What the diamond industry is really selling | Hacker News Reader

What the diamond industry is really selling

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78 pointselorant83 comments

The diamond industry has a long history of marketing its goods that continues even today. 20 years ago, an engagement ring was 1 solitaire diamond. Now, it's much more common to buy a ring with 1 big diamond, 2 smaller ones on the side, and small diamonds around the ring. That's from marketing (and the lower cutting costs). 7 years ago, black diamonds were ground up and used on drill bits and saws, now they're sold in the US as "chocolate diamonds" for a nice premium. The diamond industry laughs at consumers in the US for that one. You can see it in the last 2 months as well - there's a big marketing blitz in the US right now that you need to buy a 2 diamond ring for your woman, one to symbolize love, the other to symbolize being a best friend. So I guess 1 is no longer enough. Each culture, naturally, responds to marketing in different ways. In the US, the marketing push has been to measure love by the size of the diamond. In Japan, it's measured by the color/clarity of the diamond. In the US, 2 months salary is the "rule". In Japan, it's 3 months salary.

> 20 years ago, an engagement ring was 1 solitaire diamond. Now, it's much more common to buy a ring with 1 big diamond, 2 smaller ones on the side, and small diamonds around the ring

My favorite article on the diamond business is this 1982 print from The Atlantic, "Have You Ever Tried to Sell A Diamond?" [1]. I excerpted two relevant passages below.

"The diamond market had to be further restructured in the mid-1960s to accomodate a surfeit of minute diamonds, which De Beers undertook to market for the Soviets. They had discovered diamond mines in Siberia, after intensive exploration, in the late 1950s: De Beers and its allies no longer controlled the diamond supply, and realized that open competition with the Soviets would inevitably lead, as Harry Oppenheimer gingerly put it, to 'price fluctuations,' which would weaken the carefully cultivated confidence of the public in the value of diamonds. Oppenheimer, assuming that neither party could afford risking the destruction of the diamond invention, offered the Soviets a straightforward deal -- 'a single channel' for controlling the world supply of diamonds. In accepting this arrangement, the Soviets became partners in the cartel, and co-protectors of the diamond invention.

Almost all of the Soviet diamonds were under half a carat in their uncut form, and there was no ready retail outlet for millions of such tiny diamonds. When it made its secret deal with the Soviet Union, De Beers had expected production from the Siberian mines to decrease gradually. Instead, production accelerated at an incredible pace, and De Beers was forced to reconsider its sales strategy. De Beers ordered N. W. Ayer to reverse one of its themes: women were no longer to be led to equate the status and emotional commitment to an engagement with the sheer size of the diamond. A 'strategy for small diamond sales' was outlined, stressing the 'importance of quality, color and cut' over size. Pictures of 'one quarter carat' rings would replace pictures of 'up to 2 carat' rings. Moreover, the advertising agency began in its international campaign to 'illustrate gems as small as one-tenth of a carat and give them the same emotional importance as larger stones.' The news releases also made clear that women should think of diamonds, regardless of size, as objects of perfection: a small diamond could be as perfect as a large diamond.

...

As American consumers became accustomed to the idea of buying smaller diamonds, they began to perceive larger diamonds as ostentatious. By the mid-1970s, the advertising campaign for smaller diamonds was beginning to seem too successful."

http://www.theatlantic.com/past/issues/82feb/8202diamond1.ht...

The big driver for small diamonds (< 0.25 carats) is that the price of cutting/polishing diamonds has plummeted in the last 10 years. Before then, diamonds were predominantly cut and polished in Antwerp and Tel Aviv. The price (measured in $/carat) was around $80. 10 years ago, Surat, India started to dominate the industry, and the price fell to $10. It's common in Surat for a family to get a bag of rough in the morning from a company, take it home and have the entire family cut and polish the bag, and return it for cash at the end of the day. The result of this price drop is that small diamonds suddenly become profitable.

There's been other references to the Atlantic article from 1982, but the diamond industry has changed tremendously in the last 10 years. There's 2 good books to read about the recent changes: will find their names and edit this post with links.

* http://www.rough-polished.com/en/analytics/77889.html

Here's one book - http://www.amazon.com/Diamond-History-Cold-Blooded-Love-Affa...

Here's the second book - http://www.amazon.com/The-Heartless-Stone-Journey-Diamonds/d...

Have You Ever Tried to Sell A Diamond?

Being on the buy side of that is great, however - got engaged last year and bought a beautiful 250 year old ring with about 30ct of stones in it, biggest about 6ct. Was probably originally some obese Georgian duke's, but whatever. Shrinking a band is easy. Silver, so the thing was black and grotty in a dusty display case in an antiques centre. Would've been tens or hundreds of thousands retail and new, just for the stones, but was instead nearer a thousand, and yes, got it assayed for insurable value.

Buy things because they're nice, not because they're expensive.

As a non-us-er, I am shocked to see that people actually believe that somehow their chosen one's love is held for ransom by Debeers and must be bought out with X salaries.

It is so sad that it is possible to socially engineer customs for whole societies, influencing highly intelligent and well-educated people, which customs profit not said people but small corporate entities.

At the same time, it is a very useful example and a pointer to important questions about many other beliefs perpetuated by manipulation and profit.

Don't be too sad, not everyone follows these customs. Like most marketing and customs, there will be those who are convinced and follow and those who are not and don't.

Ultimately, it's still up to the couple and there are many who simply buy what they like regardless of what tradition or marketing tells them to.

The saddest part of the article for me was the ad--"you can't look at Jane and tell me she's not worth 2 months' salary". There's so much wrong with that statement. The worst part is that a lot of people buy into it to some extent.

Someone should sell an investment-backed artificial diamond ring. So, for example, you could take a $500 ring and back it with a $10K investment that's tied to the ring. The only reason anyone buys a real diamond ring is to avoid the embarrassment of a cheap ring - on the part of the guy giving it or the woman showing it to her friends. Being able to talk about it as a "$10K ring" would go a long way to making it less embarrassing.

I like the way you think.

Good idea. A ring that's still worth something after purchase would be a much more sensible than a ring with a piece of carbon that can't be sold.

But personally I don't see why anyone would care about a $10k ring. Different cultures, I suppose.

That's a great original idea, but it's still predicated on the assumption that more money = more love, that the purpose of the ring is to impress others, and that there's reason to be ashamed of a $500 ring.

It's sad that American culture assumes that the man who spends $10K on a ring loves his fiancée more than the man who spends $500.

Several companies that produce diamond alternatives, such as lab-grown diamonds and silicon carbide stones, are growing and rapidly expanding their product lines. I think the reason for this is that people are questioning the wisdom of spending a ton of money because marketing campaign have told them they must if they love their partners.

> It's sad that American culture assumes that the man who spends $10K on a ring loves his fiancée more than the man who spends $500.

That presupposes that marriage is solely about love, which is itself an odd and mostly western concept.

Marriage is, just as much, an economic arrangement in which people make often very significant sacrifices in order to create a household and potentially raise and support children. It necessarily entails a significant commitment on both sides, including the commitment to stick with each other in the case of hardship or sickness. When you account for that aspect of marriage, it makes total sense to require some showing of financial wherewithal.

Absolutely, there are considerations other than simply love. And to that point, I would argue that if a person values "financial wherewithal" in a partner, they wouldn't require the partner to drop tens of thousands of dollars on a fun but non-essential trinket.

Nice idea. To compete, this ring-with-real-value would need glossy marketing to create a sense of brand value that parallels existing diamond brands. "$10k" isn't enough, it has to be "$10k, beautifully cut and set, alluringly marketed."

And the recipient of the ring should be able to redeem the value of the backing investment after a certain time.

Worth a business attempt? Hmm.

I agree, branding and style would be important. Having a celebrity or two use for their engagement wouldn't hurt, either.

I think you'd want it to work kind of like a cashier's check. If you have the ring and your identification matches what's on file, then cashing out your investment is easy. If you've lost the ring or you're not the primary on the account, there are delays (of perhaps months) but cashing out is still possible.

I think you would need to invest quite a bit in bodyguards for that scheme to work.

While marketing had a role in this, expensive and basically worthless gifts are used as expensive signaling, much like a peacock's feathers. Basically you're showing that you can and are willing to take a hit for your future mate. http://www.theatlantic.com/daily-dish/archive/2010/08/a-part...

The article spins a yarn about DeBeers single-handedly inventing the tradition of giving expensive engagement gifts, but stumbles when it gets to talking about India, where it has to clumsily avoid mentioning that Indians have been spending huge amounts of resources on (gold) jewelry for marriages since time immemorial.

I find a lot of anti-diamond talk hypocritical. Folks who will drop a ton of money on a fast car that spends 99.9% of its life sitting in traffic suddenly becoming ascetics when talking about buying diamond jewelry.

Compared to diamonds, gold is a very good store of value, especially when paper currency and governments aren't reliable, as it was in relatively recent Indian history.

If that was the justification, people would be giving gold bars, not gold jewelry.

I initially came here to disagree. My argument was that if someone was going to give something "pretty and shiny" to someone, at least gold holds its value second hand over diamonds. However, I think of the Cash4Gold type scams out there and cant help but think that selling jewelry of any type second hand is going to get you screwed.

Depending on the legal system that one finds oneself subject to, jewelry is often considered a "personal effect" rather than an asset to be seized, such as gold bars, coins, or currency - and is therefore not subject to forfeiture.

I'm from India and let me tell you that gold jewellery is primarily viewed as a store of value and not as a romantic gesture.

Buying gold is the main way that Indians save.

Who says there's a single justification? And how would you carry a gold bar about on your person? Part of the security of gold jewelry is arguably that you will have it with you in an emergency, or if you have to flee quickly. The gold bars sitting in your vault will be much harder to access quickly.

How is gold superior to diamonds really? Both are stores of value, but their value based only on others' willingness to trade for them. No real intrinsic value. Granted a fiat dollar is less reliable as there is truly a limited supply of the metals, but that's true of diamonds as well.

I would think Gold jewelery is superior to a gold bar - it has decorative utility a gold bar doesn't have - but look at how gold jewelery is valued - at the current gold price and no more.

Can a diamond be sold for what one paid for it? Gold has no concept of retail price as it's a commodity.

> No real intrinsic value.

Not necessarily true. Gold is an excellent conductor of electricity and resists oxidation. Diamonds are good at cutting stone and concrete.

> How is gold superior to diamonds really? Both are stores of value, but their value based only on others' willingness to trade for them.

Because gold is (relatively) easy to sell but "Selling individual diamonds at a profit, even those held over long periods of time, can be surprisingly difficult"[1]

[1] http://www.theatlantic.com/past/issues/82feb/8202diamond2.ht...

> How is gold superior to diamonds really?

Copied from an article [1] on why diamonds aren't worth the cost:

  A diamond is a depreciating asset masquerading as an investment. There is a
  common misconception that jewelry and precious metals are assets that can store
  value, appreciate, and hedge against inflation. That’s not wholly untrue.

  Gold and silver are commodities that can be purchased on financial markets. They
  can appreciate and hold value in times of inflation. You can even hoard gold
  under your bed and buy gold coins and bullion (albeit at a ~10% premium to
  market rates). If you want to hoard gold jewelry however, there is  typically a
  100-400% retail markup so that’s probably not a wise investment. 

  But with that caveat in mind, the market for gold is fairly liquid and gold is
  fungible - you can trade one large piece of gold for ten smalls ones like you can a ten
  dollar bill for a ten one dollar bills. These characteristics make it a feasible
  potential investment.

  Diamonds, however, are not an investment. The market for them is neither liquid
  nor are they fungible.

Also, despite thousands of years of attempted alchemy, no one has ever made gold. Carbon, on the other hand, is incredibly common and there are companies that have figured out how to make diamonds that are more flawless than naturally occurring diamonds. They've even figured out how to mimic the impurities after it was suggested that they were somehow not "real."

[1] http://priceonomics.com/post/45768546804/diamonds-are-bullsh...

I don't spend a ton on a fast car. I'd rather spend my money on a big car with decent fuel efficiency to take my family on vacation. I don't see the point in spending ludicrous amounts of money on useless status symbols like diamonds and sports cars.

Some people enjoy sports cars the way you enjoy a family vacation.

And some people enjoy their shiny diamond engagement ring the way you enjoy your sports car.

That's a fair comment. I think there are some people for whom the aesthetics, production, and history of a diamond are very meaningful. My guess is that those people know more about diamonds than average.

Here's my favourite answer to why women love diamonds: https://www.quora.com/Why-do-women-desire-diamonds/answer/In...

It feels like the value of a fast car lies in human effort (a previous manager made a point of showing us a film about McLaren's approach to small-run production that he felt had lessons for the software industry), which feels more authentic than cartel-controlled scarcity (particularly when there are cheaper synthetics of objectively higher quality - no doubt brands like Ferrari have some premium that's not grounded in their product's technical merit, but it's never quite so in your face). And I'm not aware of fast-car smuggling funding wars, or a fast-car-manufacturer cartel sending thugs to intimidate journalists. (Maybe those things are happening and I'm just unaware - if so I'd be fascinated to read about them)

Sports cars have terrible fuel efficiency and are a crime against the climate. Electronics create massive toxic pollution in third world countries. A nice seafood dinner is the product of deforestation and overfishing.

Almost all the luxuries you enjoy in the first world are paid for by pillaging the earth and poisoning children in China and Bangladesh.

So what, all things you can buy for $x00 must necessarily be equally criminal?

You might find this article by Chris Harris a few years ago interesting. It describes the journalism environment of Ferrari back then. I believe he was banned from driving their cars for three years due to this article.

http://jalopnik.com/5760248/how-ferrari-spins

Yeah, that aligns with what I've read elsewhere. Not a good look to be sure, but a long way away from physical violence.

Having recognized the fact that scarcity and value of diamonds are almost completely company made constructs, I did not get my wife an engagement ring, but I did get her a beautiful wedding ring (non-diamond of course). Having a close mechanical engineering friend involved in the business of artificial diamond manufacturing, helped make the decision easier as well.

The money saved by this and by having a small wedding, made putting together a deposit for a house, far easier.

Your wife is lucky to have you. You can't live in a diamond ring. Surely a man who makes sound financial decisions should be far more attractive than one who falls for silly marketing tricks?

Stereotypically, it's the woman, not the man, who falls for the silly marketing trick.

Here's an alternative (and actually academic) look at it.

http://homes.chass.utoronto.ca/~siow/332/rings.pdf

TL;DR, the data doesn't back up the advertising thesis.

Dude, come on. That's from George Mason University- basically a libertarian think-tank.

I wouldn't exactly call the author a libertarian mouthpiece[0]. But I wouldn't call her an economist, either.

However, if this was truly a libertarian talking point, I would posit that libertarians would see the topic "Diamonds are expensive because of marketing, not inherent value." and think, "So what?" That's the free market. If the diamond has no value to you, don't buy the diamond. It's not a necessity.

Note that I'm not an economist and definitely not a libertarian.

0 - http://law.nd.edu/directory/margaret-brinig/

The change in demand for diamond engagement rings may therefore be explained by an increase in need for such a bond because of the abolition of a cause of action for breach of marriage promise. My guess, having apparently found a reason for the change in demand for diamond engagement rings, is that many other mysterious demand changes could be accounted for as well, given some though as to what the commodity might mean to consumers and some exploration of the legal or other changes of the time during which the demand change occurred.

Interesting, indeed. Thanks for the read!

Is this something that units the US, Japan and China, and distinguishes them from Europe? I have my doubts.

Also, I don't understand the supposed logic behind a change in marriage law and a rising demand for diamonds.

So, let's rewind to a world of significantly more socially conservative attitudes to sex, partly driven by patriarchy, but also very much driven by the absence of easy-to-access, reliable contraception.

Two young love-birds are getting frisky, guy says "don't worry, I'll marry you", they get down to business, and then he bails. Poor young girl is now damaged goods. She's plausibly even pregnant, but even if she's not, her marriage prospects are down. She can sue the guy for breach of marriage promise.

Then the law changes, breaching a marriage promise is no longer something you can sue for. In the same situation, the guy's promise to marry the girl no longer hold the same weight because she can't sue -- so they come up with a bond instead: An expensive gift that is forfeited if the guy doesn't keep up his promise to marry.

Interesting theory, however, as far as I know, you can't sue for damages for a broken engagement in Netherland, yet diamond engagement rings have never taken off here.

Besides, if you need that kind of collateral before you can trust a guy, maybe you should be looking for another guy in the first place. It also doesn't explain why people who don't have premarital sex still want diamond rings.

So all in all, not a great theory.

Interesting how the article focuses on the diamond engagement ring market in the US, Japan and China, but doesn't mention Europe. As far as I'm aware, very few people use diamond engagement rings here. If engagement comes with a ring at all, it's generally the future wedding ring, which is traditionally plain gold.

The idea that people are willing to spend 2 months' salary on a ring is beyond ludicrous to me.

First wife got an amazing diamond/platinum ring (and wedding band). Second wife got a Claddagh ring which cost ~500x less. Whatever makes them happy :-)

great further reading, from The Atlantic Monthly (1982)

http://www.theatlantic.com/past/issues/82feb/8202diamond1.ht...

What articles like this miss is that useless products like diamonds actually serve a real need: they enable signalling of commitment. Especially if it costs several months of income of a potential partner, it might be a reasonable indicator for a serious investment in the relationship.

You can not achieve the same effect by buying something useful instead, because then the money would be spent on something useful, not on proving commitment.

Not saying it is the only way to prove commitment, but "it's all just marketing" doesn't catch the whole story imo.

Generations before me, including my parents, didn't need to buy something worth a considerable portion of one's disposable income to display commitment.

It's all about egos, and the feeling a woman gets about the ability of her partner to provide an expensive trinket, especially to show off to friends and display status.

It's a terrible misuse of funds at the beginning of a couple's journey, one that could prove far more productive as an investment somewhere.

I am not advocating diamonds, just pointing out that they serve a need.

Generations before us had a very different way of getting into relationships. Maybe our modern lifestyle made diamonds more important.

I am also not saying that diamonds are unavoidable.

Edit: somebody else posted a more educated comment. Prior to 1935, apparently women were entitled to compensation when an engagement was broken off - http://homes.chass.utoronto.ca/~siow/332/rings.pdf

Compensation actually makes sense and is useful after receiving it. As diamonds are an extremely poor store of value, the only purpose it provides is a show of status, as far as I can deduce.

Because investing in something that's only useful to the two of you doesn't create a store of value in your relationship? Think of it as a sunk cost if you're a cynic, or literally a monetary non refundable deposit into your relationship otherwise.

Are you advocating that women cannot care for themselves and we need to consider sexist traditions of men being forced to provide for them in the case of a failed engagement?

> diamonds actually serve a real need: they enable signalling of commitment

This statement is logically inconsistent with reality. If "signalling of commitment" was a real need, why would only one party need to provide this signal? And not just one party (random), but a specific party (predetermined) - the man.

You're right, however, that in the broader context, diamonds are an honest signal of affluence - by buying expensive, but useless stuff (conspicuous consumption) we send a strong signal about how much we can afford and how rich(-er) we are.

Why does the male peacock have a colorful tail and the female doesn't?

I mean, if we're reducing people to animals, we might as well ask, why does a new alpha male kill offspring of previous alpha males?

In the past, women had to have a dowry to get married. There was probably a reason for that (economic or market reason, I guess). It probably wasn't a very good reason, and likely isn't very relevant today.

Dowries are still required in many cultures today, particularly rural ones.

What makes you think it wasn't a very good reason? I think most problems of that kind boil down to economic issues. In some cases traditions might live longer than necessary (original reason has ceased to exist), which is another problem.

> I think most problems of that kind boil down to economic issues.

Probably, yes. But whatever "economic" reasons there are, the cultural reasons were probably much more powerful.

Maybe men were more scarce in the past than women. Wars might have accounted for that, but on the other hand, men have longer "expiration date" (when it comes to mating). Also, if men were so much rarer, why didn't polygamy develop?

You could claim that women are weaker, so they were less "useful" in the past (when most labor was manual) and hence less valuable. On the other hand, without a woman, there would be no next generation, so each man needed a woman to ensure his survival in old age.

These are the most obvious justifications I could come up with, and they don't sound very convincing. Let me know if you can think of any more.

People are animals, and I agree with facepalm that in many instances, it does boil down to economics. However, with diamonds, it seems as though many people are (in my opinion of course) overvaluing the utility of having something shiny to show off one's purchasing power.

Short answer: because wombs are more valuable than sperm.

As much as we want to have equality between the sexes. This explains why we always end up with double standards. It is an asymmetric relationship at the biological level.

You could invest it in a house together? Or a savings account for your children?

While I 100% agree with your pragmatic view. It's bad that these commitment indicators are used to finance conflicts.

The diamond obsession in the US doesn't seem very healthy though.

But it is all just marketing. Before 1938 no one cared about diamonds, and people were able to show commitment just fine. If I'm not mistaken, the divorce rate was also significantly lower.

Hooking up might have worked very differently in 1938, though. I don't think relationships and marriage were the same as today. Maybe because we have more freedom in our relationships now, we need diamonds.

As an extreme case, take a culture were arranged marriages are the norm. Then it seems obvious that you wouldn't need diamonds because you wouldn't have much of a choice to not commit to the relationship anyway.

I don't know enough about 1938 to make a proper comparison, though.

The divorce rate was likely lower for many reasons not involving diamonds.

Marriages may have ended at a faster rate, but due to greater mortality, maybe?

Isn't the argument the opposite direction? Before 1938 the divorce rate was significantly lower, so no-one needed to show commitment and no-one cared about diamonds.

(Meta: This comment is not inflammatory, poorly written or gratuitously negative. Disagreement ≠ downvote)

You seem to be the dream consumer for their marketers :-)

I've got a wedding tattoo. That's more permanent than any ring, and a better proof of commitment, at much less cost.

Though the best proof of commitment would be to invest in and provide for a common future. Buy a house, take care of kids, etc. That's real commitment, not just some hollow symbol at extravagant cost.

But if you do want extravagant expense as proof of your commitment, you could also spend it on the wedding itself. Why not go for a $10K wedding instead of a $10K ring?

Our ancestors were drawn to diamonds and gold obviously because of their sparkle but also their immutable nature; no rust or decay.

But this modern spurn of diamonds reminds me of people who say "I'm a vegan", "I do Crossfit", "I don't own a TV" if you don't like diamonds don't get one.

This post is basically a rewrite of this one from 2013:

http://priceonomics.com/post/45768546804/diamonds-are-bullsh...

They could have linked to it I suppose.

what brilliant marketing then

Oh, oh, I know this one! Tiny, hard rocks?

bzzz

Evil.

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