Blue Nile sent out a press release this week touting a new survey on diamond prices. At first, I dismissed it as just a sales pitch (which, to be fair, most press releases are). But when you strip away the hype, it does have some numbers worth unpacking. 

According to the release, researchers called 33 jewelers in 11 cities about the price of a GIA-graded 1 ct., ideal cut, VS2 clarity, H color round in a platinum six-prong setting. Compared to Blue Nile, prices were:

72 percent [higher] at a leading luxury jewelry chain, 40 percent [higher] at traditional mall-based jewelers, and 18 percent [higher] at independent local jewelers.

Source: Blue Nile

There will always be issues doing apples-to-apples comparisons with jewelry, and brick-and-mortar stores will argue their premium is justified by the amenities offered (service, etc.). But for the moment, let’s focus on the numbers.

According to this survey, independent jewelers—Blue Nile’s chief target over the years, and the segment that has borne the brunt of its success—are charging prices closest to the e-tailer. The graphic below shows an average $1,300 difference for the ring in question, and it’s not clear if the listed price includes sales tax (which buyers technically owe, even if few ever pay):

 

Source: Blue Nile

That diverges from many sectors, where independents typically charge higher prices than mass merchants. That is how Wal-Mart drove many local shops out of business. (Employees would allegedly chant: “Stack it deep, sell it cheap, stack it high, and watch it fly! Hear those downtown merchants cry!”) It is also what customers expect: When asked which has the lowest prices on diamonds, 38 percent of survey respondents answered mall-based jewelers and 28 percent answered independents. And yet, in jewelry, that doesn’t seem to be true. 

I have a few theories about this. The first is that mom-and-pop jewelers have had to become more flexible in the face of comparison-shopping customers. Buyers may even find it easier to demand discounts from a store owner than from a clerk at a national chain.

The second is the power of branding. Not only do big mall jewelers spend millions on advertising, but they often sell proprietary products that have higher margins. (That is why the Blue Nile is developing its own.) The “leading luxury jewelry chain”—which I originally assumed that was Tiffany, but that company doesn’t offer stones with GIA reports—offers the prestige that comes with its name.

And that matters. According to the survey, 51 percent of consumers believe the “leading luxury jewelry chain” stocks the best-quality diamonds, followed by mall-based jewelers (25 percent) and independents (19 percent).

What’s interesting here is how the premium is closely correlated to the perception of quality and likely vice versa. The luxury chain is believed to have the best quality; it charges the highest margin. Mall jewelers are in the mid-range of both measures, then come independents, and then, one assumes, e-tail.

Blue Nile’s release calls that inaccurate, arguing all those jewelers are selling essentially the same thing. JCK readers might dispute that, but it also speaks to a failure of Blue Nile’s marketing, as well as that of many independents. Their communications rarely cover the quality or beauty of their products or how happy someone will be when she opens the box. They mostly talk about price. That likely plays into consumer perception. When you only discuss your lower prices, it’s not surprising for people to assume that you have lower-quality stuff.

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