Diamond Industry

We Need a Soul

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?

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Online Chinese luxury market looks set to soar in future

Isaac Mostovicz writes that Chinese consumers will buy more luxury goods online in the future, according to a new report ...

A recent article in China Daily reports that for the first time, the e-commerce luxury market in China has exceeded 10 billion yuan (USD 1.59 billion.)

Image courtesy of Stock.XCHNG

The article, citing research by the firm iResearch Inc., sees this success looking set to continue expanding at 30% year on year over the next several years.

 

Previous blog posts have discussed the seemingly unending Chinese love affair with luxury goods, and this research shows that sales through luxury brands online have surged by nearly 70% compared with 2010.

 

However, although growth looks set to continue in the future the market is by no means as developed as it could be. As of last year, the turnover of luxury goods accounted for only 1.41 percent of China’s total online shopping industry.

 

“So far, China’s online luxury market remains small. We are waiting for it to explode,” Chen Xiao, founder of the luxury goods selling website ihaveu.com, told Chinese-language newsmagazine, China News Weekly.

 

High tariffs, consumption tax and import duty all contribute to the market being currently underdeveloped. Whether this is set to continue or the Chinese love for luxury will overcome these barriers remains to be seen.

 

 

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The classic rules of “exclusivity, rarity and scarcity” must be adaptable

Isaac Mostovicz writes that one size may not fit all when it comes to luxury marketing ...

A recent article in Marketing Week describes how the luxury goods sector, as one of the few within general retail that has endured the muted financial environment, is marketing itself to its customers. Brands such as LVMH continue to post excellent profits and consider their outlook for 2012 as “excellent” whilst ordinary high street retailers struggle.

Image courtesy of Stock.XCHNG

As a result, more and more brands are reaching upwards to try and appeal to these high net worth consumers. But some marketers claim that there’s no secret formula to attracting the attention of luxury purchasers – and that tried and tested is the best way forward.

 

Peter Cross, business partner of Mary Portas at the retail branding agency Yellow Door comments that while luxury purchasers are now more open to value purchases and more discerning of what they actually buy, traditional luxury marketing is still very much at the fore.

 

True luxury is still based on exclusivity, rarity and scarcity,” he says.

 

By making their most valuable customers feel special and singled out – for example, through special “gifts” that may not be available to other consumers – marketers are able to generate emotions of goodwill, rarity and exclusivity – as well as word of mouth from their customers.

 

Looking at this from the point of view of Janusian thinking, it could be argued that this classic “exclusivity, rarity and scarcity” tactic will affect one type of Janusian personality differently to another.

 

Lambdas, who seek achievement and uniqueness as an ultimate end goal, are likely to be very influenced by an individual, personalised gift or product as this will help them to stand out against the crowd – a key goal for Lambdas. Thetas, on the other hand, who generally seek acceptance into their social crowd, may find this technique attractive as it will help to establish themselves within their specific social class.

 

Within luxury marketing, one size does not fit all and marketers must remember that overarching “rules” may not suit every brand when considering a tailored strategy.

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Marketing Luxury Through Digital Technologies

Isaac Mostovicz writes that that certain luxury brands are demonstrating the growing need for innovative marketing and embracing new technologies...

Luxury brands are embracing digital technologies in a bid to reach out to consumers, providing them with a virtual way of engaging with products before they purchase them.

Italian designer Ermenegildo Zegna has tackled one of the core problems of buying clothes online – inability to try them on – by creating a virtual fitting room where customers can input their measurements and see how the clothes will fit on their body shape using a virtual mannequin.

Zegna online fitting room

De Beers, the luxury jewelry makers, have also developed a digital tool. To aid the customers of their Forevermark diamond brand, they developed an augmented reality virtual try-on experience through users’ computer screens. This allows people to download an application which enables them to virtually try on different diamonds. The application also encourages sharing on different social media sites.

De Beers augmented reality application

Luxury commentary website Luxury Daily say of the application:

“Since buying expensive jewelry is usually an emotional purchase, consumers like to physically touch or hold pieces before buying. Therefore, ecommerce options are not typical in the luxury jewelry realm. Instead, quite a few upscale jewelry lines have been tapping augmented reality to bring an experience closer to consumers.”

Both of these luxury brands are demonstrating the growing need for innovation, digital technology and experience if they are to compete in an increasingly competitive space and in targeting consumers both in growing markets and established ones.

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Luxury on the rebound

Isaac Mostovicz writes that that investment in luxury items are on the up again, particularly in developing markets such as China...

If we needed further proof that the world’s super-rich have rebounded from the financial crisis, we need look no further than this recent article in Reuters showing that the demand for art, watches, vintage cars and other luxury items expanded in 2010, with collectibles such as boats and jets accounting for almost a third of these investments.

Whilst taste and personality – whether they are Lambda or Theta, for example – determines what each individual will enjoy investing in, certain items such as artworks are more likely to be acquired for their potential to gain value.

The demand for diamonds has benefited from rising prices of raw materials, as they are seen as a particularly safe investment.

This demand has partly been spurred on by wealth in growing economies, particularly those in Asia (see my recent post on Chinese luxury bathrooms), which are reviving markets in ‘investment’ pieces as well as dictating the luxury goods that are manufactured in the first place. With Asia surpassing Europe in number of millionaires for the first time ever last year, it is clear that to see new luxury trends emerging we must cast our eyes East.

Luxury Homes by VAPF says of this article...

China is fast becoming the world’s top luxury good consumer, and the fact that they idolise the European way of life means that they are purchasing all things that symbolise a proximity to European citizens, including luxury homes in Spain, a favourite holiday home destination for many Europeans.

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Frozen Diamond Smoke Holds Sparkling Future

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.

A diamond is a scientist’s best friend, it seems.

Babette Jonte says of this article...

Greetings, I like your blog. It’s Excellent. My personal style is slippers but that’s just me. sustain the excellent. I’ll be checking in soon for future updates.

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Emerging nations drive demand for diamonds

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.

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Diamond Prices, Self-Esteem, and Market Resilience

Isaac Mostovicz writes...

Sales of diamonds, at least from the consumer’s point of view, are almost uninfluenced by the world’s economy. After all, the global diamond jewelley market is very small – $60 -70Bn and it is a drop in the bucket when compared with the size of the world economy. Say it differently, there will be always wealthy people who will buy these diamonds.

Speaking about the price of a diamond, the question is what is really its price? Let us ask even a more fundamental question: why do people buy diamond in the first place or what need does a possession of a diamond satisfy? Unfortunately, it seems as if nobody in the industry bothered to find an answer for these questions.

It took me several years of research to find out that the reason for buying diamonds is the enhancement of self-esteem. This is a complicated issue that needs to be studied in detail as to understand the role of price in marketing of diamonds and other luxury. It is enough to say that selling luxury in a discounted price is an oxymoron or shooting in the seller’s leg. Luxury has to be expensive or it will lose its attractiveness.

I have to add here two notes: first, one needs a bit of Chutzpah when asking a high price and not giving up. Second, while people will ask for a discount, they do not want it. What they say is not what they mean. They need the bargaining as they feel respected, an activity that enhanced their self-esteem but, paradoxically, they want to pay the full price for the very reason that when paying more their self-esteem increases. Unfortunately, once the jeweler imagines that the buyer might ask for a discount he is offering it immediately.

As this discounting backfires when the luxuriousness of the diamond disappears, its value declines. The decline in price is a clear indication that the industry fails to understand what it markets. While an entire generation lacks a proper education in marketing of diamonds, causing the industry to shrink in the last 25 years, the last few years were disastrous.

Organizational

The main point is that there is no leadership and the market does not know how to cope with paradoxes. You have more than enough there.

Financial

Idem. The key is that people try to close the sable when the horses are away. There is no money available and people try to raise funds even when they have to assume losses with the hope that tomorrow will be a better day. It is looking at the past, trying to fix things instead of looking at the facts, as bad as they are and ask: “what can we do now with these lousy facts?”

I would finish with two comments:

First, what surprises me is the resilience of the market. While the diamond industry is unique and cannot be comparable, I would anticipate a total collapse and low morality to happen long time ago. I am proud to be part of such an industry that show that robustness and morality are rooted deeper than the level of the balance sheet.

Second, we should be able to assess the facts without fear. The facts are there and hiding from them is useless. Trying to change them, or “fixing” them is impossible as the problems are more fundamental. Thus, it is important to face clearly the facts and ask: what can we do? There is always an alternative for those who have the courage to face reality.

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Strategy: Isaac Mostovicz

Isaac Mostovicz writes...

The diamond industry is billions of pounds in debt, with both prices and demand largely static. Despite the industry’s best efforts to reverse this trend, it’s possible that only a dramatic reform of the market can remedy these problems. In this article, I argue that learning lessons from the coffee industry could make the diamond market shine again—but only if retailers are prepared to transform the way they work.

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