Three Rules for Selling to the Internet Shopper

Paradigm shifts, bubble economies, the next new things: They come fast and furious in the 21st century. In good old-fashioned downturns, they can leave you feeling left out.

Take that ubiquitous piece of paper in the hands of every third diamond customer entering your store. Margins, year-to-year

numbers, stock-turns, and foot traffic are down year-to-year, diamonds, metals, and inventory are way up, and across the counter is a 24-year-old fiance who grew up on-line, wondering why you can't show him that $5,000 1 carat GVS he's seen on the Internet.

Relax. Human nature has its own, intractable rules. Even in our global and cyber age, answers to difficult questions still come, often as not, from within, and usually begin with a few good questions--and rules--of your own.

RULE NUMBER 1: IDENTIFY THE SHOPPER

"When I see that piece of paper, my first question is: Is this my customer, or Wal-Mart's?" says David Nygaard, the highly proactive Virginia jeweler who recently expanded to a seventh door amid the current downturn. "I am a specialty jeweler, and the numbers show that 50 percent of jewelry purchases are at specialty jewelers, the other half is everything from QVC to the big boxes. Yes, this guy has surfed the Internet, but that doesn't make him one or the other, or answer my question. I need more information. So I ask a second question--of myself, and perhaps, of the gentleman. When he was Googling, or got to Blue Nile, and came to 'sort by,' which button did he hit? Given the blind nature of the purchase--and if anything, I think the Internet's added blindness to the diamond sale--I'd guess that 99 percent of the time he sorted by price, first."

And maybe last too? I ask. Net surfing tends to be a passive, more-the-merrier endeavor, rarely leading to analysis or depth, like watching TV with a mouse.

"Very often, that is the case," says Nygaard. "Which means I can jump through hoops and hurdles, or simply accept that I have a price shopper in my store. This price shopper, however, has a piece of paper in his hands that says $5,000--and I could care less if it's GVS or CVS--that paper is telling me his budget. Well, as fate would have it, I carry $5,000 diamonds. In fact, our average diamond engagement ring is $6,200, so with mountings, appraisal, etc., he's in my ballpark."

But not GVS at $5,000? "And that's his first question: 'What about these diamonds? They're GVS.'"

And your response? "Again, a question of my own: Have you ever looked at diamonds? 'Sure, I've seen these.' Nope, those aren't diamonds. They're pieces of paper. These are diamonds. Out they come, and now we're into beauty. This one has excellent polish, particularly on the girdle--now I'm into cut, if that's the way this sale should go. Do you see how it gives the illusion of better color? It's an H, and you might or might not see the difference between that and the G you're looking for, pavilion up--and now we're into the grading process, and I can go as far down that road as seems fitting. How often is she going to be looking at her diamond pavilion up?"

Nygaard continues, "Now I've used the words 'she' and 'her,' and while the door's open for what should be the topic of romance, it'll have to be him that tells me when that time has come. This is SI, not the VS on your paper, but again, look at the girdle, where the SI is. The prongs will cover that. And on we go."

So it all lies in a live presentation of the 4C's? "Elsewhere it might, but not here. David Nygaard Jewelers is a personality-driven brand in our communities. My local involvement, on a variety of levels, is very high, and part of the reason I've dropped a few national brands and moved so strongly into private labeling. It also leaves me freer to price shop my diamonds, and if the Internet hasn't made you, as a jeweler, a better shopper of diamonds rather than paper, than you're losing that battle, because they don't sell diamonds on the Internet. They sell paper. Nothing wrong with it. I support the customers' right to shop how they want to, and that includes myself. I have at least three current sources for every category."

And if the customer keeps coming back to GVS? "And he will. A great example was a 28-year-old accountant, price shopping a 1 carat GVS2 emerald for the engagement ring. As is often the case, given our standing in the community, he was a friend of the family. As is equally often the case, he was armed to the teeth, not just with price lists but with certs. Five, in this case--remember, he's an accountant--at a $2,400 to $5,800 price range. Right off, I loved that range. I had a $4,000 stone, which was right in the middle. But that range also opened the door to cut. Why else so large? I said, 'If you're shopping for a car, or a cruise, or a plasma TV, and come across a price range of 140 percent, wouldn't that tell you something about the vendor. Listen, you're a friend of the family, so I'm going to steer you this way.'"

Nygaard adds, "As I showed him diamonds, I could see him coming off sort by price, but I also saw that he didn't really know where to land next, and that it probably wasn't going to be the beauty of cut. It was an emerald, for one thing, and I could see that the romance wasn't in the stone itself. This was a guy who was genuinely very happy to be getting married. That's aspirational, and that equals added value. He didn't really want a diamond, or even a diamond ring. He just wanted to be happily engaged, and what he was really looking for--and what he'd never find on-line--was permission, which comes with a feeling of safety."

So $4,000 was your price? You didn't discount? "And a good margin too--our average is 2.15. We always sell at our price. You'll hear retailers talking about ceilings for the Internet shopper, capping margins at 50 percent. It's a myth, I can guarantee you--unless, of course, you happen to be stuck at 50 percent, because that's his price, your margin, and the current state of the market, all factors out of your control. If so, you might be back to the first question. Is he my customer, or Wal-Mart's? Just don't be in a rush to answer. Maybe today's job is just to help the accountant get in touch with his feelings."

RULE NUMBER 2: NEVER DROP YOUR PANTS IN PUBLIC

"The question in my mind for the price shopper with the Internet certs and price lists is a simple one: What is price?" says Mark Coleman of Towson, Maryland's Nelson Coleman Jewelers. "Since 1856," the store logo reads, "The Authority on Diamonds."

"I know my answer because we buy by price ourselves, especially with jewelry. We have price category A, B, C, and D, and you should see us in Vegas with our price lists, though of course it's all in our heads. So I suppose my question is, what does price mean to this customer, because it's not the same every time. Is it budget, is it protection on a blind purchase, is it a goal, to win a competition with an expert, or is it his nature, to be forearmed and forewarned? His price could mean any of the above, or something else altogether, and I may well never learn it--on this first sale. And I certainly never will, if I drop my pants and fight a piece of paper in my own store."

Coleman adds, "We do our homework here, and have learned that 7 of 8 people who buy from us do so because of a relationship, and that's as blue ocean as it gets. Drop your pants, and you're in a red ocean by yourself, because that customer will not be swimming back to you--you've made the sale but lost his respect--or if he does, you're in for an even worse price fight."

So what's your answer to Mr. GVS $5,000? "Wish I could tell you, different every time, because then I'd be a great jeweler. I'm afraid I have a stock phrase that works well enough: That's a fine piece of paper, and I can see you've been through drivers ed. Now let's go out for a drive."

Cute. "I'd give it cute-plus, actually: What's the most important thing to know about that guy with the paper in your store? That he has the paper? No. It's that he's in your store. Is he price shopping, whatever that may mean to him? Maybe. But it also tells me he's not ready to buy on the Internet. In fact, his presence in my store may well mean that he never will. I personally believe that the average Internet diamond buyer is a lower market shopper--think Sam's Club--buying without any guidance from a professional, without lasting warranties, guarantees, appraised value, everything from setting to gift wrapping. Who spends four figures that way?"

Could you take me on a test drive? "I have a perfect one in mind, because it illustrates what I feel is the great brick-and-mortar dilemma versus the Internet, and it's not price, after all. Again, it goes to a simple question: What was that customer trying to accomplish on the Net? At whatever level, he was trying to educate himself. On the test drive, the education will accelerate, and he will leave my store with what he needs to know. But he may well just disappear, and there's not a thing I can do about that. You're not going to win them all."

Isn't that true of any brick-and-mortar customer? "Sure, but more so with the Net shopper, I'm finding. He's not just shopping, he's learning, and those are very different things, maybe even at times antithetical. Learning is in the head, but as any jeweler will tell you, it's not logic that pulls the trigger. It's either going to be the wallet--the worst-case scenario--or it's going to be an emotional thing."

Coleman continues, "This gentleman was under 30, not by much, getting married, first diamond. He spent a while in the store, then vanished. Three weeks later he's back, but now with certs and with a price list that I hadn't seen before, from USAA, an insurance company for the military. Great, now I'm fighting the Internet and the U.S. Armed Forces. 'I got this from my brother who's in the military,' he says. 'This is my price for a 3/4 carat GVS.'"

Sounds firm. "Yes and no. Look, we're big into branding--Hearts On Fire, Isee2, South African Diamonds from S.A. Gems--so I had any number of stories to tell him. But that firmness, yes, did mean wrong time for stories. He was wedded to that paper. I had a 3/4 carat GVS that I knew was a better stone, but also $1,000 more. So OK, he's firm, but to me that just meant it was mano-a-mano time, gloves off, with a difference. This was his second time in: I'd become his diamond consultant. I just flat out asked him, you tell me what those numbers mean. And we talked about every number, except one. Price isn't on the cert. At the end, and you could see it happen, it was emotion that pulled the trigger. I simply couldn't achieve that premium without it. But I didn't sell him emotion. After all, he's getting married, and that's emotional enough. I just had to be the guy who took him through the numbers."

Did you hit your number? "At the risk of being red-faced, yes and no. He did spend $1,000 more than his cert, but we threw in the mounting and appraisal. All told, he went $650 above budget."

So, no pants down, but maybe the fly a little open? "Cute. But in my defense, when I said we'll throw in the mounting and appraisal, I didn't linger on it. It wasn't while writing the slip but it was close enough, and it made him see, after the fact, not as a haggle, that he was getting a premium jeweler's service."

For free? "You tell me. He and the fiancee were in three weeks later for the wedding rings, and they were full-priced, no questions asked."

RULE NUMBER 3: STOP BEING AFRAID

Stop being afraid of the Internet, and of losing that sale to the Internet. Both Bill Sites, of Tennessee's two-door Sites Jewelers, and Bruce Owen, of Amerigem Diamonds in Urbandale, Iowa, have come to see the Net as their tool every bit as much as the price shopper's.

Owen, who runs a custom-driven, by-appointment shop, began his jewelry career both on the bench and behind the counter, never shaking the feeling of being somewhat mystified with each new customer. Now, there's a place he can go to learn both the state of the market and expectations he'll have to address. Clients are consulted in a handsome, highly computerized suite, and if need be, Owen and the client will surf to whatever site created the diamond expectation.

Sites, a more traditional brick-and-mortar gentleman, says he's "really learned to enjoy that paper. It means they've done their homework, or tried to, and are at least aware there are 4C's. As an AGS door, I couldn't be happier about that."

"So my first question is likely to be," says Sites, "Have you talked to anybody about diamonds, or have you learned all that just on the Net? I'll probably say, you've likely seen the name AGS on some of those lists and certs, let me tell you all about them--and now we're into protecting the customer, something the Net will clearly never offer, and about diamond beauty, something the customer probably hadn't considered on-line. Aren't all diamonds beautiful?"

Sites adds, "On the subject of color, maybe I'll ask, did you learn all about how there's a much smaller range in D-F diamonds than J-K? Or, for clarity, about the tighter range between VS and VVS than the Sis, etc. Of course, that opens the door to what they felt was going to be the discussion coming in: price. But I'm opening the back door. I don't talk price, I talk about beauty, clarity, color, and rarity, which are the true determinants of price."

"When I see that paper," says Owen, "I just remind myself they've used the Net as a tool to research, to satisfy themselves, but at the end of the day, to keep us retailers in line. At the same time, however, I appreciate that people love to surf, that the privacy of surfing makes it very personal, and that the sheer time spent--how many times have you gone on-line and then looked up at all the hours that have passed--has forever changed the way people shop for diamonds. The day when they'd go downtown, visit an expert, and see the difference between diamonds is coming to an end, if it hasn't already, and I don't think it's a secret that sometimes we are selling the same diamonds they're seeing on-line. Jewelers willing to work lean, or who're simply so inventoried they have to now and again, have experienced the pleasure of that sale. Any jeweler who does it regularly, however, better have a patient vendor, a cheap place to advertise, and a lot of foot traffic. The one sale customer is a one way ticket out of business."

At the beginning of the 2007 season, Sites had the pleasure of quite the opposite sale. "A young man, college grad, professional career, all grown up on the Net, and now getting married. He'd gone on-line and bought the bridal diamond, a three-grain round, G/H VS2, or so the cert said. I haven't seen a whole lot of Internet stones, but I imagine they're of this type: High marks, little life, not worth the price. I suppose this fellow had begun to suspect something, because he really wanted to know what I thought of his diamond."

And you told him? "Heck no. I had a number of 75 pointers, some VS, some SI, some G/H, but also a few well-picked J colors. We went in the case and picked out a few triple ideals and started looking at diamonds together. Me, of course, directing the viewing just a tad. I'll never forget the look on his face and his comment, because it was a true eureka moment: 'Now I understand.' He'd really been trying to, on the Net, but of course, he couldn't."

What was the premium for the triple zero? "Not insignificant. I'd say about $1,000," says Sites.

And that's what he paid? "Well, we appraised it--$85--and set it in that Ritani setting that's similar to a trellis, simple but not inexpensive--and we waived that too, about $150 for the mounting and setting process. I've even had a few Internet-type sales where we did the same with a Scott Kay setting, now that he's moved so strongly into palladium. Normally, in a pure brick-and-mortar, I would've charged that $235 total, but the fact remains that it was a $3,800 sale, and yes, he was back a few weeks ago for the wedding bands."

"My story," says Owen, "doesn't have quite the happy ending, and I'm choosing it simply because I think it's more illustrative of what you might run up against. It was an existing client, who'd bought a 1 carat custom bracelet a few years back and was ready to make the big diamond purchase. Apparently, a bit more than the husband. We're talking big flash on a budget."

Owen continues, "Her cert was a challenging one, a 'branded' diamond from a web site promoting trademarked 'Premier' diamonds. Clearly, she'd taken her time. Hers was a competitively priced KSI1 3.01carat at $19,000. I could tell her, look at that carat weight. The cutter did whatever it took to reach the full three carats, and naturally that affects beauty. But--and this is where we get into the real difficulty the Internet is posing--it was a GIA double-excellent, 61 table, 59 depth. I'm going to argue with that?"

So how did it turn out? "We're still searching for the right diamond. I knew she was coming in, so I'd had some three caraters overnighted. I showed her K colors, and we all know some Ks can be beautiful. But at that size, she began to think maybe she wanted a bit whiter. Again, with SI1s, at that size she saw that slightly included was maybe not so slight. So we're at JSI, and that's $25,000, but she's still wedded to under $20,000. I'd also gotten in some SI2s and I colors, and she wouldn't have any part of it. I had an EGL J color, but she was GIA or the highway. I'm certain she's out shopping me as we speak, and that if I do make the sale, that she'll be shopping me the rest of her natural life. Just no longer on-line. As her diamond consultant, I taught her at least that much."

What if you sent that EGL J to GIA? "I thought about it. It was on seven-day terms, for one thing, and it made me realize, when I thought of the cost of sending it in: I'll make more selling someone else a really good 1 carat than this 3 carat. Prices at those sizes are so out of line now. I guess it's time to go out bottom-fishing again, like we all hate to do. Hey, times are hard. I'm down year-to-year, and last year was down from the previous too. I have a GG coming in to interview later this week, a guy who turned down a $40,000 per year offer last year and now wants to talk, and I'm afraid I'm going to have some bad news for him."

"Notwithstanding all the above," says Owen, "and I'm saying this not out of annoyance with a difficult client but from pure dollars and cents, bottom line business acumen: I'm about 95 percent I'm going to fire this client and save the fishing trip."

I know Owen and I'm surprised to hear it. He's a gentle but competitive jeweler, who'd normally see this Internet price shopper as a challenge. "In a way," he explains, "I think I have won. Maybe the battle, not the war, but not for want of trying. My job with this woman wasn't to fight the Internet or even to sell her a stone. I'm a premium jeweler, and my job is to prove that. I think I did prove that to her, but if I'm still being shopped, then pure logic dictates that, even in this downturn, it's still OK to fire a client."

I ask Owen to explain that logic. The absence of rancor in his voice tells me all I need to know about the Internet price shopper.

"If I drop my margins to accommodate her shopping strategy, I'm not lowering my price. I'm lowering my value. This lady bought from me before, and now she's back for the big diamond purchase, but she's probably not my customer. When everything is said and done, I may have actually done her a disservice getting her off-line. She won't find the stone she's looking for at retail. Even the big boxes that carry multi-caraters will not show it to her. She's a smart, educated woman who sees the difference, but is wedded to price. She's stuck in that big flash/low cash box. Well, there's a place for that now, and it's an amazing place that you and I both go to many times a day. Not that great a place to buy diamonds, though, if you ask me."

http://contracts.cygnuspub.com/IvanSolotaroff_MRI0_W-Y_L-Y_R-Y.asp