Two marketing strategies and a big jackpot

Sergei Goryainov

In the industry discussions on the role and prospects of synthetic diamonds (SDs) and their advantages and disadvantages in comparison with natural diamonds (NDs), it is always emphasized that SDs comparable in characteristics are much cheaper (at least by 50%) than NDs. Of course, this is true, but paradoxically, it leads many analysts to opposite conclusions as some analysts believe that the existing (and increasing in the future) price difference will shift SDs into the fashion jewellery niche and the ND market will get rid of this problem; the other analysts, on the contrary, believe that a lower price (and therefore, a higher margin) will allow SDs to drive NDs out of the market in the small-size (up to 1 carat) segment.

But an average buyer, that is usually not savvy to the market and less aware of the industry analytics, comes to a jewellery store (no matter, to an offline or online one) to spend a CERTAIN AMOUNT on a diamond jewellery piece. The customer’s choice (an SD or ND one) is influenced by the information generated by the marketing models used. And the effectiveness of marketing, in our opinion, will be reflected not in the DIFFERENCE IN PRICE between SDs and NDs having the same characteristics, but in the quality of the goods studded with SDs and NDs of the SAME price. It is such a point of analysis that makes it possible to evaluate the marketing models and predict the vector of consumer preferences.

The easiest way to explain this point is to give an actual example. Let’s consider and compare 2 jewellery pieces: a LIGHTBOX’s (SD) pendant and an ALROSA-Diamonds’ (ND) one.

Both pendants have approximately the same price: a LIGHTBOX’s pendant costs $2,000, an ALROSA-Diamonds’ one costs 139,100 (or $2,001.7 at the rate of the Central Bank at the time of writing this article). The goods are sold in the respective online stores and are available to any holder of international payment system cards. The brands are well known both in the industry and in the media as the largest players in the diamond market – De Beers and ALROSA – are behind them.

We will not discuss their designs as it is a very subjective factor, we will focus on the parametres that can be measured.

So, the LIGHTBOX company offers a $2,000 1-carat synthetic diamond (SD) of D-colour, VVS-clarity, КР57-cut Excellent in a 18k white gold setting (corresponds to the metric standard 750).

For the same money, ALROSA-Diamonds offers 45 natural diamonds (NDs) of total 0.38 carats, all the stones inserted are of F-colour, VS1-clarity, КР57-cut (cut quality is not specified, but for the purity of the experiment, we will also assume it to be Excellent), a setting is made of 14k white gold (metric standard 585).

Obviously, all characteristics – from the frame metal to those of the inserts – show that the ALROSA-Diamonds’ jewellery piece is inferior to the LIGHTBOX’s one, and their similar price can only be explained by the premium for the “natural” origin of the diamonds used. Now, we should assess the effectiveness of the marketing efforts. Let’s consider the most serious conditions, which are a kind of coordinate axes of the marketing model.

The conditions are from “SD is a fashion jewellery, the SD and ND markets are separate ones” to “the SD and ND markets are the same”. Only real diamonds!” is the motto of ALROSA that basically refused to work on the SD market. In any case, Sergei Ivanov, CEO of the leading Russian diamond company, is quite categorical saying “Natural rough diamonds are a one-of-a-kind product that has been created for billions of years, they are unique and finite as the nature does not “produce” them anymore. And synthetics are a mass-produced fashion jewellery, they have no past, no history, only a reactor equipment fleet is required for their production that simulates the natural conditions – high temperature and high pressure”. And one more thing is “In general, we believe that natural stones and synthetics have completely different target audiences and buying niches.”. Is that right? Is a $2,000 SD Pendant (D, VVS) in 18K gold a fashion jewellery piece? And is not a 14K gold pendant with 45 tiny NDs – for the same price – a fashion jewellery piece? How can there be “different target audiences and buying niches” for a piece having the same purpose and the same price? $2,000 is a decent sum of money for the middle class in the US and Japan, it is big money for the buyers in many EU countries, and it’s a fortune for Indians. Normally, they don’t pay so much money for fashion jewellery, a fashion jewellery piece is a cubic zirconia in silver for $50 (at best). No, the compared goods made by LIGHTBOX and ALROSA-Diamonds cannot be considered fashion jewellery pieces at all, they are full-fledged jewellery ones. If so, where is the longed-for market-sharing arrangement in this case? We see two real competitors, so, a buyer who intends to spend $2,000 for a pendant will choose EITHER one piece OR the other one. So, the hope that De Beers created LIGHTBOX only with the aim of degrading the SD pieces to the level of fashion jewellery looked rather naïve from the very beginning.

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Source Rough&Polished

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