Price or emotion?‎

Avi Krawitz

There is a long-standing perception among diamond traders and jewelers — the more price ‎information becomes available to consumers, the more difficult the emotional pitch ‎becomes. Walking the halls of the recent Hong Kong show, or any of the international ‎diamond bourses for that matter, one gets a sense that the trade is more adept at dealing ‎in certificates than the actual diamonds.

“Look around, no one describes the beauty of ‎the stone they are selling anymore,” one manufacturer’s marketing director lamented in ‎Hong Kong. “There’s no mystery left. Everyone knows the price, including the ‎consumer.”‎
It is true, transparency comes at a price. An informed consumer is able to compare ‎prices, which ultimately results in lower retail profit margins, placing downward pressure ‎on the rest of the trade.

In today’s Internet age, price comparisons are unavoidable. Consumers armed with a ‎print out from an online search can walk into any brick-and-mortar store with a low ‎estimate of what they are prepared to pay for their choice of diamond. Further standards ‎set by third-party independent grading laboratories, along with the Rapaport Price List, ‎have brought additional transparency to both the B2B and B2C markets. ‎

Ensuring a level playing field across the diamond pipeline — including among consumers ‎‎— is critical to maintaining confidence in the product and creating additional demand for ‎diamonds. Along with price transparency, full disclosure regarding where the diamond ‎has been sourced and, where possible, how it was processed, all contribute to the ‎industry’s goal of establishing a fair, open and competitive market.      ‎

Grant it, diamond jewelers are caught between the need to communicate with their ‎consumers in an honest manner and the risk that those same consumers will use the ‎information to diminish the retailer’s profit margins.

But the idea that price transparency erodes the emotional appeal of the diamond is ‎misguided. Rather, the market should be asking what the value of diamonds is as a ‎deeply symbolic product, and what retailers are doing to differentiate their product.‎

Women value diamonds for the message it represents — the sustainability of their ‎promised relationship — regardless of price. Flowers are attractive, but they’re not ‎sustainable. A diamond is forever — the bigger, the better, the stronger the illusion of the ‎commitment. And that hasn’t changed as diamond markets have opened up. ‎

That’s not to say that the industry should rest on its laurels. As this column has ‎emphasized extensively before, the industry must raise its profile in the consumer space, ‎particularly as it faces rising competition from other luxury products. Generic marketing ‎is needed, but intense competitive branding within the industry would be more effective. ‎For a jeweler that is confident in its brand, price doesn’t matter. The same is true for an ‎industry secure in its message and product.‎

Of course, informed consumers are tougher customers. But that is the way of the world ‎as people are armed with more information than before. The deeper question therefore is: Can ‎retailers justify the price they are charging above the interdealer price by the added value ‎they provide? ‎

Jewelers need to recognize that with greater price transparency, their profits are ‎increasingly defined by their added value. How they add value to their product is the ‎biggest challenge facing individual businesses in the industry today and ultimately, it is ‎how the diamond is sold that differentiates one retailer from the next.

Why don’t consumers just buy off the Internet? Well they do and increasingly will. But ‎they go to stores to get the whole package offered by the jeweler – including their ‎branding, service, knowledge and expertise, and full disclosure about the diamond ‎product – be it price, grading and ethical guarantees. With the ever-rising competition ‎from the web, it is up to jewelers to ensure that they provide that extra value.

Wholesalers and manufacturers can differentiate themselves in a similar way in their ‎market space. But at the dealer level, they are forgiven for trading with a market-type ‎mentality. Price matters in the market place and the perceived dealing in certificates ‎reveals a dynamic diamond trade, rather than a so-called commoditized one. While one ‎may not see the emotional connection or the descriptive sales pitch at the wholesale ‎level, passion is in abundance, which is a far more important ingredient to the trade. In ‎fact, an exaggerated emotional attachment to their goods may diminish that passion to ‎sell, presenting them with additional risk.‎

If anything, price transparency brings extra confidence to the trade. Furthermore it is ‎essential to attract additional avenues of demand such as from the financial and ‎investment community, which has the potential to bring billions of dollars of finance and ‎liquidity to the diamond market.

The industry can maintain its emotive message to raise demand through a dynamic ‎price-driven trade. In fact, combining the two represents a tremendous opportunity for the ‎diamond market. The ideas are not mutually exclusive. In the current difficult economic ‎environment, consumers are increasingly looking for specific price points and products ‎with a message. As it struggles to gain market share this coming holiday season, both ‎price and emotion are what differentiate the diamond industry.

Source Rapaport