The indelicate balance of ethics against profit

I am slightly pained to write this blog, as over the years I've made many close friends and contacts in Switzerland, not to mention worked very closely with several Swiss-based companies as part of our recently launched DMCC Crypto Centre, including...

Today

Yakut diamonds, the symphony of permafrost

The Yakutia-based Kierge company, one of the Top 100 of the leading jewellery brands in Russia, opened its showroom in Moscow this autumn, which is gaining popularity in the capital of Russia. “Kierge” is the Yakut for a “finery, decoration” in a broad...

22 november 2021

Vladislav Zhdanov - “The use of diamonds in high technologies is the main and key target of the diamond synthesis technologies”

Vladislav Zhdanov, Professor at the Higher School of Economics, Advisor to Director General - Chairman of the Management Board of the Russian Railways company, and former Vice President of ALROSA (2015-2018). He is a physicist by background...

15 november 2021

Ali Pastorini: The white diamond is the equivalent of a white shirt for a woman

Ali Pastorini is the co-owner of Del Lima Jewelry and President of Mujeres Brillantes, an association that brings together more than 1,000 women working in the gold and diamond trading sector, mainly from Latin America, as well as from Turkey, Spain...

08 november 2021

“As a purist and old school diamantaire, I don't believe in LGD,” says Vin Lee, CEO Grand Metropolitan

Vin Lee, the King of Luxury, doesn’t need any introduction. He is a self-made billionaire CEO of Grand Metropolitan. The Beverly Hills' family office Grand Metropolitan is $7 billion AUM privately-held luxury goods holding company with a 60-brand...

01 november 2021

Two marketing strategies and a big jackpot

08 november 2021

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 (https://lightboxjewelry.com/collections/finest/products/necklaces-1carat-finest-solitaire-pendant-white?variant=39511682875434) and an ALROSA-Diamonds’ (ND) one (https://alrosadiamond.ru/jewelry/pendants/9e25611/skuId_51986/).

analyt_08112021.png

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” (https://tass.ru/top-officials/5279080#5247040). And one more thing is “In general, we believe that natural stones and synthetics have completely different target audiences and buying niches.” (http://www.alrosa.ru/wp-content/uploads/2019/03/Alrosa_0105_2018_RUS_w.pdf). 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.

ND is a product “created for billions of years”, and SD is a “modern replica made in a ‘test tube’” (often a rather dubious term “lab-grown diamonds” is used). It’s a good marketing message, but only at first sight. It would be interesting to ask the supporters of this idea whether it matters to them what kind of gold the setting of the jewellery piece they own or intend to purchase is made of? Whether this gold was mined at a primary or alluvial deposit a month ago, or it was obtained by melting down the jewellery scrap of different ages handed over to pawnshops? Is there really any difference? Or does it only matter that it is gold (Au) and has exactly the declared karats? Obviously, for an average consumer, the origin and age of the setting metal does not matter. If so, why should the buyer care about the origin of the cut and polished pieces of crystalline carbon inserted into this setting? Physically, chemically and optically, SDs and NDs are absolutely identical. And the funniest thing is that the carbon atoms in the crystal lattice of natural and synthetic diamonds are of the SAME AGE. Really, the products “created for billions of years” and the “modern replica made in a ‘test tube’” are composed of the atoms that appeared at the same time. Whether our customer is an atheist and a supporter of the Big Bang theory, a fan of Democritus or Lavoisier, or professes any of the known religions containing a dogma about the Creation of the World, he would agree with this statement.

As for the investment attractiveness of SDs and NDs, it is the same and negative for the goods in question - most likely, you can never sell these pendants for the same (or more) money for which you bought them. In general, for mass-produced goods with up to 3 carats colourless diamonds that have no provenance, it makes no sense to talk about the investment potential. Accordingly, the marketing value of this factor is zero.

As for the comparative impact of SDs and NDs on ecology, the “green aspect” is rapidly gaining marketing weight these days. In this respect, SDs are unparalleled for objective reasons. Any large-scale mining is associated with an irreversible negative impact on the ecology of the respective area. Whatever reclamation efforts are undertaken by the mining companies, complete restoration of the areas where mining was carried out is impossible. As for diamond mining today, the situation is aggravated by the fact that mining is carried out almost exclusively in the interests of the luxury industry, since the share of natural industrial diamonds on the market is just a few percent. While the extraction of hydrocarbons or industrial metals is necessary for the maintenance and development of the civilization, the diamond mining is carried out to meet the needs that cannot be called the essential ones. For well-known reasons, the today’s consumers are extremely sensitive to such statements and, thus, SDs receive undeniable marketing advantages. In addition, diamond mining objectively brings risks that, in principle, are not inherent in the SD production. The likelihood of such risks is significant, and the possibility of the situations like the recent environmental disaster at the Catoca mine will hang like a sword of Damocles over the ND producers as long as natural diamonds are mined.

SDs, unlike NDs, have no history. This is a completely fair and extremely important statement, which formulates almost the only marketing advantage of natural diamonds over synthetic ones. Really, the history of NDs has a huge amount of information that can be used for generic marketing, and such a tool is really potentially capable of limiting the expansion of SDs significantly, designating the role of the synthetics not as “fashion jewellery’ (which, of course, is a great mistake), but as a “replica”, leaving the much more attractive role of the “original” for ND. Unfortunately, there are a number of objective and subjective obstacles on this way. The fact is that its official history was full of legends made by those who controls the market and their main counterparties since the diamond market was monopolized and politicized for a long time. From this “doctored” version, which is generally accepted today, the most important points that could play the role of the catalysts for today’s generic marketing are practically excluded. Accordingly, there are very few experts who possess the necessary information, and in fact, there are no such experts in the industry.

In our opinion, the given example proves convincingly that the SD and ND markets are not separate ones in the mass segment of the jewellery. These are full-fledged competitors, and in the minds of consumers, the competition between them will take place in the form of a struggle between the marketing models built in the above coordinate system. Will this struggle escalate over time? I believe that it will, and an aggravation of the conflict is inevitable. The reason is obvious: the mass market for diamond jewellery is a big jackpot worthy of “fighting” for it very hard. Why don’t we see such a great confrontation between the synthetics and natural stones, say, in the gem-quality corundum market (despite the fact that the synthesis technologies are very advanced in this field)? Because this market is too narrow, and investing the amounts in marketing comparable to the cost of the market itself is obviously pointless. But the ratio of the investment required to build and implement a successful SD marketing model and the predicted reward like the market share taken from NDs is much more attractive.

Sergey Goryainov, Rough&Polished