10 December 2012

Diamonds & Shopping

HBR | Dina Wang | Blue Nile's Cheaper Diamonds Need Not Threaten Tiffany. Here's Why.

Blue Nile's primary advantage is that it offers diamond rings online at prices that are as much as 35% lower than traditional retailers. Their basic premise is that loose diamonds are commodities; quantifiable details (e.g., the 4Cs of carat, cut, color, clarity), a few photos and a price should be all a man needs to select a diamond. Blue Nile also provides simple-to-use educational tools and an impressive virtual inventory (they act as a middleman for diamond wholesalers). For men who hope to optimize affordability, speed and anonymity in their ring search, Blue Nile is a clear winner.
I didn't get Mrs. SB7's ring from Blue Nile, but if I didn't have a friend-of-a-friend connection to a diamond wholesaler/goldsmith in San Francisco I probably would have.  Even so, it was an invaluable resource when I was shopping. It gave me the ability to walk into any jewelry shop and not only judge the competitiveness of their prices, but also the degree to which they were bullshitting me.

I wish I could buy every product the way they allow people to. ("Here's a database of several tens of thousands of options, each measured along a dozen dimensions. Go.") It turns a bewildering decisions fraught with emotional peril into a simple optimization problem.

(I didn't actually build a program to solve that optimization problem for me, but I was sorely tempted to try. If they had an API I would have, just for shits-and-giggles, but the idea of trying to scrape the relevant info out of their database... uggghhhh.)
For example, for men who are hiring a diamond seller because they are nervous about finding the perfect ring, a brick & mortar retailer is a safer bet. In a store, they can gauge a particular diamond's sparkle with their own eyes, or they can confer with the jeweler, relying on his artistry.
Yes, you can confer with a jeweler and rely on their artistry. But more likely you'll be conferring with a salesman whose going to use all the same salesmanship shenanigans you would find at a car dealership.

Also, I don't have any psychophysics research to back this up, but I'll lay dollars to donuts that amateurs can't judge diamonds by eye, especially not in the circumstances you face when you're shopping for an engagement ring. Just for starters, there's a reason jewelry shops pour so much effort into lighting design, and it's not to make things easier on the customers.
As one young man I emailed with put it, he wouldn't buy from Blue Nile for the same reason he "wouldn't buy a used car from eBay motors. A car is more than mileage, year, make and model (does it smell? does it ride smoothly?) Likewise, a diamond is more than what is defined by the 4Cs."
But that's exactly wrong. A diamond is much, much simpler than a car. It can be graded, quantified, ranked, summarized. No, it's not just 4Cs, but 12 or 15 variables covers it. It is a commodity. There's a reason when you buy a stone they give you a map of all the microscopic inclusions and there's a reason certain sellers laser engrave their stones with a unique ID: without these things diamonds are indistinguishable from each other. You can tell your car from other similar cars without looking at the VIN; the same is not true of diamonds.
Though my friend recognizes that he was in part managing his own emotions, he didn't want to lose any sleep over his purchase by "optimizing cost over confidence." And that's the point. Blue Nile's online platform couldn't fulfill his job of being completely confident in his ring choice.

Of course, some men buying diamond engagement rings have another "job" they want done: signaling status. For them, a high-end luxury jeweler is better suited to that task.
This seems to be the thesis of this post, such as it is. There will always be some customers who will overpay for the sake of overpaying.

If I was Tiffany's, I would expect some better advice than "When it comes to a luxury good, some consumers see paying more as benefit rather than a cost." Great, thanks. I know that. They're already over-charging by 50% or 100%. I think they've pretty much figured out that some people see like higher priced luxuries.
For Tiffany, this means they should focus on cultivating their image of luxury and the "job" of signaling status, cutting the lower-priced "Return to Tiffany" line. In making Tiffany's little blue boxes accessible to everyone, they damage the brand's exclusivity and its ability to convey status.
Ah. Now here is some actual, actionable advice. Thumbs up.
Meanwhile, middle-tier firms like Zales and Jared should focus on customers who want to feel confident they're buying something their girlfriend will want.
I don't think this is a long-term winner for these firms. Everyone younger than... well, pretty much younger than me... has spent their entire life buying things online — typically sight-unseen. I think the number of people who feel intrinsically more confident buying things from a salesman in a store is monotonically decreasing.
To fulfill the job of optimizing confidence, they could, for example, host "diamond nights" at their stores during which friends can come try on diamond rings together. Once a woman finds one she likes, she could register her favorite with the retailer. The store could then make that knowledge accessible to her friends or to her boyfriend (preferably when asked!).
Problem One: a lot of women don't want to pick out their own rings, seeing it as unromantic.

Problem Two: a lot of men don't want to give the exact same ring that was asked for. Hell, a lot of people generally are reluctant to give someone the exact gift they requested. For all its efficiency, it seems uninspired and slightly uncaring.

My mother happened to ask for the exact Christmas gift I got her days after I had purchased it. Now it's going to look like I was just following orders rather than putting thought and care into gift selection.

Problem Three: what's to stop Blue Nile from setting up a similar service? Or Amazon? Why can't a man learn about his GF's jewelry preferences from her Pinterest account? I think the demographic window where this plan would work for Zales or Jared is shrinking.
On paper this seems relatively straightforward; so why is it, in practice, so hard? No company facing disruption likes to acknowledge that they can't win it all. But sometimes, relinquishing certain customers isn't an act of desperation. Rather, it returns a brand to where it should have been comfortably enthroned all along.
I'm glad we're on the same page re: this being straightforward. Wang is making a good point here.

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