Can we talk about the incredible scam that is the diamond industry?
So, I don't know if you've seen this, but diamond prices are just absolutely crashing. So, they're down 70% from their peak and just like 50% from like COVID times till now. Do you know how much a 2-carat lab-grown diamond costs now? You want to buy lab-grown?
Oh, I don't know. Uh, 10 grand a carat.
10 grand a carat. So that'd be for two carat. You think about 20 grand?
It's the price of dinner. You could have a diamond ring or dinner is the trade right now. By the way, just the whole this whole thing is a marketing masterclass. Lab-grown versus natural, uh, you know, versus blood diamonds versus, you know, there's so many different ways they position these things. It's crazy. But, um, yeah, I kind of went back down this rabbit hole of the diamond industry and I just continue to be blown away that this exists, that this is what happened and uh, yeah, I just wanted to talk about it.
I don't buy jewelry or diamonds really. You don't either, right?
For myself, not really. I mean, like for your wife, she doesn't seem like... chain off TikTok Shop. So, you know, your wife doesn't seem like a particularly like that's not her love language, I don't think.
Terrible read. Absolutely her love language. I'm thinking about this because I was at a diamond shop the other day because she's definitely into it. She probably wears like 10 pieces of jewelry at all times on her body.
Okay. Terrible read. You're right. Whenever I get into this though, it like I start becoming a little bit socialist because I'm like, why is this diamond uh worth it? Like, who says that? Like, well, the market says it. It's like, but that's weird that we've assigned it value. And then I started thinking I'm like, well, but gold has value and all cash is based off gold. And I start like, that's kind of weird that we've collectively agreed that this is like a thing that we want versus I have a friend who owns a diamond business. He's like, Lab-Grown is stupid. And I'm like, why? And it starts like kind of messing with my mind a little bit. I don't know if it does with you too.
Right. Well, that's kind of why I wanted to talk to you about it because she won't listen to me when I'm like, 'But the prices are going down of the commodity.' And she's like, 'I want the ring.' So, she's not really listening to it. I think there's a lot of amazing marketing that goes behind this. And I wanted to tell the story. So, the brief history of diamonds is as such. Diamonds used to be very, very rare and it was worn by like kings and queens, royalty. It was a sign of extreme power and extreme wealth.
And is it purely aesthetic?
Yeah, they're very shiny. They're very unique looking and they were rare at the time. So, not a lot of people had them. So, the people who had them were the people in power. It was not a thing about love or a proposal or anything like that. It was literally just like kings and queens. And that was the case for a long time until sometime in the late 1800s. There was a huge discovery of diamonds in South Africa. So there was like this diamonds went from extremely rare to plentiful. You could just go down there, get a scoop like it's Baskin-Robbins and come out with diamonds. And so this was very bad for the diamond industry. Why? Because people who owned diamonds or sold diamonds, they depended on the fact that they were rare to charge extremely high prices for these things. And so this was very bad for a small period of time. But a couple of founders, this guy like Cecil Rhodes and this other guy, they basically started trying to consolidate supply. So they go and they started buying up all the mines and consolidating the supply. It took about 20 years after the discovery of the huge new discovery of diamond deposits till they had consolidated and they formed the De Beers company. So if you ever heard of De Beers Diamonds, that's kind of the merger of these two guys who were consolidating the industry trying to lock up supply.
Huh. And what they did was brilliant from like a business perspective. It's kind of like uh you know like in science where they study twins and it's like the twins is like this really remarkable thing because it's like nature versus nurture. Well the nature gets held constant and you can only look at the differences in nurture especially twins that were somehow raised apart. It's like gold for scientists. Well, the same thing is true, I would say, from a business and marketing case study around diamonds because here you have this thing that is not actually rare, uh, that was not popular. So today, a diamond engagement ring is incredibly common. Majority of people do it in the western world, but uh this was not the case for a long time. I mean, less than 10% of people would buy um a diamond engagement ring, you know, before the marketing machine kicked in. It was a very, you know, a single-digit percentage of people uh that would do this kind of odd thing. And there was actually all kinds of other ways that people would propose.
I've talked to hundreds of entrepreneurs on this podcast and I've got a bunch of takeaways, but one of the big ones, one of them that shocks a lot of the people out there who are product nerds, which frankly I am myself, is that oftentimes in order to turn something that's going kind of good into something that's absolutely amazing is to fix the marketing, not the product. And in particular fix how many people know about the product. That's like the big thing. It's called attention. Say it with me, attention. And so this team at Starter Story, they put together a free guide. They call it the $1 million attention guide. It's this pretty amazing 39-page document that's filled with 15 tactics to get eyeballs on what you are building. And so there's even a 30-minute recording from Pat who's the founder of Starter Story. He has interviewed hundreds and hundreds of entrepreneurs. So, he's able to put this together through a bunch of research and experience. And so, if you're interested in getting more attention, which frankly you should be, everyone should be, then you should click the link below in the description or scan the QR code right here.
So, a marriage proposal went from a legal contract between the families. So, it really wasn't about the husband and wife getting down on a knee. It was two families sitting in a room drawing up a contract and usually paying some sort of dowry, some sort of price to literally buy the bride or buy the groom. And so that's kind of the, you know, V1, but then there was all these other ones. They would do maybe a simple like a ring made out of iron because iron was seen as this like strong and it was a strong thing was like a commitment. Uh, there was this thing called a regard ring and all the letters of regard, it's like ruby, emerald, uh, gold, you know, like for each one of those, D being the last one. And they would try to put one of every stone, the tiny one on a ring. So there's all in the history there was like rings were not particularly common and even amongst rings definitely not a diamond ring. And so what changed was the marketing machine behind De Beers and the jewelry industry.
Was it like um a small like it started as a small mom-and-pop business or did it like combine and it was a conglomerate from day one?
Well I guess before that there was like independent miners right? So the independent miners would find, you know, deposits, they would be mining them, they'd be selling them kind of centrally. But when the two founders started acquiring up all the supply, by the time they merged, they owned a lot of the supply. And so that roll-up was really, really key. And so they had, you know, basically they owned 90% of the world's diamond supply. Like it's insane. It's like a complete monopoly. And what they do is they ration out how much diamonds hit the market. So they want diamond prices to remain very high. And the way they do that is they control almost mafia-style who gets diamonds when and how much. So the jewelers come together. There's like this once-a-year thing where De Beers would then set like for each kind of jewelry market pick the winners, give them a certain supply of diamonds, make sure that they're selling it at certain prices, otherwise you're out.
Wikipedia says De Beers controls 80 to 85% of diamond uh distribution and is and was considered a monopoly. I'm ignorant. Can a foreign company be an American monopoly? And does that matter?
Well, they're doing it. So, I don't think it's outlawed because they're doing it. And so, you know, what happened from there? You know, for a while, business was really good when this was going on. And then the Great Depression happens and consumer spending obviously tanks during the Great Depression. So, De Beers goes and hires this marketing agency. I think it's called N.W. Ayer and they basically say look we need something drastic, uh, you can't do, you know, nothing, we don't just need like an ad or a campaign, we need to reposition and reimagine how people are going to think about diamonds because fundamentally, you know, the Great Depression is going on, people are being very cost-conscious and like are you going to buy this tiny rock or are you going to pay for, you know, your rent, are you going to pay for food, are you going to pay for these other like utility purchases? So how do we get it out of the utility category because it just doesn't have any utility. And so they came back and they said, 'All right, well, let's position this around emotions. We're going to relink diamonds instead of to royalty and wealth because people don't have, there's not enough people who feel wealthy right now. We're going to relink it to love.' And that's where the idea came of 'A diamond is forever.' You know, this famous copywriter who came up with this 'A diamond is forever' line and this incredible marketing machine kicked in. I don't know if you've heard of this, but they actually sent a woman to schools where she would speak to young teenage girls and educate these girls about diamonds and what they mean and how they work and the four C's. This woman, um, Glattus, she went around the country and she became like the diamond whisperer, teaching young girls to care about diamonds when they were in high school. And she ended up writing this book called 'More Sales of Bigger Diamonds,' which is an incredible book title.
So did De Beers invent the four C's as well?
Yeah. So they had an insight. So here's some of the marketing insights. So the first insight was uh market to the emotion not to the utility and so they marketed to the feeling of love. The second thing was um market to the moment. So they figured out to do it around engagements. So, proposal, how do you make it where there's a must-have event where you got to buy it? Sort of like chocolate being sold around uh, you know, Halloween and Easter and like all the chocolate sales happen then and fireworks are sold around Fourth of July.
Or like uh the Wall Street Journal used to say whenever you graduate college you have to get a Wall Street Journal subscription.
They tried. Yeah. Yeah. They tried to do that. That's smart. And so De Beers, what they would do is they would go to Hollywood um directors and actors and they would bribe them with money or free diamonds and they would say, 'Cool.' But here's the catch. As they're whining and dining these directors and these actors is that they would say at the climax of the movie when the man's going to profess his love to the woman, he's got to do it with a diamond. And you have to really zoom in on the diamond. You have to show that the diamond is the symbol of him saying, 'I love you.' Right? And then they created campaigns around this. So they created an agency, a standalone like uh publication that would every week send news of celebrity engagements and diamond uh purchases to 125 different magazines and newspapers so that they would know what to put in the magazine, in the newspaper. They made news out of it and there really wasn't like, so it was a coordinated PR machine. So they had the high school teachers, they had uh the Hollywood in the moment of inception where you're watching these stories and in the moment of love he gives her the diamond and you just assume I guess that's how we do it, right? I guess that's how it's done. That's how a man... And so the girls start to expect it and the guys start to realize it's expected of them. And then they created the um the PR machine that would every week send the news stories about did you hear this guy gave her a 4-carat ring? This guy after he was found out for cheating on her gave her a 6-carat ring, right? Like, you know, that became the news that they would, they made diamonds into news. So, the insight was they realized it is much easier to get somebody who's buying a $6,000 diamond to go up to 12 than to get somebody who's not buying a diamond to spend six grand on a rock all of a sudden. So they said, 'All right, forget trying to, you know, we have one layer of marketing that's getting you to realize you need to buy a diamond, but now we need to get you to have, as Glattus said, more sales of bigger diamonds.'
Dude, that's exactly how I felt, by the way. Did you feel that way? Like when I bought a ring, I thought, 'Yeah, $3,500, that's plenty.' And then it wasn't even close.
Well, you've heard the kind of rule of thumb. What's the rule of thumb?
Three times your monthly salary.
Exactly. Completely arbitrary. So what they realize is like if I just told you you need to spend 15 or $20,000, suddenly that's a big pill to swallow and it's pretty tough to swallow that. But if I just said look you're going to marry this woman, diamond is forever. This is a forever commitment. Should you not spend 10% of what you're earning? Should you not spend 15% of what you make this one year? Two months of salary.
Well, so they started with two months is the way that they talked about it. It's now crept up with inflation to three. So check this out. So look at these ads. This first one says, 'She married you for richer or poorer. Let her know how it's going.' And then uh this one is, 'He still knows how to send chills up and down my spine.' And it's a picture of the back of the necklace that's sitting at the top of her spine. Good. You know this one. 'Good things take time. The best take a billion years.'
That's great. And that like how diamonds are made.
And they would say like, you know, look at this last one, 'How two months of salary wound up on Julie's finger.' And they really started to anchor that the expectation, because nobody knows how much should I spend, what's a good amount, and instead of leaving it up to opinion they created the benchmark. And then you could be a cheapskate and go less, or you could step up and be a man and do it, or you could hey, you could overperform, go ahead, spend six months instead of two. And so this idea of just two months of salary for this forever commitment was a totally different anchoring uh than basically saying put a car on her finger, right? Like you either have this car or you could have this rock, and uh they figured out how to reposition that.
The takeaway uh basically one of the most famous advertising books of all time is 'Ogilvy on Advertising' and I think it's like chapter 11 or something. David Ogilvy says um the headline of the chapter is like long-form direct mail copywriting and then the sub-headline is 'My Secret Weapon' and it all started with this direct response long-form mailing copywriting because you start learning what motivates people and you can express your ideas a little bit more and what you're seeing there was not long-form but like that's the exact stuff he's referring to.
Exactly. You're exactly right. If you look at like if you made a list of the business problems on the left and then the marketing persuasion solution on the right. Okay. So here's what it would look like. So diamonds were discretionary and so they fluctuated. Good times people would buy and in bad times people would not buy. Well they turned it into an expected purchase for an engagement. So that was the marketing solution to the business problem. Uh next one. Diamonds are expensive. Well, they needed to make the expense mean something beyond the cost of it. So, 'A diamond is forever.' That it became a symbol of love. That it was going to be, you know, your commitment to this woman and it was a symbol of how committed you were. Then the next one, consumers are not sure which one to buy. Is this one good enough? Seems good enough. I can't tell the difference. Like, if you ever hold up two of the diamonds, can't tell the difference. And you know, and like whether it's VVS1 or VVS2, you know, like to the naked eye, it's not something you could tell.
I mean, we walked out of the diamond shop and I brought my mom with me. The first thing they do is they clean their rings because just like if you, like you're supposed to basically like put it in Dawn soap and then clean it with like a toothbrush every week or two. And most women don't do it even every 6 months really. It's just like, you know, when do you make time for this? And as soon as you do it, your ring looks totally different. It's like, you know, hey, you got a ring upgrade just from a toothbrush and some Dawn soap. Um, but like you know these like small distinctions of like flawless versus virtually flawless versus internally flawless, like these things can drive the price up but to the naked eye, I mean you need a microscope to even see the difference between most of these things.
And so they created the four C's, right? The four C's gave them language to use for pricing discrimination. And this is very common. This happens with wine as well. The reality is most people were not able to distinguish between what's a better wine and a worse wine just from a taste test. And so they created a huge gradient of the pricing curve by introducing language, distinct language, an insider club of language where literally you can become a sommelier which is like getting your PhD in wine and you could because you know you understand this language of wine better than anybody else. And so they created an entire profession around it.
And what's interesting is there's, I remember this and I was curious about it and now I had to remind myself. It's called GIA. There's a third part. So the three C's are done via a third party which is called the Gemological Institute of America. It's a nonprofit uh that does hundreds of millions of dollars a year in revenue. And it's like the grading system of this which is like pretty brilliant.
Right? And yeah, these things work symbiotically. They're in cahoots, right? It's sort of like Michelin star restaurants. Well, you have the Michelin guide, right? So, you have the grader and then you have the restaurants that achieve it. Once you achieve it, your line is going to be, you know, out the door and you can charge absurd prices for it. And so, these things work together in a way, right? Like the rankers and then the ranked can benefit from each other in this way and they often will fund, often in different industries they'll sort of fund or um promote the nonprofit neutral party because it's good for everybody if you have that versus if it was absent, if there was none of these.
If a diamond is worth uh, you know, how much you show your love for her, what's a lab-grown diamond worth?
Well, it's actually pretty interesting. So lab has become 60 plus percent of the market.
It has grown like crazy. And so just it's growing. It's a freight train. It's a majority. It's already the majority. It'll be the supermajority soon because what you can get for the price you can get it. I mean a lab will be 80 to 90% cheaper than the same quality um natural diamond.
