Years ago, I noticed a plaque hanging on the wall in a private equity group in Mayfair that read: “The Roman Empire wasn’t built by holding committee meetings; it was built by annihilating the opposition”. Success in business today often depends on aggressive strategies, rather than cautious consensus; nowhere is this truer than in the diamond industry.

For 80 years, De Beers promoted and protected the concept of the ‘Diamond Dream’, the idea that diamonds are the ultimate symbol of love and commitment. However, with the arrival of lab-grown diamonds (LGDs), the natural diamond industry failed both to make a substantial enough investment in marketing to sustain that dream, or to differentiate themselves by telling the unique story of natural diamonds. Worse, a significant percentage of the natural diamond trade jumped on the LGD bandwagon and got involved in LGDs to make money for themselves. Virtually unchallenged, the LGD industry was allowed to write its own narrative, positioning LGD as ‘the same’ as natural diamonds, often backed up by misleading innuendo and falsehoods. The very concept of the (natural) ‘Diamond Dream’ is now under threat.

So what could have been a more effective response? History shows that business challenges are rarely unique, and to find a different solution, it is simply a case of studying other companies which faced similar disruptions, and applying the lessons learnt. Two obvious examples are the stories of ‘Crystal Pepsi’ and the ‘Tata Nuno’.   

In the early 1990s a popular craze swept the FMCG world, known as the ‘clear craze’, where consumers equated ‘clear’ with transparency and honesty. Pepsi developed “Crystal Pepsi’, a caffeine-free clear version of their classic cola sold in a transparent bottle. Desperate to have it ready ahead of the 1993 Superbowl, the company rushed through the product development. When it tested the drink on real people it got a positive reaction, and the Superbowl Ad sparked a national craze; in its first year it achieved sales of $474mn. They ignored warnings from their R&D department that the taste changed when the ingredients in a transparent bottle reacted with sunlight.

Meanwhile, rival Coca Cola had identified a critical flaw in Crystal Pepsi’s market positioning. Its research showed that coloured drinks were perceived as having artificial colours and preservatives, whereas clear drinks were perceived as having no preservatives, no artificial colours and no harmful flavours. That made Crystal Pepsi an ‘incongruent’ product – there was a mismatch between consumers expectations (healthy, low-calorie) and what they actually got (high levels of fructose glucose corn syrup and almost as many calories as a regular Pepsi).

To exploit this, Coca Cola rolled out what is known as a ‘Kamikaze’ marketing strategy. They developed a competing product, a calorie-free transparent drink called ‘Tab Clear’ which would purposely fail, but in doing so, sabotage Crystal Pepsi. Coca Cola conspicuously positioned Tab Clear as a ‘diet’ drink and instructed retailers to place it on the shelves next to Crystal Pepsi and consumers assumed that if Tab Clear was calorie free, so was Crystal Pepsi. When they discovered it wasn’t, many felt deceived and this confusion, combined with the bad after taste, turned Crystal Pepsi into a massive failure.

In 2008 Tata Motors launched the ‘Nano’, marketed as the world’s cheapest car. Targeting Indian blue-collar workers who primarily rode motorcycles, Tata dispensed with anything that wasn’t essential; it only had a driver’s side mirror, one wiper blade and a petrol tank without a filter, but it only cost $1,300. From an engineering point of view, the 624cc car was an incredible product.

Ahead of the Nano’s 2009 launch, second hand car prices dropped significantly, but actual sales were underwhelming. They had some initial technical issues (some burst into flames) but the more fundamental mistake was in its positioning. They effectively marketed the Nano as a car ‘for the poor person’, with many of their advertisements included pictures of a blue-collar worker with ‘their first car’. In India the car is a status symbol, so consumers were put off by the idea of buying a car which was so cheap that the poor could afford it.

Had the ‘Nano’ been marketed as the second car of the businessman who had left their Bentley in the garage at home but used the Nano because it was so easy to park in the city (i.e. a car-rich people), the story could have been very different.  

So what are the lessons? Ironically, by positioning LGDs as the same as natural diamonds but conflict free, by claiming most LGD are sustainable when they are not and by using innuendo and falsehoods to undermine natural diamond mining, creating consumer doubt and played on expectations, the LGD industry did to natural diamonds what Coca Cola did to Crystal Pepsi; turning its strength into its weakness, when it could so easily have been the other way around. Just as the natural diamond industry failed to differentiate itself by telling its own story of rarity, origin and social purpose, few attempted to challenge the LGD narrative. LGDs should have been positioned and priced for what they are – a mass produced unbelievably cheap technology item, most of which are produced in India and China using brown coal for their power and virtually no social purpose – a diamond for people who can’t afford a natural diamond.

De Beers almost entirely funds the Natural Diamond Council whose mission is to protect and promote natural diamonds, but too many in the industry do nothing. Without industry support, the day may come when De Beers starts differentiating its diamonds from everyone else’s, at which point those who didn’t step up will wish they had done more. De Beers wasn’t in anyway responsible for the growth in LGDs; in fact without its investment into developing the technology which could tell the difference between a natural diamond and a LGD, the natural diamond industry as we know it might not exist today.

In May 2018, De Beers announced their own LGD initiative; the launch of Lightbox Jewellery offering 0.25-1 carat LGDs priced at a linear $800 a carat, intending to position them as a cheaper fashion item. With hindsight, if Lightbox was to have been a true LGD disrupter it needed to be positioned as a loss-making Kamikaze marketer, not as a profit centre. Instead, it legitimised the category without having the volume to drive down prices. The price point of $800 per carat was far too high, and by avoiding the LGD engagement ring category positioning their LGDs solely as a fashion items, they left that space open for other higher prices LGD offerings. Had Lightbox’s product been priced at a maximum of $200 a carat accompanied by a marketing campaign positioned its product across all categories, as (using different words obviously) ‘diamonds for poor people’, with substantial volumes pushed into lower price point retailers, things might have been very different.   

In August 2019, instead of lowering prices, it increased them launching a higher quality 1-carat LGD for $1,500 a carat. CEO Steve Coe stated that Pandora’s recent introduction of LGD aligned with where Lightbox sees the “long-term opportunity for lab-grown; the ability to sell at an accessible price point”. And then it turned out that Pandora was buying its LGD from one of the only LGD companies using renewable energy – De Beers’ Lightbox, allowing them to claim they are sustainably sourced. The Romans would have been horrified.

Lab grown sapphires, rubies and emeralds sell at a fraction of their natural equivalents for a reason. That is where LGDs should be. Pleasingly the new De Beers management team has ceased LGD production for jewellery. 

 

Richard Chetwode holds several non-executive roles in the diamond and property industry. He is a part-time journalist and is currently writing a book on the diamond industry in World War II. He is non-executive chairman of Namibia-based Trustco Resources and has previously worked for De Beers, Harry Winston, Dominion Diamonds and Gem Diamonds. All the opinions in this article are his own but while efforts have been made to ensure the accuracy and reliability of the information provided in this article, neither can be guaranteed. Information in this article is strictly for informational purposes and should not be considered investment or financial advice. Consult your investment professional before making any investment decisions.