Fast recovery of the diamond market is accompanied by rather optimistic forecasts whose authors believe that world consumption of diamond jewelry may increase by at least 30% in the next decade. For instance, the Diamond Market Outlook, June 2010 released by ALROSA, says literally the following: “Based on the outlook of each of the main diamond jewellery markets, including the United States, Europe, Asia-Pacific, Japan and the Middle East, the demand is expected to grow by 33% over the next 8 years.” Similar estimates are offered by analysts of other diamond-mining companies, representatives of the diamond-cutting industry and specialized consulting agencies. The majority of experts believe that by 2020 cumulative world consumption of diamond products will reach (or even slightly exceed) $90 billion.

As a rule, such estimates are based on the forecasts for GNP movement in the countries considered major consumers of diamond jewelry (as a source for its forecast ALROSA used the data released by Global Insight). The initial premise is simple – GNP growth is accompanied by an increase in incomes of the population bringing about higher consumption of luxury goods. In the early 2000th ALROSA’s experts published a series of works which reflected correlation dependence between GNP movements and consumption of diamond goods. Obviously, such a model has been applied in the company’s latest forecast as well.

In the first approximation such logic looks faultless, but some examples make us doubtful about prognostic values of this approach in the modern environment.

Up to the mid-80s the fur market obediently followed GNP in the United States and Europe: there was a high correlation between increases in incomes of the population and growth in purchases of prestigious fur products. But then there occurred a disaster (from 1987 to 1993 auction prices for sable, for instance, slumped threefold) which had no relation to any GNP movements. As a result of a well planned and powerful PR campaign natural furs were given a negative use value – these goods were now associated with cruelty, murder of animals for the sake of flaunting luxury, ecologically harmful patterns of behavior, etc. Simultaneously, the market was flooded with essentially new synthetic materials which for the most part were not direct substitutes for natural furs and skins, but met the requirements of “humane consumption” widely imposed on the consumer by the authors of this marketing project.

Something similar also occurred in the tobacco market. From the early 90s this market started to experience unprecedented pressure on the part of a wide spectrum of proponents of “a healthy way of life” ranging from physicians and human rights activists to professional lobbyists. The surprisingly well-organized apologists of the idea to improve the nation’s health by giving up smoking rather quickly managed to deprive the tobacco market of one of its most powerful drivers – TV advertising. The beginning of this massive antismoking campaign coincided with a full-blast promotion of a new product, nutritional supplements, and a whole range of “medicine-like” preparations. The brutal Malboro cowboy abandoned the TV tilting-yard giving way to flourishing eaters of countless pills with “scientific” names incessantly helping their livers, making them slim, etc. Of course, the major part of this production (with the exception of special anti-smoking nutritional supplements) is not a direct substitute for tobacco, but these goods are an embodiment of modern perception of “a healthy way of life” whose deadly enemy is certainly tobacco. To give up cigarettes means to join a healthy way of life, but can you imagine a modern healthy way of life without miracle-making preparations “efficiently cleansing your body from toxins”?

A household budget is not made of rubber. And when the manufacturers of new products never seen before in the consumer market get mature – technologically, organizationally and financially - for possible massive promotion of their goods on the market, they cannot rely only on the bulging contents of consumers’ wallets mimicking GNP growth rates. This is too slow a process. The market should be cleared from competitors operating in comparable price ranges, or putting it in other words, household budgets must yield some funds which by means of well-known marketing gimmicks will be focused on consuming the new goods.

The general features of this process are as follows:

- The competitor comes from another industry (there was nothing in common between furriers and chemical corporate groups, no more than between tobacco manufacturers and pharmaceutical firms).

- The competitor should possess financial and lobbyist capabilities matching the target of attack.

- The range of products advanced by the competitor should be within a close price range and positioned as superior in its key characteristics defining its use value (for instance the clothes made from new materials are more functional, ecological and modern than those made from natural skin and fur, while the “healthy way of life” and associated goods are more useful, prestigious and favorable to achieve life goals than harmful tobacco).

- The main tool for clearing the market is to give a negative use value to competing goods (saying that they are ecologically harmful, unhealthy, etc.).

- The start of the campaign is pinned to the time when the new competitor is technologically and organizationally ready to put its goods on the market, but predicted demand is insufficient because of low growth or stagnation of incomes earned by target consumers.

- The campaign is implemented as a long-term program having a controlled level of intensity.

May the diamond market experience a similar attack within the next decade and who will be an assault party? And also what will in this case happen to the forecast saying that diamond jewelry consumption will increase following the growth of GNP in major consumer countries?

There are well-known fears caused by improved and circulating techniques in synthesizing gem-quality diamond monocrystals. But to all intents and purposes this factor cannot virtually have a negative impact on the market as a whole. The manufacturer of synthetics is not facing a task of edging natural diamonds out of the market in favor of synthetics; his ideal purpose is to get a product undistinguishable from natural diamonds, but having a lower or at least equal prime cost. And diamonds in the eyes of the end consumer should not be discredited; demand and prices for diamonds should be high - only in this case synthetics can give worthy profit. If successful, synthetic diamonds will be able to take away some share of profits from mining companies. But in the first place, diamond-mining companies are not yet the whole diamond market; and secondly, a future slump in diamond output due to the depleted mineral base may make synthetics marketing (especially through “grey” channels) quite painless. The platform for an agreement does exist since synthetic diamonds are diamonds and the certification issue is only a problem of terminology, nothing more. At any lay of the land, those who will promote synthetic diamond jewelry will never start a campaign to give a negative use value to diamonds, otherwise all their synthesis-based venture is simply devoid of sense.

Synthetic substitutes looming on the horizon and close to diamonds but not diamonds are also of no great harm. The history of cubic zirconia and moissanite is a convincing proof. Of course, it would be utterly curious to personify the authors of marketing strategies used to “promote” these remarkable crystals. “They are almost diamonds, only cheaper,” “diamonds for the poor,” “diamonds for the handicapped”… You may hardly find other examples of such a gracefully committed “marketing suicide” in the history of any other product. By efficiency this kind of “positioning” is not inferior to “Diamonds Forever,” but only with a preceding minus sign. However, even this amusing case is not at the heart of the matter. For newly produced synthetics to be able to challenge diamonds at all it should not be backed up by a cooperative of crystallography experts but by a financial giant having a billion-dollar-worth turnover. It is rather doubtful the one will be ever found – the problems of establishing such a company are seen with the naked eye, while the jackpot for a serious player is insignificant.

Nevertheless, a real competitor does exist. Its breath is distinctly felt by jewelry marketers, and many of them recognize that the competition imposed by manufacturers of household electronics worries them much more than efforts of their colleagues in the trade.

The market of household electronics is essentially more receptive than the market of diamond goods (electronics consumption in the U.S. alone is almost twice as much as the entire global diamond market), so there is no need to doubt financial and lobbyist possibilities of major manufacturers. Price ranges for a great bulk of sold goods practically overlap: from $100 to $4000. Average expenses of American households for jewelry and electronics are also close: about $800 and $1000 accordingly. The traditionally “jewelry” function purposefully and extremely successfully given to electronics, which is the status function, is the main point making household electronics to be considered as a competitor of diamond jewelry in a comparable price range.

This is an absolutely new quality which has resulted from the previous-decade technological revolution when the pace of updating electronic equipment based both on changing computer elements and expanding functions increased by a couple of orders of magnitude compared with the last quarter of the last century. Say, in 1975 any regular consumer could not consider status value as the main reason for buying a phone or camera. Today the situation changed – at the rate of a machine gun manufacturers are throwing into the market promptly updated gadgets for which people are queuing. It doesn’t matter if 90% of functions in your new gadget, whose manual has already swelled to the size of Ulysses of James Joyce, will not be used by a regular consumer since the latter did not use many of such functions in his or her previous purchase. To be abreast of time, be modern and show success – this is what your new gadget allows you to do. It is a status purchase. Indeed, who uses a mobile phone issued two years ago? Only a loser.

But the possibility of fast technical upgrading of household electronics is only an objective basis to shape status consumption. An appropriate pattern of consumer behavior is generated and implemented by marketing experts in manufacturing companies and specialized agencies within the industry. And it is hardly necessary to doubt that if jewelry manufacturers and dealers consider electronic gadgets as competing goods, then manufacturers of gadgets have other feelings towards jewelry. The generation of “baby boomers” is being replaced by the generation of the “thumb" for which status consumption means buying a new gadget, not diamonds. Certainly, it does not mean that tomorrow brides will be given 3D TV sets for engagement instead of a diamond ring. But it is already evident that there is a group of essentially new goods which are being diligently given explicitly “diamond” functions.

Meanwhile, the crisis has generated a problem demanding quite a fast solution on the part of electronics manufacturers. China – the major world factory of electronic gadgets – has listened to desperate requests coming from overseas and now is raising the yuan exchange rate. Simultaneously the People’s Republic of China goes on with developing its domestic market. These events mean that exported Chinese household electronics sold in diamond jewelry  consumer countries will inevitably rise in price, both because of higher prime costs (resulting from the development of the Chinese internal market) and because of the changing yuan-dollar exchange rate. In such circumstances electronics manufacturers are expected to be very anxious to preserve their rate of return, whereas consumers wary of unemployment are not inclined to put on the ritz. But a new generation of gadgets – from iPhones to 3D-TVs - is already being turned out on a wide scale and all these goods rising in price are to be sold and preferably without a loss in profit. Will the more than modest growth of GNP in the United States, Japan and Europe (which taken together so far make not only the major diamond market but also the major market for gadgets) be sufficient to buy everything? Or will it be necessary to force the competitor out?

So, we have a competitor from an industry which previously was in no way related to the diamond market. Financial and lobbyist abilities of this competitor are beyond any doubts. The goods promoted by this competitor are in the target price range and compete at least in one major aspect which influences the use value. The new generation of gadgets is ready to enter the market, but the purchasing capacity of consumers in the U.S., Japan and Europe is at a critical level due to the crisis consequences. Everything points to a high possibility of a competitive attack from this direction.

It is not difficult to give a negative use value to diamonds. The simplest version of such a strategy will be a scenario based on the concept saying that “diamond mining is destroying ecology of unique areas on this planet for the sake of ostentatious luxury and vanity.” Those who saw diamond-mining areas at least on pictures will be compelled to agree there is some share of truth in this message. A similar strategy has worked faultlessly when applied to the fur market, but for the diamond market this is the most primitive variant and actually there are much more efficient ways which, for obvious reasons, will not be discussed.

While diamond marketers are generating pleasing forecasts of growing diamond demand based on positive movements of GNP and proceeding from correlation factors taken from 10-to-20-year-old data, the American Electronics Association is apparently at work more adequate to the situation. A couple of months ago there was a fleeting report that experts of this organization were carefully examining the clothing market in the price range in question. What is in common between a pair of shoes from Gucci and an iPhone? Only one thing – they are deadly competitors.

Sergey Goryainov, Rough&Polished