The Good and Bad News of Diamond Branding

Ladies and gentlemen,

I have good news and bad news about diamond branding, and I’ll tell you why: The good news is that I’ve been looking for branded diamond since I was invited as a speaker at this conference. I wanted to find out what I was going to talk about, but I haven’t come across such diamonds so far. This means they must be very rare. So where are they? Are they sold out? Has anybody seen them? I have no idea how they look like. How come so much money has been invested and I’m unable to find one? I’m puzzled, but maybe I have the answer: as much as the motive to brand diamonds was to secure rough from primary suppliers, few manufacturers actually went ahead. Why? Because the bad news is that consumers are telling us that diamonds are sought after only for what they are, regardless of where they come from or who polishes them.

According to recent reports, retailers in the US are rejecting branded diamonds. The premise just doesn't sit well with them. What almost all are saying is “why should we promote the brand of diamonds over our own name? A nationwide jewellery chain in the US explicitly states that it is pushing its name rather than that of branded diamonds. In a recent Israel Diamond Institute seminar, leading jewellers came out fiercely on the issue.

The retail business stance concerning branded diamonds has been building up since a while. There is now widespread belief that no added value can be generated this way. Serious warnings are coming through that consumers are not prepared to pay premiums when they can have identical stones at less. Let’s face it: as the public cannot recognize diamonds through their logo, design etc., the closest thing to a branded diamond may well be a diamonds with a certificate issued by a gemmological laboratory. While the consumer sees no ground for premiums on manufacturer’s brands, he is prepared to pay more for a certified stone. This makes perfect sense both for the retailer and the consumer, as both feel comfortable with what they are dealing with. But the actual origin of diamonds set in jewels remains as irrelevant to the consumer as its source of gold or platinum. I ask you: do consumers care about the origin of the steel their cars are made of?

In spite of evidence that the effectiveness of branding diamond is far from being demonstrated, some manufacturers nonetheless went ahead. But it is clear that this was mainly driven by the will to secure supplies of rough. Unfortunately manufacturers rarely have the knowledge, the experience, the capability or the financial resources to launch a brand. Undertakings built on the assumption that rough supply is the ultimate key to success are likely to fail, as they are competing with a constellation of small but efficient businesses with little overheads and extremely good performance.

So what is the state of the market after all this branding hype? It was supposed to stimulate demand, but this vogue seems to have essentially flourished inside the trade. Polished hasn’t moved well, which led to unreasonable credit terms and pulled liquidities out of the market. Somehow the end user was lost out of sight. A B2C vision turned into a B2B vicious circle, triggering speculation on rough and ignoring the reality of consumer demand. This lead to an inflation of rough prices spiralling up from hand to hand at unrealistic levels. In the end manufacturers were caught with expensive inventories that could not be placed on the market. Prices fell, causing casualties and weakening the industry. The process of speculation on rough diamonds disconnected from its equivalent in polished is comparable to multi-level marketing, where some distributors make money but the majority fail due to the intrinsic nature of pyramid schemes. There is always a point where contributions of capital dry up. Banks close the tap and no end-users are present to feed the pipeline.

There seems to be confusion in the trade between growing the market and growing the prices. One may or may not agree with the vision whereby the key to growing the market goes through vertical integration and branding. But no matter how much one believes in the concept, and even it is proven to be viable, it simply cannot be applied to the entire industry, because there is a cost attached to branding. As this cost is ultimately passed on to the consumers, these must have an alternative in the form of generic products. Consumers who believe that brands warrant no more value nor better quality than generic products should be in a position to choose the latter. A recent survey in Japan reveals that consumers are suffering from “brand fatigue”, are looking closer at the intrinsic value of brands, and are resuming with good quality but cheaper generic products.

Challenging brands with generic products is not obsolete. It is essential to competition. We must show consideration to the consumer that walks everyday into jewellery stores worldwide to purchase diamond jewellery. As much as it is true that he does this for his own enjoyment, it is no less true that he gives all of us diamantairs the opportunity to make a living. We should learn from diamond history. In the event consumers would get carried away by branded diamonds then it is likely to be short-lived, just like the « investment diamonds » craze in the early eighties, after which prices plummeted, diamantairs went bankrupt, plunging the trade into a deep trauma. It took a long time to recover form this disaster, and in many ways, two decades later, we are still enduring its aftermath.

A sustainable branded product is a one that has an inherent, quantifiable added value. When such value is not present, then sooner or later the premium is bound to disappear. Therefore, it should be part of our principles as diamantairs to tell the public that nothing actually distinguishes a polished diamond from another polished diamond, other than its objective, measurable, documented specifications. This ongoing process of our trade evolving from murkiness to transparency should be welcome and has a name: it is called commoditization.

The title of this talk: “Diamonds: Branded or Generic » may actually be inadequate as there may not no be such thing as a branded diamond, which is probably the reason I was unable to find one in the first place. As much as diamond jewellery can be branded, as much as attractive retail stores can appeal to consumers, maybe diamonds can only be generic because they are fundamentally a commodity.

Ladies and gentlemen, thank you very much for your attention.