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Opinion: An Urgent Call to Invest in Marketing

Recent challenges have affected all segments of the diamond market. To stimulate a recovery, all industry participants must contribute to raise the budget earmarked to promote the product.
Sep 9, 2019 7:41 AM   By Shashin Choksi & Siddharth Choksi
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The diamond industry must significantly increase its marketing spend to ensure the trade’s longevity. This need is highlighted by the difficult conditions the sector has endured over the past few years.

Recent challenges have led to a lack of confidence in the diamond trade that resulted in a seemingly endless stream of financial misconduct carried out by a minority of ill-intended merchants. Our trade representatives need to introduce stringent measures that will combat such misconduct.

More importantly, consumer appetite for our product has stagnated in this tough market, while the absence of marketing and innovation has had a further negative effect on demand. We must collectively work to restore the appeal of our product among consumers.

The diamond industry exists thanks to breakthrough marketing by De Beers, with its iconic “A Diamond is Forever” campaigns becoming entrenched in the consumer mindset.

It’s no coincidence that as De Beers’ marketing budget surged in the 1990s and early 2000s, spending on diamonds by US consumers tripled. Government data shows that net imports of diamonds to the US grew from $2.41 billion in 1990 to $7.15 billion in 2007, before De Beers shelved its generic marketing the following year. As the investment in category marketing declined, demand slowed and net imports to the US dropped to $3.96 billion in 2018.

At the same time, polished prices have been on a constant decline and our stock has devalued by some 20% in the last decade. The RapNet Diamond Index (RAPI™) for 1-carat diamonds is down 48% since its highs in mid-2011.

Of course, industry dynamics have changed. Increased competition in both the mining and retail ends of the supply chain has made it counterproductive for companies such as De Beers to invest heavily in generic marketing as it promotes its competitors’ product. Therefore, it is vital that all diamond industry participants contribute to category marketing as a collective.

Export contribution

We must reinvent the way the industry tackles marketing, and to do that we need to increase our budget radically. Raising the necessary funds on a continual basis is possible by taking a small contribution from all diamond exports that would be earmarked to promote the product. That would include:

• A 0.05% levy on all diamond exports (rough and polished) from non-mining countries. This translates to a mere $50 for every $100,000 of exports. Considering polished exports from just the top five exporters – India, the US, Hong Kong, Israel and Belgium – that would have brought a contribution of around $41 million in 2018, based on data published by the respective governments.

• A fee of 0.5% on all polished exports and 1% on rough exports from mining countries, or $500 and $1000 for every $100,000 in polished and rough shipments, respectively. A 1% cut of rough exports from the top five producer countries alone – Botswana, Russia, Canada, South Africa and Angola – would amount to $152.5 million, based on 2018 Kimberley Process statistics.

• A payment of 2% of all exports by the diamond-mining companies, which would come to $2,000 for every $100,000 of goods shipped out. The combined sales from five of the top miners – De Beers, Alrosa, Rio Tinto, Petra Diamonds and Mountain Province – would have brought in $228 million for the proposed marketing fund last year.

All that translates to approximately $421 million just from those parameters, which would easily exceed half a billion dollars when extended to all countries and companies. It would mark a significant improvement on the budget currently provided by seven mining companies to the Diamond Producers Association (DPA), which is charged with spear-heading the industry’s category marketing. These contributions would not be a tax, but a much-needed investment.

The cost of apathy

It may seem like an expensive challenge, but we must also consider the price of being passive and allowing our stock losses to continue. Such a scenario would be far more costly in the long run, sparing no one — from the small traders to the large manufacturers and, yes, also the miners, as demonstrated by the recent slump in rough sales.

We have already collectively lost billions of dollars, considering the dramatic stock devaluations endured since 2011. And yet, the mining companies continue to make healthy profits. Alrosa paid a record dividend of $1.18 billion to its shareholders in 2018, while De Beers reported earnings before interest and tax (EBIT) of $518 million in the first half of 2019.

Mining-company profits come at the expense of manufacturers and dealers, who are struggling. The continued devaluation of our diamonds emphasizes why we need to pool our resources to revive our product’s luster through aggressive marketing. It’s only fair that the mining companies bear responsibility for the larger contribution.

Real ambassadors

While some miners have increased their marketing budget in recent years, the funds are largely siphoned to promote their own retail-jewelry brands, which ultimately compete with their clients. And while the miners have funded the DPA to lead the industry’s marketing effort, the organization’s 2019 budget of $75 million is hardly enough.

We need to raise the budget so that our marketing efforts can reach all consumer markets and use all marketing media outlets. That includes educating the consumer about the ethical practices of our industry.

The consumer landscape is changing, and we know millennials value experiences over products. However, there is still demand for luxury items, when one considers the record revenue generated by the likes of LVMH, Richemont and Kering.

Comparing those to the performance of Signet Jewelers and others that sell to more mainstream consumers highlights the ineffectiveness of the industry’s marketing efforts. The fact that the luxury segment is growing but our trade is lagging should serve as a wake-up call to rejuvenate the image of our product.

Effective marketing would also combat the lure of lab-grown diamonds, which have proven to be the biggest-ever disruptor to the traditional industry. Rather than challenging the appeal of synthetics, we should separate our product by highlighting the inherent value of natural stones.

Leaving a legacy

The new fee structure from exports would require leadership from the World Federation of Diamond Bourses (WFDB). The trade body should oversee its implementation to ensure that all bourses participate in and benefit from the scheme. The funds should enable the industry to spread its message across all platforms and markets, adding to the work currently done by the DPA.

Companies spend roughly 11% of their turnover on marketing, according to a 2019 study by Gartner research. The marketing spend varies across industries. But if an industry is struggling, as ours is, surely more needs to be invested. A minimal contribution from all stakeholders will provide the much-sought-after turnaround.

The diamond industry is unique. But to ensure it is sustained for the long run, we need to build on what makes it so special. We can’t rest on our laurels. A small percentage of our exports will go a long way to ensure there is still something for the next generation of eager diamond miners, manufacturers, dealers and jewelers to enjoy.

About the authors: Shashin Choksi, director of Swati Gems bvba, is a second-generation diamond merchant from Antwerp, with over 40 years of experience in the industry. Shashin is also a dedicated husband and father of three.

Siddharth Choksi holds a degree in business administration degree from IE Business School and currently works at a venture capital fund in Amsterdam. Since a young age he has undertaken a number of internships within the diamond and jewelry industry, gaining exposure to the various stages of the trade's supply chain.

Image: Polished diamonds (Shutterstock).
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Tags: A Diamond is Forever, Alrosa, De Beers, diamonds, mountain province, Petra Diamonds, Rapaport, RAPI, Rio Tinto, Shashin Choksi & Siddharth Choksi
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