Sightholder Becomes “King” – For a Fee
March 24, 05While everybody seems to be focusing on whether or not the Value Added Services of the DTC represent a price increase, there are other aspects to the new arrangements which so far have been ignored in the public dialogue: the DTC expects that the introduction of the service fees will dramatically change the relationship between the DTC and the sightholder. The sightholder is not simply buying rough – no, he is paying for the provision of a service. This changes the relationship between the sides fundamentally. DTC managing director
One sightholder, to whom this quote was conveyed, responded: “If that is true, then it is worth the service fee – and even more. But I don’t believe it.” That response may yet turn out to become the most compelling argument in support of the service fees. Let’s not kid ourselves. The DTC and its clients traditionally have seen each other more as “adversaries” than as “trusting partners”.
Traditionally, clients will tell the DTC only what De Beers wants to hear – doing otherwise has always been viewed as “endangering” the boxes. Supplier of Choice has not done much to change that culture. SoC is a strategy through which the DTC has transferred its traditional control at the rough supply faucet of the diamond pipeline to a control position on the distribution level of the pipeline, mostly through impacting the corporate behavior of its clients.
In the early phases of SoC, clients were preoccupied with “ring-fencing the goods”, which meant presenting programs to the DTC aimed at securing supplies of certain articles. Whether the programs really made sense was often irrelevant; convincing the DTC was the issue - and tens of millions of dollars have been spent on profiles and marketing presentations to the DTC. (Wrong use of money; it should have been used for marketing proper.)
SoC hasn’t helped to change the basic distrustful attitude of the client to the DTC. To the contrary: the levels of sophistication in presenting to the DTC what it wants to hear – to get a higher score on the comparative rating system which determines the sight allocations – is now leading the DTC to third party forensic auditing of the already audited books of the clients. [And the DTC says it is doing this at the request of clients.] Objectively speaking this is a disgrace to all parties involved.
There is no doubt that the DTC has caused a tremendous earthquake in the diamond industry – and
But the mutual mistrust remains – though the DTC is convinced it is lessening (and the fact that some Sightholders don’t come to a sight and simply ask for the box to be shipped is seen as evidence that the customer trusts the system and feels comfortable in knowing what he will be getting).
To a large extent this mistrust is perpetuated by the DTC’s own continued arrogance, the continued condescending attitude of many (surely not all) of its senior officials and executives. The fact that SoC bestows considerable discretionary powers on the Key Account Managers (who have to convert qualitative judgments into a quantitative numerical score) have made the KAMs central players in the game; many KAMs are perceived by the customers as understanding very little of the real diamond business. But few will voice this publicly.
If the “first phase” of SoC, the aim was mostly to get clients to work “differently”, the second phase, the launch of VAS, is indeed seen by the DTC - and by its managing director
“The DTC is now taking the next step in a process of resource transformation – from selling rough diamonds we are now moving towards providing a set of services to support the sale of the diamonds. We are providing services which will provide tangible value for our clients. We are convinced that if the client recognizes that he actually increases his revenues because of these services, we are in a win-win situation. Both the DTC and the Sightholder will enhance profits.”
Gareth acknowledges, in a very frank exclusive interview, that a prerequisite to the VAS success is an intensified building of trust between the Sightholder and the DTC. The transition from what in the past was seen as an almost ruthless cartel to a customer friendly service provider will probably be discussed in business and academic circles for decades to come. The point is: the DTC isn’t there yet – it still has a long way to go. I remember a quote by a Swiss marketing professor, Nirmalya Kumar: “To build a trusting relationship with their weaker partners, powerful companies can build systems that strive both to compensate their partners fairly for their contributions and to resolve differences in a manner that their partners perceive as fair. These systems ensure that there is two-way communication, that all channel partners are dealt with equitably, and that partners can appeal channel policies and decisions. In addition, they provide partners with a coherent rationale for policies and ensure that partners are treated with respect. Moving a relationship from a power game to the trust game is difficult, requiring a change in culture, management systems, and attitudes. But the recorded successes by a number of organizations testify to the benefits of making the effort. In rapidly changing environments, success will go to those who learn to make the leap of faith.”
If Valued Added Services indeed brings about the “culture change” at the DTC, and also brings some or most of the other intended benefits, it seems to be worth the money – which is money De Beers would have probably charged in some form anyway. Furthermore, as long as there are consistent “premiums” on the boxes and the DTC is the lower (if not lowest) cost rough supplier on the market, the “pain” is likely to be limited. For