In this article series, I outlined what could be described as the mechanics of setting up diamonds as a possible wealth preservation asset, with a 360-degree look at what are the steps that need to be taken to make it happen. This is the how of creating such a market. But what about the why?
Historically, the marketing campaigns for diamonds were fully focused on diamond jewelry and the driver to encourage consumers to purchase diamonds was emotional. First and foremost is De Beers’ “a diamond is forever” generic diamond campaign, and the associated jewelry design campaigns that delivered an emotional appeal. These campaigns set the tone for those that followed; for example, US jewelry retailer Kay's slogan “every kiss begins with Kay”.
These campaigns have collectively created an association in consumer’s minds of diamonds (and diamond jewelry) with emotion and emotional events – love, engagement, anniversary, graduation, mother-daughter bond, personal empowerment, childbirth, and other life events. As such, consumers purchase diamond jewelry with an emotional rationale, rather than with an economic rationale. In a way, this is by design. The idea was that consumers would buy diamonds to satisfy an emotional need, examining the cost on that basis.
This is not an unusual approach in marketing to consumers. Many industries were built on creating a demand among consumers, and then satisfying that need with their products. However, from a consumer’s perspective, the financial outlay is an expense, and the risk is that under certain situations, consumers may feel that they were talked into buying something that they did not need.
An emotional plea is perhaps the only way to sell something like perfume or sneakers, which are fabricated goods from widely available materials, and which can be easily produced in whatever quantities are needed. However, diamonds are very different to the water, leather and cotton used in making perfumes and sneakers. Diamonds are a very rare creation of nature and the economy of rarity plays an important role turning diamonds into a commodity of limited availability. Because the diamond has the potential to be characterized as a commodity, it can be turned into an asset. Diamonds, then, will no longer be a mere expense, but will instead become an asset that can be purchased as part of an economic decision-making process.
“A diamond is forever” is considered to be the most successful marketing campaign in history, but it was retired, as times have changed. Today, consumers are more rational in their decision-making, and less inclined to make a large purchase on an emotional basis. Further, with much more information readily available, any marketing campaign is easily challenged by information that any consumer could find online in seconds. Times are changing not only in regard to information, but also in regard to social norms. We are seeing the rise of a consumer generation that does not buy diamonds as a status symbol, at least certainly not as widely as before. Nor do they buy diamonds as a symbol of love as much as before. This change in perception leads them to ask why they should spend so much on an object such as a diamond. They don’t see the return on the expense. This is true for women as well as for men. And with a decreasing expectation from women to receive a diamond ring, or a desire to have diamond jewelry, overall purchases of mid-range diamonds are in decline.
For this and other reasons, demand for diamond jewelry has been hurt in recent years, both in general and especially among the millennial generation. From an upstream and midstream perspective, this is very bad news. While jewelers can vary their offerings by shifting to other jewelry – set with semi-precious gems, pearl jewelry, karat gold, etc. – diamond miners, diamond traders, diamond manufacturers and diamond wholesalers deal primarily, and almost exclusively, with diamonds. Without consumer demand, their livelihood is threatened and a solution is needed. One such solution is selling diamonds in a different context, to a different kind of consumer.
Considering that consumers have become more logical in their approach, taking advantage of the opportunity presented to us has to go hand in hand with addressing their needs. We see that very high-cost diamonds are purchased nearly entirely (if not completely) on a rational basis. These buyers rely heavily on information that allows them to make a rational decision. If this works for the highest-cost diamonds, I expect it to work with diamonds that are more accessible economically. That is, with access to full and detailed information on diamonds, those with smaller budgets can still enjoy access to high-quality data to make very rational decisions on diamonds. The key is to keep in mind that these buyers are not spending money on buying a gift, but are instead purchasing an asset with the potential to serve the purpose of wealth preservation.
Another issue that is possibly hurting diamond sales is the rise of lab-grown goods. Consumers must be perplexed by it. If these are “real” diamonds, and they cost so much less and are therefore more accessible, then why spend more on natural diamonds? This is a logical question. After all, if lab-grown diamonds are just as beautiful, look the same set in jewelry, and the lab-grown producers keep stating that their goods are the same as natural diamonds, plus the cost is lower, then why buy natural diamonds for jewelry?
Actually, there are many reasons to buy jewelry set with natural diamonds. However, it is fairly obvious that the lab-grown jewelry niche will be built at the expense of natural diamonds. If all consumers want is a pretty and shiny gem that connects with the history and tradition of diamonds and the emotion that surrounds them, then by all means, let consumers have it. We should not give up without a fight, but we must think several steps ahead. We have to plan for a future when lab-grown goods are everywhere, and make a few strategic decisions accordingly.
I’m suggesting that one of these strategic decisions be the creation of a market for diamonds as a wealth preservation asset. Natural diamonds are a very different type of product than lab-grown. The later can be created to order, just like posters of artwork can be printed. Posters can be the most beautiful works of art, but they cost a fraction of the original. The real thing still sells. One difference is that posters have a limited lifespan, and tend to be thrown out at some point, and at times replaced. Original art lives on. It is purchased by people who appreciate it, and who often have detailed information on the history of the artwork, the artist, the art market, and the changing value of the piece over time.
In the future that I envision, the diamond world will act similarly to the art world. There will be those who buy diamond jewelry, those who buy jewelry set with lab-grown goods, and a market of collectors who buy diamonds as assets, but who also appreciate diamonds for their beauty. Based on the economy of rarity, we must create a separation in consumers’ minds of diamonds as a component in jewelry. We must instill the understanding that diamonds stand alone, and can be used as an economic asset.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.