Think Beyond Business

Welcome to my Newsletter #8

Theory vs. Practice: Prioritizing Customers in Business

While theory is shaped by logic, practice is emotionally driven. This distinction is exemplified by the insightful words of Prof. Oren Harari: "A business enterprise's top priority should be to meet the needs of its customers. When profit and stock values become central business priorities, a variety of negative trends begin to emerge. For example, managers become increasingly detached from their work, both emotionally and analytically. In addition, managers tend to become too cautious. However, managers who prioritize customer satisfaction tend to generate the largest profits and the highest returns to investors."

Harari's perspective resonates with many, as it highlights the fundamental importance of customer satisfaction in business. However, despite this wisdom, the business world has taken an intriguing shift in practice. It now obsesses over share performance and the company's valuation, leading to the development of valuation systems that do not necessarily contribute to the company's bottom-line profitability.

The irony lies in the fact that the answer is well-known: customers are the lifeblood of any business, providing a continuous flow of revenue. So, why have intelligent and capable managers turned away from this obvious solution to their companies' woes and sought help elsewhere? What has caused this shift in priorities? These are questions that warrant consideration and exploration. Do you have insights into the answers?

I don’t have good answers to these questions. However, However, rather than simply labeling my customers’ actions as irrational, I will always recognize the significance of understanding and addressing their emotions. There are ways to overcome this shift.

If you believe that this approach is crucial to your success, don't hesitate to schedule a meeting with me using this link:?Schedule a Meeting?or send me a direct message.

This newsletter explores a critical chapter in the diamond industry's history, from the tumultuous crash of the diamond market in July 1980 to the year 2000. Throughout this period, De Beers found itself at a crossroads, attempting to conform to conventional business norms while overlooking its intrinsic strength as the guiding authority in the industry. In tandem with the broader diamond sector, De Beers embarked on a complex journey that, unfortunately, didn't prioritize customer satisfaction. This approach led to a decline in De Beers' performance and had far-reaching implications for the entire diamond industry.

Enjoy the reading.

Warm regards,

Isaac

Diamonds: A Tale of Transformation (1980-2000)

In the sparkling world of diamonds, a remarkable story unfolds—a story of transition, challenges, and the relentless pursuit of wealth. Our journey began in July 1980, a month that marked the turning point for the diamond industry.

Once, De Beers reigned supreme, its influence stretching far and wide. But as the diamond market crashed, De Beers, along with the entire industry, was thrust into a new era, one marked by uncertainty and transformation.

De Beers, a titan in the diamond trade, sought to adapt to conventional business practices. Little did they know that their strength lay not in conformity but in their authoritative leadership within the industry. This tale is a testament to how overlooking customer satisfaction led to the gradual erosion of De Beers' stature and the entire industry's performance.

The Diamond Stockpile: A Burden on Banks

As the 1980s dawned, De Beers grappled with the consequences of the market's collapse. The speculative era had left a colossal stockpile of diamonds in their vaults. These precious stones were not mere glittering assets; they had become a financial burden that required significant support from banks to maintain. De Beers, once the symbol of diamond prosperity, found itself indebted and struggling to manage its diamond hoard.

The sheer scale of De Beers' stockpile was staggering. At its zenith, it held a diamond reserve valued at approximately $5 billion. This immense accumulation was unsustainable, tying up vital cash reserves and sending shockwaves through the industry. With such a colossal stockpile, De Beers struggled to find a way to alleviate the financial pressure.

The Marketing Shift and Commoditization of Diamonds

In a bold move, De Beers shifted its marketing strategy to adapt to the changing market dynamics. It transitioned from promoting diamonds as symbols of romance and love to a more pragmatic approach, emphasizing the 4C's—carat weight, cut, color, and clarity. This change mirrored the transformation of diamonds into commodities, traded primarily based on their physical attributes rather than their emotional significance.

When N. W. Ayer started to promote diamonds, they cleverly told their employees never to promote diamonds but the message of love that was behind it. Their ads never showed diamonds, for the same reason. The new approach demonstrated a marketing shift toward commoditization.

For example, ads advised consumers to spend two months' salary on diamond purchases, emphasizing the material value of the stones.

Ads focused on larger, more expensive diamonds as the primary target, sidelining the traditional emphasis on the romantic and emotional aspects of diamond gifting.

Price lists emerged, with dealers and jewelers quoting discounts off these lists, aligning with the principles of futures trading in commodities.

External challenges

De Beers faced formidable challenges from Russia during this tumultuous period. The Russians flooded the market with rough diamonds, destabilizing an already fragile ecosystem. What made this challenge even more significant was the introduction of larger gems from Russia's mines, adding complexity to the diamond landscape.

The 1990s brought further challenges as new diamond-producing powerhouses emerged, including Canada and Australia. These countries discovered rich diamond deposits in the Northwest Territories, such as Ekati, Diavik, and Winspear, further eroding De Beers' monopoly.

Consequently, De Beers' market share fell from 85% to 65% during this period, reflecting the increased competition, and its stockpile of diamonds soared from $2.5 billion to $5 billion, tying up significant cash reserves and antagonizing investors.

In 2001, De Beers made a significant decision—they went private. It was a move to shield themselves from investor pressures and regain control over their destiny.

And so, this tale of diamonds, from 1980 to 2000, paints a vivid picture of an industry in flux. It's a story of adaptation, missteps, and the enduring allure of these precious gems. In the end, diamonds remained a symbol of enduring love, but the way they were mined, marketed and sold had changed forever.