The Why #10: Why do people pay so much for diamonds?
Question submitted by Jeremy, Kooyong
Some people spend big on diamonds because they run manufacturing businesses that need to cut very hard materials with high degrees of precision. Other people spend big on diamonds because they’re batshit crazy.
That’s right Jeremy, just as you suspected, shelling out thousands of dollars for small pieces of rock makes absolutely no sense at all.
Of course, that’s not to take anything away from some of the greatest ‘demand generating’ advertising ever produced in the last 100 years. Back in the 1940’s, we were thoroughly and simultaneously convinced that diamonds were both a girl’s best friend, and ‘forever’, making them the only appropriate gift to represent our undying love.
However, as widespread and effective as these campaigns were, they’re only half the story behind our willingness to cough up big for carats.
You see, sky high demand is a great place to start, but to truly push prices beyond the stratosphere, we need limited supply to match. ‘How limited?’ I hear you ask.
Hold my coat…
Scarcity Bias
The Scarcity Bias is what causes us to assume that something is more valuable, simply because it’s in short supply, high demand, or only available within a limited timeframe.
The bias has been demonstrated in a wide range of experiments, the most delicious of which was conducted by Warchel et al. in 1975. The experiment saw 200 undergrad students taste and rate cookies that they believed were either in limited or abundant supply. Cookies believed to be in limited supply were rated as significantly more likeable and attractive than those believed to be in abundance. More strikingly, participants were willing to pay 11% more for the cookies they believed were ‘in short supply’.
Short supply is sometimes the result of a natural limitation (eg there can really only be one ‘top floor’ in an apartment building or one front row at a concert), but more often than not, scarcity is the result of an artificial constraint (eg Nike deciding to only produce 150 pairs of ‘Pigeon Dunks’, resulting in camp outs, riots and 4,000% mark ups on eBay).
When it comes to artificially limiting supply, nobody does it better than De Beers, the international corporation that effectively created and controls the global diamond market. Over the last 130 years, De Beers managed to extract or buy the majority of the world’s diamonds, which are stockpiled in heavily guarded vaults.
From here, the company released just enough diamonds to meet demand each year, ensuring there’s almost never a surplus, keeping prices sky high. The ‘diamonds are forever’ line has also done a wonderful job of keeping pesky second hand diamonds off the market too.
For brands dealing with products in rare supply, look for tactful ways to play up the exclusivity and pride of ownership, knowing we’re always craving what we’re told we can’t have. If you’re dealing in a category of abundance, consider ways of reframing your offering to be more scarce, more limited and more ‘diamond’ than ‘rock’.
Behaviourally Yours,
