Every single day, your jewellery store is the stage for a high-stakes game.
Imagine this: a customer walks into your store and tries on a $3,000 diamond ring. She thanks you for your time, says she’ll think about it, and leaves.
You bid her farewell and start wondering what to do next. Should you call tomorrow to follow up? Offer a discount? Or leave her alone and let her return when she’s ready?
Meanwhile, as the door closes behind her, the customer is making her own calculations. Was that the right ring? Was it the right price? Should I look elsewhere? Do I really need that ring?
In those moments, neither of you is thinking about ‘game theory’; however, that’s essentially what is happening. Two parties are making decisions while anticipating the actions of the other.
So, with that in mind, would your business benefit from learning some basic principles of game theory? You don’t need a degree in mathematics or economics. It might simply be a matter of learning to recognise the games you’re already playing.
After all, I’m sure you’d agree that in any game, the first step towards winning is understanding the rules.
The nerdy explanation is that game theory is the study of mathematical models of strategic interaction. Put simply, it is the science of making decisions when the outcome is partly determined by somebody else’s actions. That makes it surprisingly relevant to jewellery retail.
Whether your business makes a profit is not determined solely by your own decisions. It also depends on how well you anticipate and respond to the actions of your staff, customers, suppliers and competitors. You’re already playing the game!
Perhaps the most useful lesson game theory can teach is that the correct decision isn’t always the action that looks best in isolation.
One of the most interesting concepts to start with is the Nash Equilibrium, named after mathematician John Nash Jr, who was the subject of the film A Beautiful Mind (2001), starring Russell Crowe.
It’s a profoundly mediocre film. If you haven't seen it already, I wouldn’t bother!
The Nash Equilibrium describes a situation where no player has an incentive to change their strategy because, given what everyone else is doing, their current strategy is their best available option.
Variations of this concept help explain why petrol stations and fast-food outlets often cluster together at airports and along highways. Conventional wisdom would suggest that placing a store farther from direct competitors would be better for business – but that’s not what happens in these locations.
Of course, we see the same pattern with jewellery stores in metropolitan shopping centres. Competing retailers benefit from the higher combined foot traffic these locations attract. The obvious action – geographical isolation – is not the right play.
There are also more practical applications. Consider a medium-sized city with five jewellery retailers. Every store opens
at 9 am and closes at 6 pm.
Nobody particularly benefits from this arrangement; however, they all continue doing it because if one retailer closes while the others remain open, it risks losing a sale.
That’s an equilibrium. No individual player has an obvious incentive to change because of the actions of the other players.
So, how many things does your store do because they genuinely drive profitability? And how many things does it do simply because that’s how jewellery stores are expected to operate?
It could be anything: trading hours, window displays, discounting, marketing, or layout.
The correct decision isn’t always the action that looks best in isolation. Sometimes competitive advantage isn’t found in doing something everyone else is doing ‘better’. It can come from being the first to stop doing something that everyone else does.
Another set of principles worth learning are those of the ‘repeated game’.
In this concept, the same players complete multiple games sequentially. As a result, reputation begins to influence future actions.
Over the past two decades, professional poker has become obsessed with game theory. At the highest stakes, the pool of players with millions of dollars to wager, week after week, month after month, is relatively small. These players can spend thousands of hours seated at the same table.
Players adapt their strategies, and sometimes even entirely randomise their play, based not only on the cards in front of them, but on what their opponents have done in these situations in the past. Predictability in poker is death.
The principles behind repeated games also apply to jewellery retail. Consider a customer who has never visited your store before, shopping for an engagement ring. That first purchase is one game. Depending on how you handle that game, it could lead to a dozen more: wedding bands, anniversary jewellery, birthday gifts, repairs, or remodelling.
The smartest retailers aren’t just playing to win today’s sale. They’re playing to ensure there are more games to come. Loyalty programs, after-sales service, and relationship management software aren’t nice-to-haves. They are strategies for a repeated game.
Once you view the relationship this way, the optimal strategy changes. A retailer might sacrifice some profit on the first encounter if doing so increases the likelihood of profitable transactions over the next 30 years.
That doesn’t mean giving everything away or blindly discounting. It means recognising the relationship's lifetime value and making decisions accordingly.
And that brings us back to the customer with the $3,000 diamond ring. Should you call her tomorrow? Should you offer a discount? Should you leave her alone?
There is no universal answer. The point is that the best decision depends on what you believe she will do next — and what you want her to do after that.
More importantly, the most successful jewellers aren’t necessarily the retailers who win the most one-off games.
They’re the ones who convince their customers to keep playing.
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