Diamonds, Leopards, and Spots

With half of a retail jeweler’s business concentrated in diamond merchandise, any news from De Beers on a change in diamond marketing direction creates a great deal of discussion and speculation. Retailers and manufacturers of diamond jewelry-as well as those in the diamond supply chain-wonder what’s next.

Wouldn’t it have been fun to be there to hear what the consultants hired by De Beers had to say about how the diamond business is conducted and how it should be changed? The notion of diamond sellers spending 9% of revenues on consumer marketing activities would have been a real showstopper. Let’s see, margins at every level within the supply side of the jewelry industry are thin and getting thinner, and the consultants are recommending essentially a doubling or more of marketing expenditures.

The consultants who have made a study of the business within the past few months have concluded that the problem is that the industry is not spending enough to promote diamonds. Didn’t we just read that De Beers announced record sales and profits as well as a significant reduction in inventory levels? Very interesting. The model created by Mr. Oppenheimer has worked very effectively for many years. With diamond sales and profits growing again after the Asian flu epidemic, you wonder what the real objective is.

By thinking outside the box, connecting the decision dots, and adding a dash of speculation, you might well conclude that De Beers is getting ready to reap even greater rewards from their long-term advertising and marketing activities. They have created a strong brand name. They are in the process of evaluating the results of their test market consumer branding efforts. They have a strong distribution system and are now saying they will reduce the number of firms within that distribution system. Think that will make all the players within the system try harder?

Finally, as Edward Jay Epstein wrote recently inThe Wall Street Journal‘s editorial page, De Beers has strengthened its effective control of diamond supplies with the help of Global Witness, the United Nations, the governments of the United States and England, and the World Federation of Diamond Bourses. They have effectively eliminated from the distribution channel any diamonds that do not have the right papers.

De Beers has for many years effectively “controlled” the diamond business. They have managed supply and prices. They have created demand for the product. And the company’s belief that the consumer will prefer a diamond with the De Beers name may well bring De Beers into the retail business. In the United States, however, there is the slight problem of De Beers’ monopoly status. But perhaps all this business of “not controlling” supply, distributing only diamonds they mine, and restricting purchases from other mines will convince the U.S. government that De Beers is no longer the “bad” monopoly they once were. What do you think?

The retail jewelry business is unique in many ways. Probably one of the most unique things about it is the absence of brand names. Branding is recognition and association of a name with a product. But in this business, the brand name is the local retail jeweler, who-in the mind of the consumer-will ultimately provide the trust component

of a sale. Because the average consumer is not equipped to evaluate a diamond or a gemstone, the retail jewelerdoes play a pivotal role in the selling process. The retail jeweler’s added value is that trust factor.

Diamonds are forever.and leopards don’t change their spots!