Generic vs. Brand Advertising - Sep.2000
As part of its new "Supplier of Choice" strategy, De Beers says it wants the industry to market itself better. Executives note the overall luxury goods market, which spends six to ten percent of its revenue on advertising, is growing at 10% per year—far faster than the diamond market— which spends one percent of its revenue on advertising. "There’s a huge untapped opportunity to grow the diamond business and match the growth rates enjoyed by leading luxury goods companies," said Gary Ralfe of De Beers.
He has a point. Clearly, advertising drives demand for diamonds—otherwise, none of us would be here. And we can’t argue that the more advertising, the better.
But De Beers ad campaigns have worked because they come from one company and have a single, unified "generic" theme—which says that all diamonds are good. De Beers’ new strategy is to tell its sightholders to start coming up with their own brands and do their own marketing. They want everyone to compete against each other to say why their diamonds are more "forever" than yours.
We wonder how a person who built his business on being an expert on rough can suddenly become an expert on marketing. In addition, one of the reasons so few manufacturers advertise in this business is that the margins are so small. We don’t spend the same on marketing as the perfume industry or synthetic moissanite because our margins aren’t as great. Let’s assume that other luxury good companies spend approximately 10% of profits on marketing and advertising. Synthetic moissanite, with margins of about 55%, can afford to spend 5% of sales in advertising and still make 50%. In the diamond industry, however, where profits are in single digits, 10% of profits would be less than 1% of sales.
Likewise, we aren’t sure if brand advertising will really increase demand for diamonds. Look at airline advertising. One will say their seats are wider, others will get you there on time quicker. But does that mean you take more trips—or just that you favor one over the other?
Most of the time when marketing pros talk about a brand’s "added value" they really mean added advertising, p.r. and licensing fees. Furthermore, advertising makes things expensive, and diamonds are already expensive. De Beers is right. We should do more things to attract customers. But let’s be careful not to drive them away.v