whether the diamond had been round or square and remembered only vaguely that its weight was close to 1.5 carats. And yet she almost bought it! Graff had spoken to her, about her – and not about diamonds. With this approach, despite his diamonds going for prices of 25k and up – he was almost able to sell to someone with no intention to buy at all! One must bow his head when seeing such a master.
Sadly, now Laurence Graff seems to want to bail himself out of his diamond inventory by using part of the IPO proceedings to buy out his own diamonds. Does the master not believe in his own sales skills to turn his diamond stock liquid?
But he never saw his sales approach as his truly unique offering, and therefore did not spread that to his other shops. That was the mistake that put him in the position he is in today. Exceptional salesmanship – like Graff’s – sells; reputation is not enough. And now he seems to be jumping ship and just trying to liquidate funds. Hopefully Graff will overcome the current economic pressure. Even more so though, hopefully he will realize that his power is in his customer-oriented sales – and use that to appeal to more clients and build himself up.
Isaac Mostovicz writes that
that diamonds could change the way that numerous electronic functions are carried out
News comes from the science world of a frozen smoke from diamonds, a pioneering technology that has vast potential. The “frozen smoke” is the lightest form of diamond known, and is made up of 99.8 percent air. Nicknamed “frozen smoke” for its hazy appearance, this form of solid is known as an “aerogel”. Don’t let this description deceive you though – these airy materials can actually hold thousands of times their own weight.
According to researcher Peter Pauzauski, they had succeeded in making “the lowest density form of diamond.” The new material has a density about eight times less than cork, and 40 times more dense than air. Since diamond is very efficient at emitting electrons, the frozen smoke could prove very useful in various ways such as flat-panel video displays, quantum computers, and also human implants, given diamonds’ biocompatibility.
Isaac Mostovicz writes that the diamond market is looking strong for 2011...
Although the financial crisis had a significant impact on demand in the jewellery market, with sales in late 2008 declining to below 2005 levels, the market is now on the up again; Gem Diamonds recently reported an upturn in prices thanks to increased demand in the US and emerging markets.
The recovery really gathered pace in late 2010. Now overall diamond prices are running at an average of more than $3,000 per carat, helped along by big finds such as that in the Russian diamond-rich area of Yakutia, where a huge diamond weighing a reported 136.35 carats has been recovered.
According to a Deutsche Bank analysis that The Independent recently reported on, continued strength is forecast as diamond prices run ahead of other commodities over coming years. Understanding demand for diamonds, they say, “requires an understanding of the end product jewellery market”, although investors should also keep an eye on any inventory issues in the pipeline.
Growing demand has driven operational developments in emerging markets too, the All-India Gems & Jewellery Trade Federation (GJF) recently joined hands with Israel-based online news portal, IDEX, to launch the Diamond Retail Benchmark (DRB), the first ever retail rate list for the sale of diamonds in India. This is designed as a consumer assurance initiative, but also demonstrates the growing interest from such nations.
Strong demand looks set to continue, and according to a recent article in The Daily Telegraph, appetite for diamonds is expected to grow as developing nations such as China and the Middle East develop their taste for luxury goods in line with rising wealth levels.
Janus Thinking is happy to announce the launch of Kahro Diamonds.
Kahro Diamonds is about the uniqueness of people and the power of diamonds. We put the fun and enjoyment back into diamonds by assisting you to find that diamond that truly represents who you are.
A diamond should reflect your personality, worldview and values. Our mission is to help you find the right diamond through this unique approach, using tools exclusive to Kahro and based on the logic behind Janus Thinking.
Kahro Diamonds enables our customers to connect with the “right” diamond, which helps them connect to the past and present as well as to their values and desires, whether it is for a once-in-a-lifetime proposal or simply a well-deserved treat for oneself.
Visit the Kahro Diamond Facebook page and take our quiz to see what kind of diamond might suit you! If you like the page, become a fan and check back for more interactive games on the site.
Isaac Mostovicz writes that New York's Fashion's Night Out is more responsible this year...
Here’s a nice video from Rapaport previewing New York’s Fashion’s Night Out, an event occurring later tonight in New York that celebrates the work of a number of the city’s jewelers.
The video also covers a few corporate responsibility issues, including Ivanka Trump’s work with the United Nations Foundation’s Girl Up campaign and Donna Distefano’s fair trade initiative that ensures her jewelry is free from associations with environmental destruction or human rights violations.
Isaac Mostovicz writes that an exceptional gem is up for auction...
While diamonds are certainly my favorite gems, many women are finding alternative types of gems to use for their engagement rings so that they can be unique without a diamond (of course every diamond is unique, and every woman can certainly find the right diamond for her, but as always luxury depends on how you interpret it). Luxist brought to my attention the particularly large (1040 carats) “Polly” emerald that is going up for auction on 29 August. Appraised for $454,000 by a GIA certified appraiser, it’s certainly too large for a ring, but it’s so unique, I could see many a Lambda be interested in purchasing it for his or her collection. The auction is open to anyone, with bids by phone or absentee bids with a $50,000 deposit.
Isaac Mostovicz writes that diamonds help purchasers connect authentically to their values and personal qualitites...
I came across an interesting press release from the International Diamond Manufacturers Association (IDMA) this week calling for the international diamond manufacturing community to restructure diamond financing. They are worried because while demand for rough diamonds remains greater than the rough supply, the same cannot be said for consumer demand for polished diamonds, particularly in the US.
Stores are closing or having a hard time turning a profit, and the focus is on lower prices and lower quality. The supply of diamonds going to retailers will decrease, but for now consumers have not yet returned to retail stores. Nevertheless IDMA are calling for retailers to pay their suppliers fair prices, necessitating keeping their prices up for consumers. Said Moti Ganz, the president of IDMA:
“Consumers can still buy three pieces of diamond jewelry for the price of one Louis Vuitton bag. The price of diamonds today should be at least 200 percent more than their price in the 1990s. Just look where gold and platinum are and look where we are!”
Should we ask ourselves why the price of diamonds has not kept pace? Actually that’s the wrong question–there is no direct link between the price of rough diamonds (based on the internal considerations of the diamond industry) and the price of polished diamonds (dictated by the consumer of diamonds and diamond jewellery, a population that was forgotten by the industry).
In my view, luxury retailers must first understand why someone goes out and buys a diamond in the first place. In my PhD research, I found that luxury shoppers are looking to express themselves and connect with how they see the world. The better a retailer can help the luxury purchaser understand her goals and connect authentically to her values and personal qualities, the more successful the retailer will be. Walking out of the store, the lucky woman or man should feel empowered, special and unique, respected and feeling free.
Providing the right service doesn’t come easily. A jeweller should be able to detect first who the client is. A Theta woman seeks diamond to help her be ‘truly her’ in a world where most things are temporary and dependent on social setting and circumstance. A Lambda woman wants a diamond that helps her to be unique and genuine; her diamond is unlike any other diamond on the planet, an individual selection that will make her exceptional. As for price, do not underestimate yourself. If you fell confused, the only reason is that the offer of the diamond was not done correctly. When the luxury customer is presented with the right offer, he or she knows exactly what the value of it should be.
Following these values for many years we found that we can properly help the luxury customer, and together with our colleagues we were very successful doing so in the last 25 years. However, the diamond industry failed in respecting the need for luxury and tries to turn the luxury consumer into a diamond dealer when the effort should be done in the other direction.
We hope that we have enough practical knowledge to start offering the luxury consumer what he or she wants. We are aware that this practical knowledge is in the hands of very few people, yet the entire world could appreciate this freedom of expression and choice. Recently we started an initiative that will bring our message to the luxury customer and enable him or her to properly purchase his or her special and unique diamond that can fit only her or him. We will need your help to check our luxury hypotheses and to see whether what we say is really convincing you. In the coming days we will address you again and ask you to be our ambassadors to help us spread our important luxury message. Stay tuned!
Isaac Mostovicz writes that Graff hasn't found its diamonds...
Last August a team of diamond thieves stole 1,500 diamonds (in 43 jewelry pieces) worth £40 million from Graff Diamonds on New Bond Street in London. This week four of the thieves were found guilty of carrying out the raid, but the diamonds still haven’t been recovered. The two gunmen who had entered Graff Diamonds had handed off a black bag containing the stolen pieces to a motorcycle rider in a concealing helmet, who rode for two blocks then disappeared on foot in Green Park.
There isn’t much hope for finding the gems any time soon. Ivy Cutler, a diamond grader at the Gemological Institute of America, said
“I have spoken with Scotland Yard and the Flying Squad and we have them marked in our system. Sometimes pieces come back very quickly, sometimes it takes years. The criminals involved in this are extremely clever, unfortunately. I think they have probably changed hands many times and possibly been moved between countries. We can only hope the diamonds eventually turn up when an innocent buyer asks for their authenticity to be checked.”
The stolen diamonds were all certified and should be recognizable, but it’s possible that the diamonds have now been recut or falsely recertified. It will be interesting to see if any reappear, or if Graff would publicise their reappearance — my guess is probably not on both counts.
Dr. Isaac Mostovicz is a
consulting academic. He applies his research insights into human logic in practical business situations. Isaac coaches business leaders and offers training to support organizational change. He is also actively involved in the diamond industry, devising and executing creative marketing programmes in the US and Asia.
Over the past year, Janus Thinking's
Dr. Isaac Mostovicz
has applied his unique views on luxury to create a new concept in
diamond jewelry shopping called Kahro Diamond Jewelry. You can explore
how Kahro has changed the jewelry stores
Raleigh NC scene with its fresh approach. The Kahro experience is
all about empowerment and reflecting your own unique qualities in the
jewelry you buy.