De Beers Levies New Fee on Sightholders

In the latest—typically controversial—addition to Supplier of Choice, De Beers will tack on a fee to every sight for what it calls "value-added services" (VAS). The fee depends on the size of the company but will range from 1.6 percent to 1.8 percent, says De Beers director of marketing Stephen Lussier.

Not surprisingly, most sightholders saw this as a de facto price increase, but Lussier says it's the result of unique services that are part of Supplier of Choice. He notes that, as a result of its Intention to Offer (ITO) system, sightholders can now plan ahead and tailor production to their marketing programs.

"If you look ahead to the next five years, [sourcing goods] will be a far greater challenge than it was in the last five," Lussier says. "It is only the DTC that gives the ITO for six months and the guarantee that sightholders will be supplied for the two-and-a-half-year contract period. Sightholders will have far greater confidence they will get goods. This is not inexpensive to do. It requires the DTC to carry a large cost base.

"If you look at the other industries, if you pay for oil going forward, you will pay a different price than if you buy on the spot market. You pay for the certainty of having security of supply in a scarce resource."

Lussier says the reason De Beers is adding this fee now is that its services have improved. "We are enhancing them in all areas," he says. "And sightholders should demand better services, now that they are paying for them."

Sightholder response to this was predictably mixed. "Every business has expenses," one notes. "Part of what De Beers does is provide a good assortment. Now they're charging for it? I don't get it. But no one's saying anything, because we're all just so beaten down."

Another sightholder, who doesn't want to use his name because his friends would "kill him," was more philosophical: "I don't see what the fuss is about. If they raised the goods 1.5 percent, it would not have made a ripple. They are not charging a big-enough fee to worry about it. Their goods are still the best value for the money."

He predicts that De Beers will increase the services it offers and continue to raise its fees. "This is likely just testing the waters," he says.

Initial reports about the fee suggested it was meant to pay for De Beers' generic advertising for diamonds. The press release announcing VAS specifically contradicts this notion, but since the money all goes to the same place, the difference is probably academic. De Beers is also offering "growth services," a series of seminars and exhibits to help sightholders with marketing. It will add another cost, but sightholder attendance will be voluntary. In addition, the DTC plans to let sightholders have greater use of its trademarks for their brands and marketing initiatives.