How the natural diamond industry could have taken down its lab-grown competition

Years ago, I noticed a plaque hanging on the wall in a private equity group in London’s 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 to invest enough in marketing to sustain that dream, or to differentiate itself by telling the unique story of natural diamonds. 

Worse, a significant proportion of the natural diamond trade jumped on the LGD bandwagon themselves. Virtually unchallenged, the LGD industry was allowed to write its own narrative, positioning its product as “the same” as natural diamonds, often employing 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 solutions can be found by studying other companies that faced similar disruptions. Two obvious examples are the stories of Crystal Pepsi and the Tata Nano. 

Kamikaze marketing

In the early 1990s, the “clear craze” swept the consumer goods world. Companies jumped on the trend, which associated ‘clear’ with transparency and honesty in the consumer’s mind. Pepsi developed a caffeine-free, clear version of its classic cola, sold in a transparent bottle, and dubbed it Crystal Pepsi. Desperate to have it ready ahead of the 1993 Super Bowl, the company rushed through the product development. Taste testers liked the drink, and the Super Bowl Ad sparked a national craze. In its first year, it achieved sales of US$474 million. But the company ignored warnings from its R&D department that the ingredients in a transparent bottle reacted with sunlight – changing the taste. 

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 a ‘kamikaze’ marketing strategy, launching a competing product that was destined to fail in order to sabotage Crystal Pepsi. Coca-Cola conspicuously positioned its calorie-free transparent drink, Tab Clear, as a ‘diet’ beverage, and instructed retailers to place it on the shelves next to Crystal Pepsi. 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 aftertaste, turned Crystal Pepsi into a massive failure. 

Tapping into consumer desires

In 2008, Tata Motors launched the Nano and marketed it 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 US$1,300. From an engineering point of view, the car with its 624cc engine was an incredible product. 

Ahead of the Nano’s 2009 launch, second-hand car prices dropped significantly, but actual sales were underwhelming. The company had some initial technical issues (some cars burst into flames) but the more fundamental mistake was in its positioning. Tata effectively marketed the Nano as a car ‘for the poor person,’ with many of their advertisements including 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 for 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, 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. And while De Beers announced its own LGD initiative in 2018, it wasn’t in any way responsible for the growth in LGDs. In fact, without its investment into developing the technology that can distinguish between a natural diamond and an LGD, the natural diamond industry as we know it might not exist today. 

De Beers’ Lightbox Jewellery initiative priced 0.25 to 1 carat LGDs at a linear US$800 a carat, intending to position them as a cheaper fashion item. In 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 legitimized the category without having the volume to drive down prices. The price point of US$800 per carat was far too high, and by avoiding the LGD engagement ring category and positioning their LGDs solely as fashion items, it left that space open for other higher priced LGD offerings. Had Lightbox’s product been priced at a maximum of US$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, Lightbox increased them launching a higher quality 1-carat LGD for US$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 jewelry.  

— This story was originally published on Business News Europe.

Richard Chetwode holds a number of non-executive roles in the diamond and property industries. He is a part-time journalist, non-executive chairman of Namibian-based Trustco Resources, and previously worked for De Beers, Harry Winston, Dominion Diamonds and Gem Diamonds.