How Buying A Diamond Has Changed in The Last 10 Years: Part I

Prior to the mid 90s, the only way to buy a diamond was to go to a jewellery store and buy one from their stock or one they had received on approval from a wholesaler.

There were a couple of problems with this:

a) You had to go to a number of stores just to find the diamond you wanted.
b) It was expensive, and the diamond was probably uncertified.

However, in the mid to late 90s, internet retailers like us burst on to the scene and created shockwaves in the industry.

Instead of offering diamonds in stock or from an Australian wholesaler (or "middleman"), we listed diamonds directly from overseas cutters and wholesalers. And instead of charging a markup of up of to 400%, our average markup was a mere 20%.

In the early days, the market for this method of buying was still small and yet to fully "catch-on", however, there were only a couple of players in the industry, so sales were solid and we remained profitable.

However, as others in the industry caught on to this "new deal" and new websites came and went, it was clear that internet diamond sales were here to stay and that more and more diamond dealers were going to try to compete.

The Freeloader Problem

Seth Godin blogs about someone buying from McDonald's, but eating at Starbucks, simply because it is "much nicer" at Starbucks than it is at McDonald's.

So, how does this relate to buying diamonds?

Well, contrary to what most in the industry think or like to think, most consumers know little, if any about diamonds. This means that it is only natural for consumers to want to look and compare diamonds before they purchase, as they want to know what all this "SI1", "VVS2", "Colour H" and "Colour D" actually means. And, being consumers, they also want the lowest price possible.

This creates a paradox, which at times results in the classic "freeloader problem". That is, consumers go to a retail store, look at diamonds and get advice, but then buy from an online merchant at a much cheaper price! It should also be noted that this can work the other way - consumers look up prices online, get advice and then bargain a retail store down to that price.

So how do both online and brick and mortar merchants tackle this problem?

Well, one way that Jogia Diamonds has solved this problem is through maintaining a reasonable level of high quality stock, along with monthly trips to the Eastern States to show diamonds to customers.

Another way, which is popular in America is to provide extra information such as Brilliancescope images and photographs. However, in our opinion, these do little to solve the freeloader problem as consumers will still want to view and compare diamonds with their own eyes.

So, what about brick and mortar diamond merchants?

The key is to find a balance between high markup stores such as Tiffany's and the low cost online merchants, combined with smart marketing.

Speaking from experience, Jogia Diamonds uses online ads to target Perth, and only Perth diamond consumers. When a consumer clicks our ads, they can then click through to see our stock diamonds, as well as our regular website. This kind of targeted advertising creates a strong link between the online and offline experience, whilst controlling the now enormous cost of online advertising.

And our big secret is that most of our Perth customers buy diamonds that we keep in stock. Sure, they are about 10% more expensive than the cheapest diamonds listed on our site, but they provide the customer with the best experience, are all GIA or DCLA certified, much cheaper than retail store prices, and are probably the most profitable.