Conjuring Up Value: Why You Want An Engagement Ring
We talked about 2 ways to create economic value in Why Your Business Needs More Weird Ideas — Part 2
There’s Technological Economic Value Creation (TEVC) and Psychological Economic Value Creation (PEVC).
In the former, you find out what people want and you use your smarts to give it to them.
In the latter, you find out what you can give and you use your smarts to make people want it.
The focus for most companies lies solely on TEVC.
To the point where it’s almost heresy to suggest PEVC.
But as we’ve discussed many times in other essays (Job Of A Company), our job isn’t to have the coolest tech, it’s to make our slice of the world better by making something a group of people loves. How we achieve that is irrelevant.
(Both parts of that statement are important. Facebook went so far in creating something people love that they employed addiction researchers and now you’ve got a product that arguably is making the world net worse off.)
One of my favorite illustrations of how you can use PEVC is the work done by N.W. Ayer for the De Beers corporation.
You see, De Beers controlled the world’s rough supply in diamonds. It’s hard to wrap your head around the monopoly they had.
But it was so strong that the mere presence of its representatives in the US violated the law.
But in the ‘30s, the Great Depression had caused diamond prices to plummet around the world and consumer interest had all but vanished.
Diamonds were hardly selling resulting in De Beers sitting on reserve stock they couldn’t move.
Now you could (foolishly) try to solve this by using TEVC to find a way to make diamonds even better or produce them cheaper.
(But like we’ve discussed before in The Slaying Of A Beautiful Hypothesis By An Ugly Fact: If objective reality is already vastly superior to perception, improve perception NOT objective reality.)
Because (at the time) diamonds weren’t man-made, they obviously went straight to PEVC.
So De Beers hired ad agency N.W. Ayer to inquire whether various forms of propaganda could boost diamond sales.
Now because of antitrust laws, they couldn’t do any direct response marketing, branding or advertising of their brand. *1 (Not that laws often stopped De Beers from illegal business practices.)
So, N.W. Ayer’s plan was to “create a situation where almost every person pledging marriage feels compelled to acquire a diamond engagement ring.”
They would create demand and De Beers would artificially constrain the supply driving up prices by fake scarcity. (Diamonds are one of the least rare gemstones.)
You’ve probably heard the phrase “A Diamond Is Forever” coined by Frances Gerety.
But in the late 80s, women considered engagement rings “money down the drain” according to N.W. Ayer’s market research and wanted men to spend it on a washing machine or other practical things.
They started by lending diamonds to celebrities which increased sales to 55% in 2 years, they made the engagement ring synonymous with a declaration of love and they created the norm that a ring should equal at least 2 month’s salary.
They included a “how to buy a diamond” (4 C’s: clarity, color, cut, carat.) box in every ad, to influence people to buy smaller diamonds as well because people had been trained that bigger = better, and De Beers had loads of small diamonds they wanted to sell.
They also tried to get men to wear diamond rings but those ad campaigns weren’t successful.
All in all, they were extremely successful to the point where people now feel you’re not engaged without a diamond ring.
In Japan, a country where there was no such tradition either, they went from 5% market share to 70% in a little over a decade.
An incredible story of PEVC. If you’re interested in more, this is a good read.
Lieff Cabraser Heimann & Bernstein, LLP. (2008). Antitrust & Intellectual Property, De Beers Diamonds. Retrieved from: https://www.lieffcabraser.com/antitrust/de-beers-diamonds/
Bergenstock, Donna J., and James M. Maskulka. (2001). The De Beers Story: Are Diamonds Forever? . Business Horizons 44.3 : 37–44. Retrieved from: http://sal.muhlenberg.edu:8080/librarydspace/bitstream/10718/217/3/bergenstock_2001.pdf