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Year of reusable value

In times of economic fluctuation, an item’s non-tangible attributes such as quality and design become as important as tangible attributes like gold and diamonds. ANDREW COCHINEAS explains.

Well, 2009 was certainly an unusual year. It started with a “GFC” that is now, apparently, “all but over”; it began with “record low” interest rates and finished with successive rate rises; housing prices plummeted to five-year lows in March 2010, but already they’re almost back to where they were before we even knew what a global financial crisis was.

Inevitably, the question begs: “What does all this mean for Australian jewellers in 2010?”

First, let’s talk economics. An economic rationalist would argue people buy jewellery based on rational economic decisions. On that basis, 2010 doesn’t look so promising for Australian jewellers – but is it really correct to apply traditional economic theories to the jewellery industry?

I would strongly argue that it is not and that a more appropriate analytical tool is behavioural economics that studies the ways in which people’s emotions influence their economic decisions.

From a behavioural economist’s perspective, whether the GFC is over and whether rising interest rates will have a negative effect on jewellery sales ignores the impact of the most important factor that drives jewellery sales – people.

Why do your customers buy jewellery? The answer lies in how jewellery makes you feel. Just like chocolate, flowers and lipstick, jewellery makes people feel good, but jewellery has something extra – inherent “reusable value”.

Reusable value is not just the value of the precious metal and stones in your jewellery; people aren’t just buying gold and a few bits of crystallised carbon when they buy your product – although these are highly-important factors.

It is the ongoing value of all of the piece’s attributes together – it is the design, as much as the gold or silver; the branding, as much as the gemstones; the labour and craftsmanship as much as the sum of all the piece’s materials. 

All of these attributes elevate the value of an item of jewellery beyond its basic manufacturing cost, and all of these attributes play a large role in the desirability shown by consumers for jewellery.

Furthermore, the importance of “reusable value” is the same for someone buying a $100 ring as it is for the client who buys an elaborate fancy pink diamond necklace.

In serving a considerable portion of the Australian jewellery trade, we have noticed that the most successful jewellers have one thing in common – they all communicate to their clients the “reusable value” of their jewellery.

They also do something else – they recognise that because of human nature the concept of “reusable value” changes with the environment that people live in. As a consequence, our most successful clients mould the concept of “reusable value” to suit changing economic circumstances.

When the stock market is roaring and the equity in people’s homes is soaring, canny jewellers understand that “reusable value” to most people means “big, expensive bling” and their jewellery collections and branding reflect that – just think of all the pavé diamond jewellery sold 24 months ago!

What history tells us is that “reusable value” in a slightly less-optimistic economic environment means placing an emphasis on the item’s quality and solidity.

Interestingly, our most successful clients have actually increased their sales in the last 12 months because they have recognised that today, “reusable value” is influenced more by the quality of their designs, and less by the rising (and falling) cost of raw materials like precious metals and gemstones.

There is no crystal ball that can prepare us for 2010; however, what we do know is who has been successful in the past and why.

The worst thing jewellery retailers can do is to stop offering product because of a fear of the future. This year is going to be one in which quality becomes a much more influential attribute of an item’s “reusable value”.

Whether you’re selling sterling silver friendship rings or fancy diamond-set pieces, our experience indicates that the Australian jewellery market has moved away from mass market to “masstige” – making people in every level of the market remember that jewellery is an emotional purchase where quality of product and brand is more important than mere price.

If retailers do that, thier success in 2010 is virtually guaranteed.

 


Name: Andrew Cochineas
Business: Palloys Group (Palloys, AGS Metals, Regentco, Goldenage International Limited)
Position: Managing Director
Qualifications: BA/LLB (Hons), Grad Dip. Fin. Applied Finance & Investment (SIA)
Years in Industry: 15


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