Making Margins

According to an audience of retail jewelers at the Centurion Jewelry show in February, margins—or lack thereof—are their biggest frustration about selling diamonds. At a two-hour seminar devoted to the topic of diamonds, 78 percent of the audience (mainly independent jewelers) said margins were the biggest diamond-related issue for their stores. Eleven percent of the audience said availability of the stones they want is their primary concern, and 7 percent said Internet competition is their biggest concern.

This isn’t news. We already know that once the Pandora’s box of discounting and deal-making is opened, it isn’t going to be closed. Or can it be?

When Saturn first launched its no-haggle policy, it was a novelty in the world of car shopping. While various individual dealerships around the country had always had a no-haggle policy, more often than not they sold luxury cars like Volvo and Mercedes-Benz, not popularly priced ones like Saturn. Conventional wisdom, therefore, might dictate that the concept wouldn’t fly among the masses used to haggling for the best “deal” when buying a car.

Wrong. Not only did the concept fly but demand was overwhelming. In the early 1990s, shortly after the cars were introduced, customers wishing to purchase one first had to make an appointment (!) with a salesperson, then wait weeks for their vehicle to be delivered. Obviously, if ever there were proof that the public does understand the difference between value and price, and that the shopping experience is as important as the product, this was it.

The cars themselves were modestly priced (a basic model sold for around $12,000), but they contained elements of quality, luxury, and clever engineering that were typically absent from similarly priced automobiles. And the public clearly loved dealing with sales professionals who intelligently discussed the attributes of the product, rather than simply wheeling and dealing to get the customer to sign on the dotted line today.

While at Centurion, I spoke with several jewelers who rarely, if ever, reduce the prices of any of their products. “Not even the dogs?” I asked.

Not even the dogs. One jeweler won’t even refer to them as dogs, although she concedes that a few things are “puppies,” and her sales staff is given special incentives to move them out of the store. If they can sell them at full price, they split the profit. Her logic is that she’d give up the profit anyway by reducing the price, so she may as well give the difference to one of her sales team and give them a special incentive to move the piece out—not to mention that the extra incentive also gives them renewed enthusiasm for all their sales. So far, it’s worked for every one of her litter of pups, so to speak.

Another jeweler relies on stock balancing, the result of having built solid relationships with suppliers. Being a good customer pays off, because when pieces don’t move, suppliers are willing to exchange them for something that does. It’s a win-win situation for both, says the jeweler—the supplier wants its customers to be successful, and the jeweler wants the old merchandise to move out. And, as the first jeweler proved with her “puppies,” one person’s stray dog is another’s favorite pet.

Another question posed during the diamond seminar is, Why not focus on selling the high-margin setting rather than the low-margin diamond? Research has shown that the setting is an often-overlooked part of a diamond-solitaire sale. He may be paying for it, but she’s the one wearing it, and the setting is very important to her. She’s also the one who’s going to come back to you if she likes your product and the shopping experience you provide. Sell him a commodity and he may or may not come back. Sell her a setting she loves and she’ll be back for more.

One jeweler pointed out that he still has to stock center stones and take the risk of holding an ample inventory. True. Of course, one needs to have stones to offer the customer on the spot. But if a customer has a certain quality of stone in mind, and you have a beautiful setting in the store, chances are he or she will wait while you find the right stone. Not only does it show you’re willing to go out of your way to help meet the customer’s needs but remember how many people were willing to wait weeks for a fairly basic automobile. Unless they’re planning on eloping that evening, why wouldn’t they be willing to wait a few days for a special diamond?

If you believe in yourself and your product, and it shows in the shopping experience, they will come. If you don’t believe it, just ask Saturn.