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.

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.

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.

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.

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.

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.

Download (PDF)