In July, an industry Working Group announced the establishment of the International Diamond Board (IDB), whose mission would be “to create and sustain strong consumer demand for diamonds worldwide through effective category marketing, and its role will include implementing communication and public relations activities aimed at sustaining consumer confidence." The working group was formed in March 2009, following the St. Petersburg Forum in June 2008.
In the statement released to announce its establishment, the group declared that "a critical success factor for the new organisation will be to secure support from all parts of the diamond value chain.”
Speaking to Antwerp Facets, Freddy J. Hanard, the CEO of the Antwerp World Diamond Centre (AWDC), discussed the potential role of the International Diamond Board as an all-industry body charged with managing the generic promotion of diamonds, and the part that Antwerp may play in fulfilling its mission.
ANTWERP FACETS: In July, the St Petersburg Working Group announced the establishment of the IDB, which will be charged with promoting consumer demand for diamonds worldwide. What is the position of the AWDC concerning this new body?
FREDDY J. HANARD: We strongly support IDB’s creation. It represents a concept which, in many ways, is long overdue. I think we are very fortunate that Alrosa took the initiative with the St Petersburg initiative, and that such a committed Working Group subsequently took on the challenge.
Competition among companies in the diamond sector is a healthy thing, but we share many common interests which necessitate working together. A primary example is the generation of demand for diamond products and the defence of consumer confidence in diamonds and the diamond business.
As an industry-wide body whose stated mission it is to promote both consumer demand and confidence, IDB has the potential to play a vital role in the growth of both our markets and our industry. It will be an organisation that operates in that area where all of our interests meet, and as such it deserves our support.
ANTWERP FACETS: Has the ADWC and the Antwerp community been involved in the conceptualisation of the IDB so far?
FREDDY J. HANARD: Over the last few months, Steering Committee members did consult with us on key issues. While AWDC was not a decision maker, we did have an opportunity to give input, and we would welcome further opportunities in the future, perhaps through a formalised process.
More generally, the Antwerp community overall was heavily involved. Two of the five diamond mining operations involved are headquartered in Antwerp [Rio Tinto and BHP Billiton], and a further two [Alrosa and Harry Winston] directly distribute in Antwerp. De Beers, while not directly distributing here, has a substantial number of sightholders from Antwerp. In addition, a number of key diamond companies that are Antwerp-headquartered were involved in the Working Group, one of which even presented at the July meeting in London. And finally, an Antwerp-based strategy consulting company, Gemdax, was bought in for several key aspects on the project. I’m pleased to say that the Antwerp community has been very active and supportive of the work done so far.
ANTWERP FACETS: The Steering Committee members of the IDB were predominantly rough diamond producers. Antwerp, which you say was represented throughout the process, is primarily a rough trading centre. Why should generic consumer marketing be driven by participants at the supply end of the business who generally have no direct contact with jewellery consumers?
FREDDY J. HANARD: I would expect the IDB to be primarily driven by the upstream industry sector. The St Petersburg initiative was initiated by Alrosa, and then developed through a collaboration between five major mining companies. Until relatively recently De Beers undertook category marketing on behalf of the whole diamond industry, so it should not be surprising that the initiative for the IDB came from the supply end of the pipeline.
It also seems to make most sense from a practical standpoint. The mining companies and their direct customers constitute a well defined sector, which is relatively few in number but large in scale. Conversely, the retail end of the supply chain is highly fragmented, with many tens of thousands of mostly small and independent companies involved. I can see that trying to coordinate the downstream sector and gain consensus and collaborative commitment could seem like an insurmountable challenge, particularly in these early stages.
ANTWERP FACETS: Should members of the industry be concerned that IDB is therefore not really representative of our industry and controlled by just a small number of the largest companies in our business?
FREDDY J. HANARD: The specific role of the IDB is to promote the sale of diamonds generally and also to defend the confidence of consumers in our product. As described by those who are involved in its establishment, IDB will not represent the interests of any one company or small group of companies, but rather the interests of the entire industry. Within that framework, we not only have nothing to fear by its agenda, but we have a vested interest in its success.
I understand that it is IDB’s intent to be as inclusive as possible, which I think is a good thing. There is a wealth of knowledge and experience in our industry, which has been gathered over many years at the grass roots level. Not only should AWDC members not feel disconnected from what IDB is doing, but they should be included as active stakeholders. We appreciate that, ultimately, IDB’s day-to-day operation will be handled by marketing and advertising professionals, but ideally with a channel by which opinion in the industry is heard and taken into consideration. The various representative groups active in our industry often represent the most effective channel to the individual members. This includes organisations representing national industries, like AWDC in Belgium.
ANTWERP FACETS: Why do you think that generic marketing is being proposed? Some might argue that company-specific advertising could be effective enough in raising public demand for all diamond jewellery? After all, there are a range of luxury products that enjoy strong demand purely upon the basis of company-specific advertising. What is your view on this?
FREDDY J. HANARD: I think the answer to this question lies partly in the nature of the product. For most luxury goods, the cost of marketing is a major component of the final retail price. Perfume is a great example, where the actual cost of producing the fragrance is minimal. The final cost is comprised almost entirely of branding and marketing the product. With diamond jewellery, material costs are both high and fluctuating. To build in the type of marketing margin that is the norm to compete in the luxury product market would necessitate retail price increases of a considerable percentage.
But also within our industry there are very few players that have the scale necessary to build brands with industry-wide impact. This is not necessarily a bad thing. But it does mean we will all need to work together to create the demand necessary to sustain our industry over time, rather than relying on luxury brands alone.
We should remember that the stakes are high. Diamond jewellery is engaged in a battle for the discretionary spending of consumers on a range of luxury products. If we do not promote diamonds as well as others are promoting their luxury items, we will lose market share. This makes an industry-wide effort essential.
But this predicament is not new. It is why De Beers invested so heavily in industry-wide marketing over many years. It is also what led other jewellery sectors, like gold and platinum, to create industry-wide marketing bodies like the World Gold Council and the Platinum Guild. Arguably the IDB plays an even more critical role than these two other bodies when it comes to supporting prices and volume by generating consumer demand. Whereas gold and platinum demand is largely governed by industrial and economic factors, the demand of diamonds will ultimately depend only on consumer demand for diamond jewellery. And diamond jewellery spend is discretionary.
ANTWERP FACETS: Where do you think that such generic marketing efforts leave companies investing in their own, company-specific, downstream marketing efforts?
FREDDY J. HANARD: Generic marketing is a real benefit to those companies promoting their own brand. What I understand IDB will do is to pool resources so that the diamond business can mount a major, high profile campaign on a par with the type of campaigns being run by other luxury product manufacturers. Its goal will be to be turn consumer onto the diamond dream. And then, once the consumers have decided to buy diamond jewellery, they will make their choice according to what is being offered to them in the marketplace.
This provides diamond companies with a platform. With diamonds already desired and highly valued, it allows them to focus their own marketing campaigns more effectively on differentiating their own branded product offering.
ANTWERP FACETS: You have frequently commented on the current economic crisis and the effect it could have on the market. Given these market conditions, spending money on marketing may not be top of the commercial agenda. Is the IDB really relevant at this point in time?
FREDDY J. HANARD: This is indeed a very testing time for the industry, with many diamond companies facing difficult financial decisions. Marketing budgets are often the first area to be cut, which makes getting the IDB off the ground in the current climate a particular challenge. However, in many ways the need for industry-wide marketing is more vital than ever.
The current economic crisis is shaking up consumer purchasing behaviour globally for all industries. Our industry needs to remain proactive in maintaining and growing the desirability of diamonds and ensuring they remain relevant throughout this period of change. Category marketing provides us with an effective solution to do this.
ANTWERP FACETS: A global, pan-industry marketing body like this has not been attempted in our industry before. Do you realistically think it will work, and what are the main risks you believe it faces?
FREDDY J. HANARD: I agree that it is indeed an ambitious undertaking, and any ambitious, ground-breaking project is not without risks. There is no guarantee that the industry will make it work. But on the other hand it is in all our interests to do so as the stakes are high. And I do think the vision is realistic. If other industries, as diverse as meat products and fruit, to gold and platinum can make it work, why can’t we?
I am also greatly encouraged by what has been achieved so far. A wide group of competing stakeholders have come together collectively, committing significant time and resources, to develop the IDB from just a concept to the inception of a real industry-wide organisation. This is just the first step, but it’s also perhaps the most difficult.
The way I see it, there are three things the IDB will need to secure in the next stages to be successful.
Firstly, it needs to be well run. It is important that the marketing organisation is efficient and action orientated.
Secondly, it needs to have a critical mass of funding to make the campaigns effective over the long run.
Thirdly, and perhaps most critically, it needs to have the support of the key industry groups across the whole pipeline, from mining companies through to retail. Here, IDB’s inclusiveness will be critical to leveraging established industry groups such as AWDC.
ANTWERP FACETS: Does AWDC and the Antwerp diamond centre seek to be involved in the International Diamond Board? If so, how would you like to see AWDC’s role develop?
FREDDY J. HANARD: I believe that AWDC specifically and the Antwerp diamond sector in general can play a most positive role in IDB. Antwerp serves as the primary business centre for the international diamond community, and is the junction at which the rough diamond market connects to polished trade. Our city embodies the very heartbeat of the industry.
IDB’s role will be to generate demand in the consumer markets. But demand in the consumer markets must be coordinated by activity in the pipeline, and that is where Antwerp’s function is absolutely critical.
Because we are committed to IDB’s success, we are ready to be active participants in the new organisation.
