Value Added Diamonds And Supplier Of Choice Policy
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Value Added Diamonds And A Branded Company

2004: Value Added Diamonds And De Beers’ Concern

Mar. 2004

During his visit to the Diamond Trading Company in London last month, DRB’s Joseph Schlussel spoke to Derek Palmer, of the DTC’s Sales and Marketing Department, and Simon Gilbert, Corporate Affairs Manager. This is not a traditional interview, but it was an open dialogue on the issues. Derek Palmer presented the case for Supplier of Choice and branding, and the DRB put forth the opposing views (which are not necessarily ours.)

Like the rest of the trade, we have both questions and reservations about De Beers new direction. And so our first question was basic: What does Supplier of Choice mean? Is the “Supplier of Choice” the DTC, or does it refer to the way De Beers chooses its customers?

Palmer and Gilbert replied that the new DTC wants its customers to think of De Beers as the Supplier of Choice.

Then we asked about branding. We noted that, in all our years selling diamonds and staying in touch with DRB member jewelers, we have only heard people ask for two brands — Canadian stones and the De Beers Millennium brand.

We noted that De Beers has said its sightholders should “add value” to their diamonds they sell. We wondered who gets that added value (meaning profit) — the dealer, the jewelry manufacturer, or the retailer. And is the consumer ready to pay more for this so-called “added value”?

The two gentlemen countered that brands take a while to get established, but we have heard some good news from Sterling selling the Leo brand. They added there is evidence consumers like diamond brands, as they are sometimes willing to pay more for a small Tiffany diamond than for a large generic diamond of the same quality.

They also note that for a long time the trade has complained about shrinking margins, and this was due to commoditization, meaning people comparing grading reports. They said branding will allow retailers to differentiate between diamonds of different suppliers, allowing for higher profit margins. Starting brands will also increase overall demand for diamonds.

We also argued that, once a brand is established, “intrinsic value” of the diamond becomes superfluous. Calvin Klein can sell diamonds as well as soap. Some highly advertised diamond Internet companies do sell soaps and belts as well as diamonds. What will prevent some of these new established brands from selling synthetic diamonds in the future?

They countered that gem-quality diamonds are bought for emotional reasons. Consumers who buy for romance do not buy synthetics.

Then we talked about the changes in the sightholder list. Today there are less than ten sightholders left in the United States, a drop of nearly half, in the market that represents 50% of the world diamond market. Among those that were left out were firms led by legendary figures like Moshe Schnitzer and the late William Goldberg. How do the DTC determine who shall stay and how shall be deleted from the sight privilege?

The De Beers executives obviously did not want to go into individual cases, but noted that the criteria (financial standing, market position, distribution abilities, marketing strength, technical and manufacturing ability and compliance with the DTC’s Best Practice Principles) have been public for some time. They said it also depends on the goods a sightholder takes. If they take the whole range of goods, that is preferred. They are less excited about sightholders that only want particular goods. All these criteria are scored on a point system that is determined by computer.

Finally, we asked the question a lot of people are wondering: Where does a small cutter, wholesaler or retailer benefit stand amidst all of this? Does De Beers feel the business may be better off with most of the small people gone?

They said that any company — large or small — can benefit from having a brand and differentiating themselves. They noted that the Diamond Registry has differentiated itself by setting itself as a trusted authority in the trade and by frequently getting quoted in the media. They said marketing comes down to the “six Ps” — people, product, place, price, promotion and publicity.

It was certainly a fascinating discussion, and the very fact that De Beers executives were willing to hear these arguments and entertain these objections shows that they are becoming the more transparent company they promised.


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