Think Beyond Business

Welcome to my 2nd newsletter.

In the coming newsletters, I’d address the most burning issue, eventually – the economic crisis. Companies stopped enjoying almost free money and investors are not to be found. Some companies feel already the cash crunch and some, still holding to their purse are afraid of the threatening future. The bad news is that what we witness is only a promo to what the future has for us.

I always went against the flow and was successful. As the saying goes, I managed to turn a lemon into a lemonade. We can’t change the facts, but we must understand how to change our interpretation of it. Since my PhD and especially, my post-Doc work was about interpretation, I think that I can speak about it with some authority.

When teaching, I used my case study that describes the rise and fall of the diamond industry. ?You will be able to draw out many lessons that might help you cope with the current dire situation. The introduction lays out the issues I found fundamental for understanding the uniqueness of this industry I’ve learned to love.

My time is limited. However, those few who would like me to help them face the current dire situation are invited to call me at https://calendly.com/isaacoaching

Meanwhile, I wish you a lot of success.

Enjoy the reading.?

Isaac

Think Beyond Business

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Are Diamonds Forever?

Introduction

This is a story about the danger of commoditization. Commoditization is a state of mind; it is the decision that the product an organization handles is fungible and carries no qualitative differentiation throughout its market. Commoditization is dangerous because competition in the market can be only on price which consequently erodes all profit margins. An industry that officially declares its products as a commodity won’t see one single penny of profit. Moreover, customers who want to buy on price would never account for more than ten percent of the market.

However, of all industries, our case deals with the diamond market. Diamonds, the pinnacle of luxury, were considered a commodity by the diamond industry since 1869 when they started to be marketed en masse. Even during 1938-1978 considered to be the period of glory for diamonds, when N.W. Ayer, the advertising company, marketed diamonds as an emotional offer, the dialogue was between N.W. Ayer and the diamond customer. The diamond industry kept its commoditization approach.

The diamond industry has one pipeline system and can be viewed as a virtual organization.

The unique structure of the diamond industry added to the problem. Except for the large diamond producers, the entire industry is purely entrepreneurial. The diamond industry has one pipeline system and can be viewed as a virtual organization.?It started in the past with De Beers as the dominant diamond producer, a position shared nowadays by several companies. It follows through a web of polishers and distributors all sharing the same single pipeline and the same belief in diamonds as commodities.?

This system finally started to crack in 1978. Forty years after N.W. Ayer successfully marketed diamonds as an emotional gift of love, a large part of the diamond production started to be sold for investment purposes only, removing any intangible asset from them. A few years later a different marketing approach was introduced, that of the 4C’s (Color, Clarity, Cut, and Carat) that referred to the tangible, physical values of the diamond. This marketing approach, now the predominant one, finally stripped diamonds from any emotional value they carried.?

This marketing approach, finally stripped diamonds from any emotional value they carried.?

With eroding profit margins, typical of commodity trading, the industry needed banking support. Sadly, this support sank the industry further into a deep hole. Not only had the industry stopped being profitable, but it also started to grow its debt to banks.

Diamonds are still the woman’s best friend, and, despite wrong marketing, demand is still growing although very moderately. On the other hand, the entire industry is trapped in its belief that diamonds are commodities, unable to change its state of mind. Will the industry find a way out of its miserable perception and properly start to market diamonds?

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