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.

Black Hat vs White Hat Diamond Merchants

Nowadays, with so much choices offline and online for buy diamonds, it is difficult to decide who the best is. For a bit of fun, we've attempted to categorise different types of merchants using a colour scale - black hat = bad, white hat = good.

Blacker Than Black Hat

Sells uncertified diamonds that are either fake or have undergone treatments. They tell their customers that they are natural, and possibly give a certificate or valuation they have made themselves.

Black Hat

Engages in a variety of less than ethical sales techniques such as "total carat weight", switching stones or inaccurate in house grading.

Pencil Grey Hat

Sells low quality diamonds, possibly with a grading certificate from an independent laboratory. However, they trick their customers into thinking they are buying a large, high quality diamond at a great price (or they say "you can't buy high quality diamonds in this city/country") and that the grading certificate is "just as good" as one from The GIA.

Overcast Grey Hat

Lists certified diamonds on the internet, but doesn't keep any stock, instead, opting to drop ship diamonds from supplier to customer.

Off-White Hat

Sells a variety of certified diamonds that they keep in stock. However, charge an unreasonable premium, possibly with branding, and deliberately limit the customer to the diamonds they have in stock.

White Hat

Sells certified diamonds online and offline, is well connected within the diamond industry, and possesses a lot of diamond experience. Keeps a good amount of high quality stock and has solid relationships with diamond wholesalers. For online customers, they give extra information such as light performance information, photographs, ideal scope images and diamond scans.

Pearly White

Uses the internet as a medium for advertising, research and discussion. However, unlike white hats, they do not sell diamonds over the internet, instead opting for the more traditional approach. When customers come to their store, they are given accurate, unbiased information and like white hat merchants, are offered a variety of choices from the merchant's own stock and wholesalers.

Blindingly White

They are like pearly white hat merchants, but take time to understand what the customer is after, can afford and generally get to know the customer better. With this they match the customer with the perfect diamond. If they are unable to do this, they admit defeat and refer the customer to a more suitable merchant. They also take steps to avoid attracting the "wrong crowd" such as those seeking a "big and cheap" (and therefore low quality) diamond. They may also travel to rural or remote locations to show customers diamonds.