With technological advancements, lab-grown (synthetic) diamonds are becoming ever so similar in quality, cut and clarity to natural diamonds. Their usage and acceptance in business markets is growing but can the industry crack the final frontier - emotional resonance in the consumer market.
By: Dr Paurav Shukla, Professor of Marketing, Essex Business School
Posted on: December 13, 2016
The idea of growing synthetic diamonds – in labs – is not new. Scientists have been experimenting since mid-19th century. But creating conditions of immense heat and pressure in a lab environment remained elusive for almost a century, until mid 1950s when synthetic diamonds started appearing in the market. Since then, three different techniques have been developed to produce synthetic diamonds.
While previously synthetic diamonds were limited to only yellow and other coloured diamonds, recent technological advancements allow production of colourless synthetic diamonds that can easily deceive the eye and pass off as natural diamonds.
Present day synthetic diamonds possess properties such as thermal conductivity, electron mobility and hardness that are at times superior to natural diamonds. They are increasingly used in the high-tech cutting and polishing tools, heat sinks, and electronic applications are being developed which include their usage in gyrotrons, high-frequency field-effect transistors and high-power switches at power stations. Analysts estimate that more than 95% of the industrial grade diamond demand is supplied with synthetic diamonds.
According to Transparency Market Research, the global synthetic diamond market was valued at US$ 1.57 billion in 2014 and is anticipated to grow up to US$ 28.8 billion by 2023. Technological advancements, coupled with the steady growth of synthetic diamonds across industrial markets, is making the traditional diamond retail industry nervous.
A threat to the traditional diamond retail industry?
A particular threat emanates from undisclosed synthetic diamonds that are marketed as natural diamonds. The diamond retail industry is getting squeezed due to increasing labour costs of cutting and polishing, and slowing global consumer demands. There is a growing concern regarding synthetic diamonds being passed off to final consumers as a natural diamond to save costs as these diamonds are approximately 15-25% cheaper. Industry is actively engaged in preventive measures such as development of devices that allow quick and automated detection, and the creation of Natural Diamond Quality Assurance (NDQA) to fight the battle. Governments are also engaging in this debate wherein there are discussions regarding laws that require all jewellery retailers to explicitly mark synthetic diamonds.
Furthermore, the natural diamond retail industry is still suffering from trust issues because of the ‘blood diamond’ saga. The synthetic diamond industry has exploited this trust further by calling their diamonds ‘conflict-free’ and ‘ethical’. Thus, with the slow and steady rise of synthetic diamonds, there is a concern that the overall value of the natural diamond market will be lost.
So, what makes diamond valuable?
Amid the number of critical issues highlighted above, why has the synthetic diamond not replaced the natural diamond in the consumer marketplace already, remains an interesting issue. This I believe can be explained through the lens of value perceptions.
Perceived value is inherent to every product and it represents the subjective worth on all relevant evaluative criteria. This means that the perceived value will be different for each consumer. Research carried out by my team over the years, continuously demonstrates that value is multi-dimensional in nature. We have identified three specific dimensions namely social, personal and functional value. Social value represents the perceived utility of an alternative resulting from its image and symbolism in association, or disassociation, with demographic, socio-economic and cultural-ethnic reference groups. Personal value, on the other hand, reflects consumption directed toward satisfying the self. Functional value represents the perceived utility of an alternative resulting from its inherent attributes or characteristic-based ability to perform its functional, utilitarian or physical purposes. For every purchase, consumers will assign different levels of importance to each value perception dimension.
And when examining diamond purchase among consumers through the value perceptions lens, the difference between the natural and synthetic diamonds becomes apparent. The greater acceptance of synthetic diamonds within the business marketplace for high-end precision tools and other usages is predominantly driven by the functional nature of their purchase. Business buyers are purchasing diamonds for their perceived utility (functional value) and at comparatively lower prices.
However, in consumer markets, diamonds have a far more significant emotional attachment. Diamonds are associated with taglines such as ‘forever’ and “a girl’s best friend”. Such strong emotional reflections cannot be captured through only functional value or utility. Diamonds offer substantial socio-psychological benefits to the owner and that is reflected in the social and personal value associations.
Consumers show social value perceptions for luxury goods such as diamonds in two ways. The first is the acquisition related value perceptions that are echoed through ‘status value’ and the other being the display aspects namely ‘conspicuous value’. Diamonds to most consumers are not just an item of acquisition but also an item to show-off. Hence, the societal display of possession plays a major role. This is a real barrier for the synthetic diamond industry as the term ‘synthetic’ almost undervalues the regal association with diamonds. In this regards, the synthetic diamond industry needs substantial strategic actions. The positioning based on calling the diamond ‘conflict free’ is helpful, but it’s not sizeable enough as the natural diamond industry is increasingly scrutinizing and avoiding conflict zone diamonds. Examples are Tiffany & Co. and Cartier among others.
The other aspect that synthetic diamond industry has still not focused on is the personal value perceptions that are connected with the gratification of the internal (hedonism) and external (materialism) facets of the self. The natural diamonds industry has exploited these emotive connections extensively.
How will the market evolve?
There will continue to be a market for synthetic diamonds in consumers markets. It will mostly be made up of price conscious consumers who are particularly interested in the functional values associated with diamonds. However, consumers who are buying diamonds with societal and personal value perceptions in mind will tend to veer towards natural diamonds till the synthetic diamond industry develops a strong and emotionally relevant campaign arguing their case.
Overall, in parts the natural and synthetic diamonds industry complement each other and will continue to co-exist based on consumer preferences. The diamond retail industry therefore should take advantage of the differing value perceptions associated with both categories of diamonds. This will help them connect with a much wider demographic and a greater market penetration. However, the synthetic diamond industry has a much longer road to travel in this regard.
Paurav Shukla is Professor of Marketing at Essex Business School, UK. Paurav's career began in the industry, and he continues to work hand-in-hand with industry as a consultant, researcher, practitioner and advisor. He has published many articles in top-tier academic journals, chapters to edited books, and popular accounts of his work have appeared in the Sunday Times, the Guardian, Woman's Wear Daily, Inc., LuxuryFacts, Luxury Society, Retail Wire, Business Week, National Post of Canada and LiveMint, among others. He has also delivered corporate training, teaching and consulting assignments for organisations in Europe, Asia and North Africa, and has been actively involved in funded research projects.