Can Sightholders Afford 'Supplier of Choice?'

It's the question that has dogged the Supplier of Choice program: If sightholders must increase their advertising spending, where will they get the money?

De Beers, which has been urging sightholders to make such investments, is doing its part by pricing its rough more competitively, so clients can use the extra money for marketing. De Beers' assortments today are among the cheapest on the market—which is why sightholders gave the company's April price increase an almost unanimous thumbs down.

Although bankers are increasingly seeing advertising costs reflected on sightholders' balance sheets, they are not particularly concerned … for now.

"These expenses are not a problem," says Anna Martin of ABN-AMRO Bank. "People are budgeting for these expenses." However, she warns, they might not be able to fund these programs indefinitely. "These are not small amounts, and they are definitely reducing profits," she says. "If margins continue to shrink, it will be very difficult for them to do that type of advertising."

"The sightholders have definitely had to tighten their belts," agrees Jeff Pfeffer, senior vice president of Bank Leumi. "They've been forced to manufacture more efficiently. Maybe that means instead of manufacturing in New York, they have to manufacture offshore and use those savings to help their bottom lines."