De Beers: Diamonds Are for Asia PDF Case Study

INSEAD EURO ASIA CENTRE De Beers: Diamonds are for Asia 02/1999-4802 This case was written by Jocelyn Probert, Research Analyst at INSEAD Euro-Asia Centre, and Hellmut Schütte, Professor of Intern...

INSEAD EURO ASIA CENTRE De Beers: Diamonds are for Asia 02/1999-4802 This case was written by Jocelyn Probert, Research Analyst at INSEAD Euro-Asia Centre, and Hellmut Schütte, Professor of International Management at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective handling or ineffective handling of an administrative situation. Copyright © 1999 INSEAD-EAC, Fontainebleau, France N.B. PLEASE NOTE THAT DETAILS OF ORDERING INSEAD CASES ARE FOUND ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION.                INSEAD EURO-ASIA CENTRE 1 4802 Diane had just arrived in Hong Kong from London that July morning to stay with her friend, Emily Chan, for a few days. She had never been out of Europe before, but she had got to know the Chinese girl pretty well during the three years they worked together in a fashionable retail store in London. Now Emily was working for a Hong Kong property developer. Diane was looking forward to meeting Emily’s husband, C.Y. Apparently he came from the same sort of comfortable middle class Hong Kong Chinese background as Emily. Diane and Emily sat down to watch the video of the wedding, which had taken place earlier that year, in February 1998. It looked an elegant affair, and Emily was wearing a fantastic diamond ring which she’d already described in letters to Diane. “But why aren’t you wearing your ring now?” asked Diane. “Oh, I certainly wouldn’t wear it every day, it’s far too valuable for that. I wore it for the first time on my wedding day of course, but only on one or two special occasions since then,” replied Emily. Diane was puzzled: “But I wear my engagement ring every day, and I’ll go on wearing it every day after Mark and I get married. It’s a token of his love for me and that’s why I wear it all the time.” Emily laughed, “Things aren’t quite like that around here, you know. We don’t go around talking about love all the time, like you Westerners do! I can show you the ring later if you’d like, but first see what you think about this.” ‘This’ was a smart looking solitaire diamond pendant peeping out of the neck of Emily’s blouse. “That’s gorgeous!”, cried Diane, “was it a birthday present from C.Y.?” “No, of course not! I bought it for myself. I’ve worked really hard this past year, the bonuses were good, and I thought I deserved a present to myself. C.Y. didn’t mind at all when I showed it to him, he thought it was a great idea. A couple of other girls in the office bought themselves diamonds too.” “Well,” reflected Diane to herself, “people certainly do behave differently around here. I can’t imagine buying a diamond for myself. That’s up to Mark to give me a surprise one day.” She couldn’t imagine walking into a jewellery shop and choosing something like that by herself. Anyway, she didn’t know how to recognise a good diamond. The De Beers Story The brilliance and beauty of diamonds have tantalised and excited the rich and powerful for centuries. No two diamonds are alike, which adds to the aura and mystique that surrounds them. They are the ultimate luxury product. Even Nicky Oppenheimer, the chairman of De Beers, has said, “Unique among major raw materials, the gem diamond has no material use to man”.1 Only 20% of the diamonds mined each year are of gem quality, i.e. with a minimum weight of 0.2 carats. Near-gems, accounting for 30% of annual diamond production are smaller, lower quality stones weighing less than 0.2 carats. The rest are industrial-grade diamonds, which are widely used in precision cutting and grinding machinery. 1 Quoted in Bristol Lan Voss’s “The Diamond Business Gets Rough”, Journal of Business Strategy, July/August 1998. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 2 4802 Gem diamonds are valued on the basis of four criteria, known as the 4Cs - carat, clarity, colour and cut. Although the carat is the best known, all four criteria have a bearing on the value of an individual diamond. Assuming cut, clarity and colour are equally good, the price of a one carat diamond will be more than twice that of a half-carat stone because fewer than half of one per cent of all gem diamonds weigh one carat (200 milligrams) or more. Valuing a diamond is a highly skilled task, which partly explains why diamonds are not traded on world commodity markets in the same way as precious metals such as gold, platinum or silver. The ‘Diamond Pipeline’ The De Beers name is intimately linked with the development of the diamond industry through its involvement in all stages of the ‘diamond pipeline’ (Exhibit 1). It is the largest diamond mining organisation in the world, producing about half of the world’s gem diamonds. Its Central Selling Organisation (CSO) sells rough diamonds but De Beers does not cut or polish the stones itself, nor does it make or sell diamond jewellery. Its Consumer Marketing Division (CMD) promotes diamond jewellery for the industry as a whole, as a means of stimulating demand for rough diamonds. De Beers established the CSO in 1934 to manage the supply of rough diamonds to world markets, eliminate price fluctuations and maintain public confidence in the value of diamonds as a luxury product. For over 60 years the CSO has bought rough diamonds from producing nations and in the open market as well as handling De Beers’ own mining output. At the CSO offices in London the rough diamonds are sorted into 14,000 categories based on the 4Cs described above. Approximately 160 ‘sightholders’ - leading diamond cutters and polishers or dealers from all over the world - gather in London ten times a year to attend ‘sights’, at which they buy rough diamonds which will eventually be cut and traded, and then turned into jewellery. In 1997 the CSO’s ‘single channel marketing’ system accounted for 65-70% of world diamond production. It cannot influence the flow to the market of diamonds mined by non- users of the CSO, such as Argyle in Australia which is the world’s largest source of near- gems.2 In times of recession, when demand for diamonds and diamond jewellery falls, De Beers continues to buy rough diamonds but reduces the volume that reaches the world’s trading centres by holding back supplies at the ‘sights’. In response to the Asian crisis which began in July 1997 the CSO reduced sales of rough diamonds by nearly half during the first six months of 1998. The final contribution of De Beers to the ‘diamond pipeline’ is the promotion of diamond jewellery for the industry, through advertising campaigns developed from extensive market research, trade promotion activities and jewellery design competitions. The CMD spends approximately US$200 million per year on this activity. By 1998 advertising campaigns were being conducted in 34 countries across the world and in 21 different languages. 2 The discovery of the Argyle mine led to the development in the 1980s of the much less expensive near-gem diamond jewellery market. Argyle sold its rough diamonds through the CSO until 1996, when it decided to handle its own marketing. De Beers has promoted only larger, gem diamonds in its advertising since 1996. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 3 4802 In 1995 worldwide sales of polished diamonds were US$9 billion. In jewellery form they were worth US$45 billion. According to De Beers the global retail market for diamond jewellery rose by 40% more than the rate of inflation between 1980 and 1997. The CSO has raised rough diamond prices by 50% between 1986 and 1998. Retail prices of gem diamonds remained stable despite the financial crisis in Asia, whereas near-gem prices fell 20% in the wake of substantial over-supply from Russia and Australia. 3 A Diamond is Forever The global message to consumers from De Beers is that a diamond is a gift of love. In one of most enduring advertising campaigns in the world, it has used since 1938 the slogan ‘A Diamond is Forever’, a phrase which not only echoes the durability of a diamond but also appeals to the emotional attachment of the owner to the stone. According to Charles Stanley, London-based marketing director for Japan, “the traditions and cultural imperatives that exist in all countries are opportunities for De Beers to propose a gift of love”. The gift of a diamond engagement ring before marriage is a custom thoroughly embedded in the United States and Europe. The ‘gift of love’ emotion, according to the worldwide director of the CMD, Stephen Lussier, “is a powerful cultural position that separates diamonds from the herd of luxury goods... There are commonalities in diamond perceptions more than there are differences. Elements of the cocktail vary, necessitating different marketing approaches, but the fundamental dream is the same. So we take a global approach as our starting point but we are culturally sensitive to opportunity in each market.” That global market positioning of love and the diamond engagement ring is crucial for the CMD to fulfil its business objective of maximising the profit of the CSO. The diamond content and value of an engagement ring is normally much higher than for other pieces of diamond jewellery because the stone will be a solitaire rather than one or several smaller diamonds in multi-stone pieces such as eternity rings. Once the diamond engagement ring custom is culturally embedded, De Beers extends its ‘gift of love’ positioning to other events or rites of passage, such as a youngster’s coming of age, or a couple’s 25th wedding anniversary. By the 1990s, 80% of all diamond jewellery sold in the West was given as a gift. Very few western women bought their own diamonds. De Beers Enters Asia In the mid 1960s De Beers considered that the rise in personal incomes in Japan was sufficiently rapid, and attitudes to western ideas sufficiently open, for it to promote diamond jewellery. It entered the Japanese market with the same ‘gift of love’ positioning that it had used in the West. 3 The Russian government signed a new contract with De Beers at the end of 1997, after a year operating outside the CSO. De Beers has handled Russia’s diamonds for over 40 years. The Argyle mine remained outside the CSO. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 4 4802 The growth in demand for diamond jewellery was such that, by the late 1980s when De Beers was considering entering other Asian markets, Japan was taken as the development model. It had become the second largest market in the world for diamond jewellery, behind the United States. Ownership rates were very high. Moreover, the average price of every piece sold was more than twice that of the United States or Europe because the size and quality of the diamonds used was so much greater. Developing Demand For Diamond Jewellery in Japan The Diamond Engagement Ring Because the ‘gift of love’ positioning was so central to the De Beers global strategy, the first promotional focus in Japan was on diamond engagement rings. Advertising campaigns communicated the emotional qualities of a diamond and established clear motivational factors for purchase with such phrases as the ‘ultimate precious stone’, ‘a beauty unmatched by other gemstones’, and ‘contemporary and modern’. All these descriptions were highly relevant to the institution of marriage. De Beer’s strategy was to endow diamonds with a symbolism that fitted into an existing social custom. In Japan the ideal entry point was the yuino, or traditional engagement ceremony, which proved to be an enduring institution despite the decline of arranged marriages. In 1991, even though only 10% of couples went through an arranged marriage, more than three- quarters had a yuino ceremony. Traditionally the gifts exchanged during the yuino did not include a ring of any kind, but the custom had entered from the West during the postwar years. De Beers’ challenge was to make new brides expect a diamond ring rather than one with a pearl or other gemstones. The first cinema advertisement De Beers aired in Japan showed a Hollywood scene that did not in any way reflect the reality of life for young people in Japan in the 1960s. Nevertheless, it appealed to the Japanese fascination with all western things at that time. The proportion of women receiving a diamond engagement ring at the yuino grew from zero to a peak of 76% in 1994 (Exhibit 2), more even than in the United States (Exhibit 3), as families realised the status value such a ring endowed. A family that gave a diamond to the bride was obviously well-to-do. However, unlike in the West, Japanese women only wore their diamond engagement rings on a few special occasions after the wedding day, partly because of the impracticality of the most popular design, the tatezume (commonly known in the West as the Tiffany setting). The economic downturn that Japan entered in 1991 demonstrated the recession-proof nature of De Beers’ ‘gift of love’ positioning. Discretionary purchases could be postponed, but the diamond engagement ring market held steady as soon-to-be-married couples and their families adhered to custom and the expectations of society. De Beers had seen the same thing happen during economic downturns in the United States. Several years later, with the economy still in recession, a number of social changes were beginning to emerge, including a reaction by young people against the formal traditions of the yuino, which in turn began to affect attitudes towards diamond engagement rings. By 1996 diamond engagement ring acquisition rates had plunged to only 64% among couples getting Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 5 4802 married. Encouraged by declarations in the media from several celebrities, more and more couples were rejecting the formality of the yuino and its implied social conformity in favour of jimi-kon, a plainer, less elaborate way of getting married. Jimi-kon weddings did not include diamond engagement rings. This raised the fundamental question whether people in Japan had ever accepted diamonds as a ‘gift of love’. Perhaps they had only bought diamond engagement rings because this was what conformity to the tradition of the yuino had demanded. De Beers’ consumer surveys had shown for a long time that only around 40% of women approaching engagement thought of diamonds as a ‘symbol of love’, a far lower percentage than in the United States. When the key societal pressure of conformity weakened, Japanese people did not reject the idea of diamonds per se; they simply wanted to save on the expense of an engagement ring, which De Beers had been telling them for a decade should cost three months of the bridegroom’s salary.4 The salary guideline had worked well in the booming ‘80s, but the mood in the 1990s was quite different. De Beers had to revise its approach, to make the woman feel that a diamond was “a meaningful symbol of his true, everlasting feelings for her” rather than a symbol of social conformity. How could it arrest the decline in diamond wedding ring acquisition rates as well as a noticeable fall in both diamond size and average price paid? Other Diamond Jewellery in Japan The engagement ring segment accounted for only 20% of diamond jewellery sales in Japan at the end of the 1980s. Women’s diamond jewellery covered many different categories and age ranges, from 20 year-olds upwards. One issue De Beers faced in Japan after the boom years of the 1980s was the ‘democratisation’ of the diamond, since acquisition rates were rather high. Many married women bought diamonds for themselves with the agreement of their husbands, as they were in charge of the family finances and knew what the household could afford. Young working women, still living at home before getting married, also bought themselves diamonds. For De Beers, the 35 to 54 age range was the core target group among married women. This group bought more expensive pieces than younger ones, and the population of Japan was ageing rapidly. Younger women bought jewellery more for adornment. Average diamond jewellery prices paid by the under-35 group were relatively low (around US$860), and half the pieces cost less than US$350. De Beers hoped to find suitable triggers to motivate these young women to buy a special piece, at a higher price, as a reward for a particular achievement. There was definitely such a thing in Japan as a diamond that was ‘too big’. Perfection, rather than size or ostentation, was the key criterion. Stones of more than 0.5 carats were perceived as less wearable. Compared with the United States, dressing habits remained rather formal. De Beers wanted women to feel that diamonds were appropriate to wear for the office. It 4 The concept of setting salary guidelines to tell people how much to spend on a particular item was established decades ago in Japan. When De Beers adopted the practice, it proved so successful in raising the value of diamond engagement rings purchased that the idea was also introduced in its United States and European advertising, with a similar result. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 6 4802 launched a new positioning called ‘Simple Diamond’ which sought to give women an extra justification for buying diamonds: they could be worn every day. Discretionary purchases of diamond jewellery in Japan were badly hit in the sombre economic environment of the 1990s. Nevertheless, in 1998 Japan was still the world’s second largest diamond market with 22-23% of diamond sales worldwide. Average prices paid were still over US$1,300. The question for De Beers was, how could it recover the crucial link with love that distinguished diamonds from other luxury goods, and re-establish the diamond engagement ring tradition, but in a less formal way? Expanding into East and Southeast Asia In the mid 1980s De Beers began to devote considerable advertising resources to East Asia to capitalise on several trends: rapid economic growth; a youthful population, attitudinally different from their parents, who would be the diamond buyers of the future; an expanding group of newly wealthy people (‘new’ money was more readily spent to demonstrate success than ‘old’ money); urbanisation, which encouraged the spread of modern ideas; openness to change, compared with ingrained attitudes in western countries; and the presence of jewellery retailers operating on narrow margins and high inventory turns, in contrast to western jewellers’ high margins and low turns. De Beers’ managers at first handled Asia from the consumer marketing division’s offices in London. Account executives based in the Asian offices of J. Walter Thompson, the advertising agency De Beers used worldwide, commissioned surveys in each country on social trends, gift-giving occasions, attitudes towards diamonds, motivations for purchase, and acquisition rates, from which they developed advertising campaigns. Finally, in 1994, a De Beers regional office was opened in Hong Kong, the only location outside London for the consumer marketing division, in order to put its managers more closely in touch with regional trends. At the same time May Wong was hired as Asia Pacific regional marketing director in London to be the “Asian voice” and “query how the questions are asked”, as she expressed it. Previous surveys into diamond-buying motivations had shown some cultural bias in the way that questions were phrased. Understanding the Markets A key issue for De Beers was that ‘Asia’ was not a homogenous region, and there was no such person as an ‘Asian consumer’. The more De Beers learned about the different markets through its survey and market research activities, the more it became apparent that pan- regional campaigns would not work. Purchasing motivations were driven by different historical and cultural influences. There were sufficient similarities across cultures on which to build regional brand strategies, but equally there were many local nuances to take into account for individual country advertising. Chinese language commercials, for example, had to be in several forms, to cater to Mandarin or Cantonese speakers, and to readers of complex or simplified Chinese characters.5 5 In Hong Kong people spoke Cantonese and read complex Chinese characters; in Taiwan, Mandarin was spoken and complex characters written; in Singapore, Mandarin was spoken and simplified characters used, and the Chinese in Malaysia spoke Mandarin and wrote complex characters. In China, Mandarin was spoken, along with 72 dialects, and simplified characters were used. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 7 4802 In general, the role of jewellery had always been important in Asia. Often a gift of jewellery marked a rite of passage, such as when a girl entered womanhood, got married or came of age. It was an important part of the inheritance traditionally passed from mother to daughter, and older women would often buy jewellery specifically for this reason. Spare family resources tended to be invested in jewellery in case of emergency or for inheritance purposes. In Asia, the jewellery a woman owned was crucial if she were to be widowed or divorced, as she would get nothing from her husband’s family. Jewellery was therefore a store of wealth. However, this was more true of gold, which was readily tradable and valued by weight, than of diamonds, where the value lay in the quality of the stone. For women, jewellery was an expression of self-enhancement, a symbol of femininity. Throughout the region, large, ‘showy’ gemstone jewellery was an important means of demonstrating the status of the wearer and the family. Jewellery traditions varied across Asia, however. In Korea, Taiwan, Hong Kong, China and Singapore, people primarily viewed jewellery as a store of wealth. Very little jewellery was worn with traditional Chinese clothing. Korean jewellery traditions centred on the wedding, for which the mother-in-law would buy the haam, several sets of jewellery comprising necklace, bracelet, earrings and ring (and whose designs modern brides generally disliked). In the Southeast Asian countries of Thailand, the Philippines, Malaysia and Indonesia the desire for adornment influenced jewellery-wearing habits, to the extent that “they don’t feel dressed without it”, according to Fiona Hindmarsh. In the Philippines, where Spanish and American influences coupled with Christian beliefs were strong, people bought a lot of small, low quality stones and wanted matching sets of rings and earrings. In predominantly Muslim countries like Malaysia, on the other hand, because the zakat, or Islamic wealth tax, did not apply to jewellery people bought expensive pieces. Jewellery designs in Thailand were beautiful and delicate, and used locally mined rubies, emeralds and sapphires. Psychological differentiation showed that although people in Hong Kong appeared to have very modern attitudes, inwardly they were highly traditional with strong adherence to such Chinese values as filial piety and respect for elders. Singaporeans tended to be less ‘showy’ in their wealth and demonstrations of status than other Chinese-based cultures, they liked to think of themselves as cosmopolitan, and were very much influenced by international events. The distinguishing feature of Taiwan was the financial emancipation of women, who increasingly sought ‘modern’ marriages to match their own self-confidence. De Beers’ research revealed clearly the distinction between ‘modern’ and ‘traditional’ women throughout the region (Exhibit 4). At first De Beers distinguished these two groups by age (above or below 35), but later realised that the significant factor was their outlook on life, not how old they were. Women could be ‘modern’ even though they were married and over the age of 35, while some ‘traditionals’ were unmarried and in their 20s. Age no longer determined behaviour as much in Asia as it used to, although both men and women still felt pressure to marry at a suitable age. The purchasing motivations of the ‘traditional’ and the ‘modern’ woman were completely different. The ‘modern’ woman was far more likely to buy diamond jewellery for herself. Her ‘traditional’ counterpart was more likely to buy gold or jade. Attitudes towards love, romance and marriage in Asia were also rather different. There was some difficulty in talking about love (“I don’t say ‘I love you’ a lot. It depends on the occasion, but she likes to hear it. It’s a hassle”, responded one unmarried Hong Kong man Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 8 4802 during a survey). As for romance, in some languages (Chinese, Thai, Malay and Korean) the word did not exist, suggesting that it was a western concept new to these cultures. People thought of romance as the outward expression of love and did not expect it to last after marriage, when they had responsibilities. In Asia, relationships with the extended family tended to be close, even in outwardly modern places like Hong Kong: “I really couldn’t adjust to it in the beginning. I only wanted to stay in the world of the two of us but he goes home to see his mother every day”, was the way one young married woman expressed it. May Wong, De Beers’ regional marketing director in London commented, “There is a perception in the West that if you are a traditional you spend time with your family. But in Hong Kong people always spend time with their family on Sundays, even if they have a high-powered job every other day. Core beliefs don’t change as fast or in the way that Westerners think.” Market Positioning Through interviews with many women across Asia De Beers sought to discover the motivations underlying diamond purchases and the benefits these women anticipated from wearing diamonds. Based on these findings, De Beers adopted a two-pronged brand positioning. The ‘love’ positioning focused on diamond wedding rings, which better fit local traditions than the idea of an engagement ring in Japan. In parallel - and after much internal debate - it created the ‘women’s desire’ campaign to appeal specifically to the Asian self-purchase market.6 This segment represented a major difference between markets across Asia and those in the West and had major implications for De Beers’ strategy. Research showed that women in Asia appreciated getting gifts, but did not want to wait to own a diamond. Clearly, if De Beers were to project only a ‘gift of love’ message that suggested women should not buy diamonds for themselves, it risked alienating a large part of its potential market. The key to all diamond communication messages was to find the right balance between aspiration and relevance. Diamonds were perceived as glamorous, but to portray them being worn with ballgowns made them irrelevant for Asian women’s lifestyles. On the other hand, diamonds should keep their special aura, the ‘diamond dream’. “People feel beautiful and special because of the physical attributes of the diamond: its beauty, which confers beauty on the wearer (and distracts from the wrinkles, some say!), and its sparkle. Other gems, or jade, or gold, don’t sparkle, so other people will notice if you’re wearing one.” explained Fiona Hindmarsh, regional strategic planning director for De Beers at JWT in Hong Kong. “It’s not so much about feeling loved, it’s about your status within your peer group. If you’re a ‘modern’ woman you feel confident and successful; if you’re a ‘traditional’, you feel valued and proud” (Exhibit 5). Sparkle - and size, which reflected status - counted, even for diamond wedding rings. Surveys showed that people in Asia could repeat De Beers’ ‘gift of love’ message, but only because they knew it from the advertisements. In the United States women had an emotional 6 A third, much more limited campaign was ‘diamonds for men’, for which there was clearly a market in Taiwan, China, Indonesia, the Philippines and Thailand. De Beers wanted to embed the idea of diamonds for men in these countries before the ‘feminisation’ of diamonds took over as it had in western countries. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 9 4802 attachment to their diamond ring which Asian women lacked, and this was in spite of the fact that American men gave their brides smaller stones of lower quality than their Asian counterparts. Few women in Asia expressed an emotional motivation for wanting a diamond wedding ring, instead they were driven by peer recognition and status (“All my friends got a diamond when their boyfriends proposed to them. They will admire me if I have a big stone.”). The ‘love’ positioning was nevertheless the basis of all De Beers’ Asian wedding ring advertisements. It was played out in the social context of the marriage because of the importance of the extended family. Test commercials showing only the relationship between the bride and groom - which was the normal presentation in western markets - had not been well accepted anywhere in Asia. One of De Beers’ most successful advertisements for the diamond wedding ring was called Rainshower, which was based on a Korean folk-tale. It showed a little boy and girl playing happily together until forced to separate, only to meet again years later and marry. The advertisement worked very well throughout the region except for China, where it was thought to be too romantic.7 There was no attempt to establish a salary guideline for spending on a wedding ring. Far too many people worked outside regular salaried employment, as entrepreneurs, for it to have any meaning. Even people on low monthly salaries would buy a high quality diamond: it was a family-driven purchase. The execution of De Beers’ ‘women’s desire’ message differentiated between ‘modern’ and ‘traditional’ attitudes. A highly popular and effective television commercial shown across the region (in different languages) until 1996 was called Sparks. Aimed at young ‘moderns’, it showed three young women enjoying themselves in a coffee shop, teasing a young man at another table by letting the light catch on their diamond ring or pendant, with the voice-over saying, “For me, for now, for ever”. A newer version, aimed at the ‘traditionals’ again featured a coffee shop and a group of women of unidentifiable age, one of whom was wearing a diamond ring. This time, the voice-over stated, “Only a little more, but they said I have so much more”. De Beers found that once a woman owned one diamond it lowered the barriers for future purchase. A critical issue therefore, was to lower the barriers for first-time purchasers. This involved not only providing justifications for purchase (“I deserve it”) but encouraging jewellery retailers to be more customer-friendly, for example by showing prices in the shop windows, making security guards less obtrusive, and having available plenty of literature explaining the 4Cs. Results in East and Southeast Asia In terms of volume women’s self-purchase diamond jewellery accounted for up to 60% of total sales in every Asian country except Korea. There, because of the importance of the haam wedding set market, 80% of diamonds bought were for weddings. By the late 1990s, more than half of Korean brides were receiving diamonds in their haam. Overall penetration rates by 1998 were still not high except in Singapore, where 54% of the target population (women over the age of 18) owned a diamond. In Taiwan only 34% of the 7 Rainshower was shown in Korean cinemas, targeting young couples; a separate print campaign was directed at the groom’s mother, who actually chose and bought the wedding jewellery. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 10 4802 women targeted had a diamond. In the United States, Europe and Japan ownership rates were in the 70-80% range, largely because of the engagement ring tradition. Many ‘moderns’ in Asia were still non-owners. Reflecting the low ownership rates, the total diamond jewellery retail value of Asian countries was relatively small except in Korea, which ranked fourth in 1996 behind the United States, Japan and Italy. However, in terms of average prices, number of carats per piece of jewellery, and diamond value per carat, countries like Korea, Taiwan, Hong Kong and Singapore were much bigger than any western country. This was partly because the size of the stone was so important as a status symbol. People wanted the biggest stone they could afford. A second critical factor was that jewellery manufacturers in Asia were often also the retailers, and margins were therefore much lower. Purchasers of jewellery could get much more for their money in Asia than anywhere else in the world. Entering China De Beers started investigating China in 1986, with awareness-raising seminars for the trade and television documentaries for consumers while building relationships with people in the government. “We took a politically conscious approach, stressing our long term vision - we talked about the year 2010 - and our wish to be good corporate citizens. We asked them, ‘What can we do for you?’”, explained Jonathon Pudney, the marketing director formerly in charge of China. In the early 1990s it started working closely with Beijing on measures to help the jewellery industry develop, and on diamond certification standards (since counterfeiting was a problem). “Our corporate governance programme paid off,” remarked Pudney. “We had been concerned that the government would brand us as anti-social.” National gem standards were introduced in 1996, requiring all diamonds to be certified by an authorised gem centre. Consumer knowledge about diamonds in the early 1990s was limited to scientific facts. In line with the tradition of buying gold as a store of value, gold jewellery dominated jewellers’ sales. Any demand for diamonds was restricted to the government and business elite. De Beers advertising campaigns aimed to change this, broadening demand to the top 20-30% of the population. Geographically, the focus in 1993-4 was on the relatively rich cities of Guangdong, Fujian and Shanghai. Later, Beijing, Tianjin, Chengdu and other regional cities were added. De Beers found that the diamond acquisition threshold in China was a household income of 2000 RMB (US$250) per month. Around half the population in Shanghai had such an income, 60% of the people in Guangdong, and 25% in Chengdu. By 1998 De Beers was advertising in 17 of China’s more than 800 cities, yet reaching 50% of the value of the diamond market. The dilemma was, how to target long- and short-term opportunities in Shanghai without forgetting the 50% of sales that took place outside the targeted cities. In line with the regional strategy the diamond wedding ring was key for entering the market: China was expecting to celebrate over two million marriages in 1994. “We have to establish the diamond wedding ring first. Unless we give diamonds a love positioning, they are just another status symbol,” commented Seth Grossman, account planner for De Beers in JWT’s Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 11 4802 Shanghai office. A second marketing campaign targeted married women who had not received a diamond wedding ring. Positioning the Diamond Wedding Ring The question De Beers had to face was, what did ‘love’ mean in the China context? Research revealed that attitudes to love and marriage in China were considerably more materialistic than elsewhere in the region. A survey of the ‘X-Generation’ (18-28 year-olds) jointly commissioned in 1996 by De Beers and a number of other western firms showed that this generation used wealth as the key criterion for judging success, even to the extent of choosing their friends based on perceptions of the status of the others’ family. Peer admiration was essential. It was not clear to these young people whether power or wealth came first, but the trappings of wealth included major foreign brands, a large house and diamonds. Success was important because it led to self-recognition and the recognition of others (Exhibit 6). Marriage was a partnership towards achieving future success. Motivations in China were driven more by status than emotions, to an extent much greater than anywhere else in the world (Exhibit 7). It was not surprising therefore that, according to the surveys, Chinese women selected husbands on the basis of their financial status and prospects, rather than love (“If you’re planning to get married, then the most practical question is whether you have enough cash or not in order to live better after you get married...” - unmarried Shanghai woman). Love, in China, was a luxury. Men, meanwhile, accepted that they needed to prove their worth if they were to find a suitable wife but resented the financial expectations placed upon them. Money (or lack thereof) therefore played a pivotal role for both. Both men and women in China described marriage as “the graveyard of love”. Views on ideal love were similarly bleak (Exhibit 8). Expectations of roles within marriage were highly traditional, even among the X-Generation: the man should be the provider and protector, while the woman should be virtuous, do the cooking and be a good mother (but at the same time women wanted more equality even if the man was the provider, and men would tolerate his wife having a career as long as it did not interfere with his home comforts). Women focused heavily on the importance of the career of her husband or future husband. Against this background, De Beers faced the dilemma that diamond rings had never been part of the wedding ceremony in China. It therefore had to “establish cultural imperatives”, according to Seth Grossman. “Wedding tradition is ingrained. It is not just an individual choice but one for the families of you and your partner. We have to try to introduce the idea of a diamond wedding ring into a country with a 5000 year history. We have to make it represent more than a beautiful sparkling stone.” Young Chinese people were looking for material success and emotional stability, and they were much better educated and wealthier than their parents. They seemed to feel comfortable in linking their aspirations for marriage with the diamond’s sparkle, cost and image. De Beers tested a number of positioning statements (Exhibit 9) for its diamond wedding rings. People broadly rejected the idea of a diamond symbolising love - any object could do that. They also dismissed the idea of purity in love: the Rainshower commercial which had proved so popular elsewhere in Asia did not motivate Chinese women to want a diamond wedding Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 12 4802 ring. Aspirationally, most people identified with the ‘need to express perfection’ while at the same time criticising the phrase for its immodesty and ostentation. The best statement suggested a ‘bright future’, although this was hard to capture in advertising terms. Showing a future which included a child suggested too much responsibility to the young men. The positioning was finally expressed as “The symbol of our enduring commitment, to build a future of harmony, brightness, success and happiness”, summed up in the Chinese phrase, mei man. A mei man marriage was a content, solid relationship filled with love, trust, caring and support, and it could withstand adversity; the couple had the relaxed feeling of best friends as well as lovers; and the home life was materially prosperous and successful. Women’s Diamond Jewellery: the Xing Fu Woman The second major strand of advertising was aimed at married women in the 25-44 year age range who had not received a diamond wedding ring. Over 80% of diamond purchasers were married women. A typical married woman, as the manager of the household finances, decided which diamond she wanted and brought her husband along for the purchase although he was in no way involved in the process. Because the market was less developed, De Beers did not segment its message further by age or attitude as it did in other parts of Asia. Although commercials did not express it explicitly, the underlying motivation for purchases of diamonds by these women was status demonstration. Xing fu, meaning fortunate, encapsulated the idea of the ‘complete woman’. As a wife, mother, lover, friend and attractive woman, she had reached the ultimate state of life. A woman who could demonstrate all these attributes by wearing a diamond - itself an expression of beauty and rarity - had the status of a xing fu woman. This concept was first implied in the Best Friends commercial, which ran very successfully between 1993 and 1997, and then stated more explicitly in the Complete Woman advertisement which followed it (Exhibit 10). Using phrases such as “Only a little more, but they said I have so much more” (Exhibit 11) and “My most admired friend”, these advertisements conveyed a sense of specialness and uniqueness about the women wearing the diamonds. The Results Wedding rings accounted for 22% of diamond jewellery retail sales in China in 1997, compared with 56% for women’s non-wedding diamond jewellery. The remaining 22% was taken by diamonds for men - China was one of the few markets worldwide where men wanted diamonds: they were the perfect status symbol in a country where owning a Ferrari or a second home was not an option. By 1998, only five years after De Beers’ full promotion effort began, one-third of all brides in Shanghai were receiving a diamond ring on their wedding day (and fully half of brides in the 2,000 RMB and above monthly income bracket). It had taken Taiwan 10 years to reach the same acquisition rate. In Guangzhou the rate was only 13%. A study of the elite population segment in Beijing, Shanghai and Guangzhou - the top 5%, with monthly household incomes of 20,000 RMB - indicated 88% ownership among women, which was higher than in the United States. The acquisition rate per year in the target group was exceptionally high at 12%, and many were multiple owners (the average was 1.56 Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 13 4802 diamonds per person). Attitudes to diamonds were very positive compared with other gemstones. Elsewhere in the country, ownership was minimal. De Beers hesitated to extrapolate from some of the data it collected because of the small sample sizes. The ownership rate in Shanghai, its biggest and most valuable market, was 7%. Was it more important for De Beers to increase ownership rates there, or to develop new markets in regional cities like Qingdao, for example? Ultimately, would people in China buy diamonds because they believed in them as a symbol of love, or because diamonds were the best status symbol around? Could De Beers create the same unique positioning for diamonds in China that it had done in the West, which would distinguish it from the rest of the luxury goods market? Crisis in Asia The financial crisis which swept Asia from July 1997 onwards was a test of De Beers’ skills at embedding diamond-buying practices into local cultures. Discretionary purchases motivated by status considerations - the ‘women’s desire’ brand - fell sharply across the region with the exception of Taiwan. Even in Hong Kong, which did not feel the weight of the economic crisis until summer 1998, women were no longer buying so much jewellery. For the middle income earners (the target group in Hong Kong was people earning over US$2,000 per month - secretaries earned around US$2,300) it was out of the question to buy a diamond pendant or ring and show it off in the office next day - which would have been one of the reasons for purchasing it. Among the elite segment of the population it was not so much that conspicuous consumption was inappropriate, rather that no-one knew how long the economic downturn might last. Since diamonds were not bought as a store of value, they could not be traded in the same way that gold jewellery routinely was. In Korea, which had been an important market for diamonds, all sales except for the wedding jewellery segment dried up. Sales in Thailand and Indonesia completely disappeared. Some people were sufficiently desperate to sell their diamonds - and were getting more for them than they had paid because of the depreciation of the local currency against the dollar. In Japan, De Beers continued its efforts to make women really want a diamond engagement ring, but as Stephen Lussier recognised, “it’s hard for them to justify spending US$5,000 on it if they only wear it on a few occasions. We have to make them want to wear their rings more by encouraging jewellers to create more practical designs which won’t frighten off the traditionalists.” In China other factors were at play. Between 1993 and 1996 the market had grown at around 20% per annum, slowing to 10% in 1997 and would probably be below that in 1998. De Beers’ main market was Shanghai, and that was still growing. However, the middle class was not yet well established in China, which could give rise to problems if the economic crisis were to hit. Market reforms were introducing alternative ways of spending money. People Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 14 4802 were for the first time starting to buy their own homes. Consumer products such as air conditioners competed for their share of discretionary spending against luxury goods like diamonds. Nevertheless, because De Beers believed that diamond buying habits could approach those of the overseas Chinese as long as it got the market positioning right, it was prepared to continue to devote more of the annual advertising budget to China than current results warranted. For the rest of Asia, the marketing budget was curtailed to reflect reduced opportunities. “The American market is booming. Women in Asia have closed their purses to this type of spending. Although we have several commercials, we don’t have the media money now to air more than one of them in Asia so we are concentrating on the diamond wedding ring”, explained Fiona Hindmarsh. Looking to the Future De Beers’ move into Asia had been an interesting experience. It had learned that its ‘gift of love’ message did not mean the same thing to everyone. And it had discovered that there was a whole new category of diamond purchasers that it had never addressed before: women buying diamonds for themselves, for the joy of wearing them. Was this something that they should think about for western markets? Had they been alienating western women who felt the same way that so many Asian women clearly did? Perhaps there was room for a ‘joy of wearing’ message in the West that didn’t stress so strongly the ‘how to get your diamond’ idea. De Beers faced several challenges as it approached the millennium. In Japan it was vulnerable to the rejection of the ‘symbol of love’ message it had always projected. It needed to re- establish the position of diamonds as a ‘love’ purchase outside the trappings of social conformity, and to show Japanese women that diamonds were jewels that were relevant to their everyday lives. Otherwise, the slow trend towards casualisation of dress would isolate diamonds firmly in the niche ‘dress’ sector. East and Southeast Asian markets were badly hit by the crisis and would take time to recover. In China market development was at a very early stage and remained vulnerable to economic downturns. The emphasis among young people on the pragmatism and materialism of marriage was slightly shocking to De Beers’ traditionalists. Was ‘love’ a relevant message to portray? But if it was not, how could diamonds be distinguished from any other status symbol? Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 15 4802 Exhibit 1 The Diamond Pipeline Source: De Beers Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 16 4802 Exhibit 2 Japanese Brides Receiving Diamond Engagement Rings % 80 60 40 20 0 1967 1971 1975 1979 1983 1987 1991 1994 Source: De Beers Exhibit 3 Brides Acquiring Diamond Engagement Rings or Jewellery, 1991 % 80 60 40 20 0 US Japan UK France Germany Italy Spain Source: De Beers Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 17 4802 Exhibit 4 Target Audiences in Asia: ‘Traditional’ and ‘Modern’ Women Traditional Singles Modern Singles Family piety and authority is very strong She is a loyal daughter who (usually) lives at home, but she can be outspoken and She lives at home and will be happy to headstrong in her views and desires. At move to her parents-in-law's home once heart her family values remain strong, but she is married. she tempers them with her need for independence. Works to fill time between school and becoming a wife. Work is an important part of achieving independence. She wants a career so she She enjoys spending her money on fun and can prove this to herself, her family and fashionable things, but is very careful not friends. to be seen as wasteful or wanton. She enjoys spending money as it is part of She is careful to be sure she is always seen the manifestation of her independence and in a good light for a potential husband. confidence. She buys items that can be seen by her friends and colleagues. She wants to get married, but the right man will have to prove himself of being worthy (including having prospects and money). Traditional Married Women Modern Married Women She sees herself as an extension of her She sees herself as a woman who has two husband and family, she is a devoted and responsibilities: caring wife, mother and daughter. − to her husband and family (her priority) and If she works, her priority is her family. − to herself. Work gives her a social context and is economically driven. She validates herself on her personal success and the success of her husband and Her self worth and validation is based on family. her husband and family doing well. She takes great pride in seeing them succeed. She has confidence in knowing her own self worth. She feels guilty spending money on herself, unless it is approved of by her She does not feel guilty spending money husband and is spent primarily to give her (her money) on herself. It is important for husband/family face (status). her to feel good and look good. She is a caring, loving and devoted wife, mother and daughter. Source: Asia Pacific Diamond Consumers, J. Walter Thompson, Hong Kong, June 1998. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 18 4802 Exhibit 5 The Diamond Dream Beauty of Sparkle of the diamond the diamond Feeling beautiful and special Modern - Traditional - confident valued and and successful proud Source: J. Walter Thompson, Asia Pacific Diamond Consumers, June 1998. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                 INSEAD EURO-ASIA CENTRE 19 4802 Exhibit 6 The X – Generation – Why Success is so Important SUCCESS Ability Power Sense of Wealth purpose Pride Luxuries Others' Self-confidence admiration Social status SELF-RECOGNITION OTHERSÕ RECOGNITION Source: China: The ‘X’ Generation – Conclusions, J. Walter Thompson, Shanghai, August 1996 Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 20 4802 Exhibit 7 Love Versus Status Around the World High China Taiwan Status Korea Thailand USA Low Low High Love Source: De Beers Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 21 4802 Exhibit 8 Ideal Love – Perceptions in China Ideal Husband Ideal Wife has reliable career is pretty good salary – rich can leave her at home and not worry about her can afford to buy a house like a doll – doesn’t know too much about will not cheat on me the outside world likes to give me surprises won’t figure out I have a mistress understands my moods tender personality handsome keeps the house clean healthy knows how to dress well graceful, quiet virtuous manages household finances well Source: DWR Regional Research Debrief Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 22 4802 Exhibit 9 Diamond Wedding Ring Positioning Statements in China – and Typical Reactions to them Diamond. Symbolises unmatched purity of love Reactions - insincere and not practical. Diamond. Gift of love. Reactions - anything can symbolise love; why a diamond?; not realistic; old-fashioned. Diamond. The symbol of our ultimate commitment. Reactions - smacks of insincerity, as if caught doing something they shouldn’t; ‘commitment’ is an empty word; too absolute. Diamond. The symbol of our bright future. Reactions - describes a perfect married life; future is everlasting - good feeling - good future. Diamond. Symbolising we are a couple. Made by heaven. Reactions - too superstitious; old-fashioned; nothing to aspire to. Diamond. Our need to express perfection. Reactions - vulgar, materialistic; ostentatious desire; too direct and straight but the implication is good; this sort of thing should not be mentioned out loud. Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 23 4802 Exhibit 10 Women’s Diamond Jewellery Advertising in China – English back-translations Best Friend Male Voiceover (MVO): Diamonds. Rare. Precious. Female Voiceover (FVO) 1: My closest friend. MVO: Diamonds. Every diamond is unique. FVO 2: My most admired friend. MVO: Diamonds. The treasures from nature. FVO 3: My friend forever. MVO To own a diamond is not a dream. Diamond is forever. Complete Woman MVO: It is confidence shining through..... It is beauty radiating brilliantly...... It is xing fu sparkling brightly..... It is time to let your brilliance shine even brighter through the sparkle of a diamond. VO: De Beers. A Diamond is forever. Source: J. Walter Thompson Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                INSEAD EURO-ASIA CENTRE 24 4802 Exhibit 11 Women’s Diamond Jewellery – Print Advertisement for China Headline: “Only a little more, but they said I have so much more” Body Copy: Precious, rare, brilliant… Because of this sparkle of the diamond, nothing else needs to be said. (The advertisement goes on to explain the 4Cs and gives a size guideline) You will find the price of a diamond is easier to afford than you imagine. Starting from 3,500 RMB you can select your own favourite diamond which lets your beauty shine more brilliantly. Source: J. Walter Thompson Copyright © 1999 INSEAD-EAC, Fontainebleau, France.                 Please note that INSEAD does not distribute its case studies directly. 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