M.A.P.S. Marketing and Research, Inc.

"Charting your course for a successful future"

 

 

 

Consumer Marketing

 

 

 

Instructor: Dr. Sandeep Krishnamurthy

 

 

 

July 28, 1997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gem Project Phase I - Revised

 

 

 

INTRODUCTION

 

 

 

 

Fabulous rubies, brilliant diamonds, huge emeralds, and other gems bring to mind images of beauty and great riches. Gemstones have long fascinated the human population. They have inspired myths, curses, and have even been used as medicine. All the gemstones we so greatly treasure and admire come from various depths and locations in the earthís crust. In short, we will attempt to explain how they are formed and where they are found. Of particular interest is the ancient history of the colored gemstones and the difficulty in establishing guidelines in the market place. Since a large part of the value of a fine gem lies in its scarcity as a rare natural object, people are sometimes skeptical of jewelers for the fear of purchasing a laboratory product. It is this reasoning that creates such a complex industry.

 

The overall mission of this project is to gain a better understanding to the challenges in marketing colored gemstones. This understanding will be primarily obtained from interactions with both jewelers and industry experts. Another key focus will be on procuring insights and attitudes of customers towards gemstones. This will, of course, include identifying barriers that preclude consumers from purchasing gems as part of their jewelry collection. Finally, a suitable promotional campaign will be prepared for colored gemstones in an effort to increase their retail appeal.

 

 

 

 

ANCIENT HISTORY OF THE GEMSTONE

 

 

 

 

Treasured Gems

People have treasured gems for many reasons throughout history. Some of these reasons include the use of gems as beautiful decorative ornaments, religious symbols, and amulets and good-luck charms. Gems have also been used for barter and medicinal purposes. Gems have even been used as investments by some people. For others, gems have been used to display wealth, status, and power.

 

In centuries past, royalty often owned the finest gems. Some of these gems still exist, and their histories are a fascinating mix of fact and legend. Take, for example, the Black Princeís Ruby and the Timur Ruby. Both are set in the Imperial Crown of the British crown jewels.

 

In 1367, Englandís Prince Edward, who was known as the Black Prince, helped a Spanish king win a battle. The grateful king gave him a dark red, irregular gemstone. Legend says King Henry V wore the gem in his helmet crown, and that it saved his life by deflecting a blow in the Battle of Agincourt in 1415.

 

The 361-carat Timur Ruby is another striking dark red gem. It was among the treasures brought from India to England in 1850. In the 1300ís, the gem belonged to Timur Lenk and took his name. He is better known in history as Tamerlane, the Islamic conqueror of much of central Asia and eastern Europe. Names and dates carved on the gem show that it later belonged to five Indian rulers. One of them was Shah Jehan, builder of the Taj Mahal.

 

 

Gem Lore

Gem lore is full of stories of gemstones with magic and symbolic properties. Ancient peoples believed that certain gems would protect them from misfortune, illness, and unhappiness. The list of gem-related superstitions is long and sometimes contradictory. Opal, for instance, was thought by some to bring bad luck, while others cherished it as a symbol of hope.

 

In Europe during the Middle Ages, and even more recently in India, pharmacists sold powdered gems as medicine. They were typically to be taken with water or herbal tea. The most expensive gemstones were thought to have the greatest curative powers. Red gems were supposed to help stop bleeding. Green ones were supposed to help the eyes, because green is a restful color. Yellow stones were believed to cure jaundice.

 

The number twelve is common in gem lore. Twelve gems that represented the twelve tribes of Israel were set in the breastplate of Aaron, the first high priest of the Hebrews. Among Christians, symbolic gems represented the twelve apostles.

 

The Twelve Tribes The Twelve Apostles

Levi, garnet Peter, jasper

Zebulon, diamond Andrew, sapphire

Gad, amethyst James, chalcedony

Benjamin, jasper John, emerald

Simeon, chrysolite Philip, sardonyx

Issachar, sapphire Bartholomew, sard

Naphtali, agate Matthew, chrysolite

Joseph, onyx Thomas, beryl

Reuben, sard James the Less, topaz

Judah, emerald Judy, chrysolprase

Dan, topaz Simon, hyacinth

Asher, beryl Judas, amethyst

 

Gems have also inspired many myths. One such example is the legendary creation of the gemstone amethyst. Bacchus, the god of wine and conviviality, was angry because of some slight against him and swore revenge. He announced that the first mortal to come across his path would be eaten by tigers. Just at that moment along came the lovely maiden Amethyst, on her way to worship at the shrine of the goddess Diana. Diana saw what was happening and transformed Amethyst into stone to rescue her from a violent death. When Bacchus viewed the miracle, he repented and poured wine over the stone, staining it purple. In addition, gems have long been associated with the signs of the zodiac and with the sun, moon, and planets.

 

Signs of the Zodiac

Aries the ram, bloodstone

Taurus the bull, sapphire

Gemini the twins, agate

Cancer the crab, emerald

Leo the lion, onyx

Virgo the virgin, carnelian

Libra the scales, chrysolite

Scorpio the scorpion, aquamarine

Sagittarius the archer, topaz

Capricorn the goat, ruby

Aquarius the water bearer, garnet

Pisces the fishes, amethyst

 

Lastly, legend has it that the devil created colored gems. He saw how much people loved colored flowers, so he colored gems to gain power and control over mankind. The facts, however, are less fanciful.

 

 

Contemporary History

Most gemstones are minerals or rocks and occur in favored sites in the earthís crust or in the gravels that result from the weathering of rocks. Of the beautifully crystallized minerals that seem useful for gems, only a very few actually meet the standards, that is, are sufficiently beautiful, durable, rare, and large enough to be cut into salable stones. As a class of natural objects, gemstones are exceedingly rare.

 

About one hundred chemical elements make up the earth. Oxygen and silicon are by far the most plentiful elements in the earthís crust, and they occur in most minerals. In gemstones, they are major ingredients in amethyst, aquamarine, emerald, garnet, peridot, topaz, tourmaline, and zircon. Oxygen is a major ingredient in ruby, sapphire, chrysoberyl, and spinel.

 

As a mineral forms, certain atoms attract each other and arrange themselves in an orderly geometric pattern called the crystal structure. All mineral crystals have their atoms arranged in some combination of fourteen basic patterns.

 

Minerals usually occur as crystalline grains in rocks. Because the grains compete with neighboring ones for very limited space, there usually isnít room for complete crystal shapes to form. Time is another important factor in crystal growth. When molten rock cools quickly, natural glass or tiny crystals form. Slower cooling time gives larger crystals time to grow.

 

Large crystals may form whenever conditions are right. They may grow slowly into open spaces in cracks or hollows in the rocks. Occasionally, nearly perfect crystals are found. A mineralís internal atomic structure determines its distinctive exterior crystal shape. Crystal shape often helps identify and distinguish gem minerals from one another.

 

Today, many gems can be creates in laboratories. Synthetic gems have the same chemical composition and physical properties as naturally formed gemstones. A simulated gem may look like a natural gem, but there the similarity ends.

 

 

 

 

MARKET INFORMATION

 

 

 

 

As with other gems, most precious gemstones are minerals. This mineral, however, is a chemical element or compound that forms in nature and possess a unique internal atomic structure, crystal. Minerals usually form as a result of inorganic processess that occur in rocks. Furthermore, since mineral deposits can be found all over the world, so can the various gemstones.

 

Of some interest is the mining techniques used to procure such brilliant gems. For instance, the mining of opals in Australia is most enlightening. The opal miner there is a strange breed of individual. He chooses to lead a spartan life in a particularly barren and dry corner of the world while he searches for his rainbows. To escape the extreme temperatures, he must burrow a home underground. Since deposits are spead over a wide area, there is little clue to their location. Mining is done on a small scale with hand-operated machinery and small tools. A pocket knife might be the final instrument to loosen an opal from its host rock.

 

Sources of Gemstones

Gemstone

Color

Primary Source

Secondary Source

Aquamarine

blue-green

Brazil

Tanzania, Kenya, Nigeria, Sri Lanka,

Afghanistan, and Russia

Emerald

bright green

Colombia

Russia, Australia, South Africa, Zimbabwe,

Zambia, Tanzania, Norway, and India

Brazil and the United States

Amethyst

deep purple

Brazil, Uruguay

Mexico, the United States, Canada, Japan,

India, Madagascar, Sri Lanka, Africa,

Australia, and China

Garnet

iridescent andradite

Mexico

demantoid

Russia

yellow-green

Mali

spessartite

Namibia

Opal

black

Australia

fire

Mexico

Pearls

iridescent white

Persian Gulf

Sri Lanka, Australia, Japan, Mexico,

Venezuela, and Panama

Peridot

light green

Burma

United States, Norway, Brazil, and Australia

Ruby

deep red

Burma

Cambodia, India, Australia, Africa, and the

dark red to brown-red

Thailand

United States

medium light red

Sri Lanka

Sapphire

cornflower blue

India

Sri Lanka, Burma, Thailand, Australia, Africa,

and the United States

Turquoise

light blue to green-blue

United States

Mexico

to blue-green

 

 

 

MARKETING MIX ANALYSIS

 

 

 

 

The marketing mix of precious stones is widely varied. Gem stones differ vastly from color to size to clarity. In short, no two stones are identical, each is unique and therefore hard to standardize. Following is a summary of the types of products available, issues of pricing, availability at retail, and promotional efforts which support the uniqueness of these colored stones.

 

 

Product

To be considered a gemstone, a material must be attractive enough to be used for personal adornment. Usually the term refers to minerals that have been cut and polished. Beauty is the common quality all gemstones share. Images of perfection, wealth, and status also surround gemstones. Some of the most precious colored gems are ruby, emerald, and sapphire. These stones as well as numerous others, such as aquamarine, amethyst, garnet, opal, peridot, and turquoise, are found all over the world.

 

Ruby and sapphire are gem varieties of the mineral corundum. Pure corundum is colorless aluminum oxide. It is widespread in small amounts in metamorphic rocks. Its gems are among the most durable and can be safely worn in rings. Because corundum is denser than diamond, a one-carat sapphire or ruby will be smaller than a one-carat diamond. Red corundum, ruby is one of the rarest and most costly gemstones. The most highly prized shade is an intense red called pigeonís blood. A bit of chromium substituting for the aluminum in the crystal structure colors ruby red. All other colors of gem corundum are called sapphire.

 

Emerald and aquamarine are gem varieties of the mineral beryl. Beryl is beryllium aluminum silicate. It is a major source of beryllium, a lightweight metal similar to aluminum. Beryl usually occurs in granitic rocks. Green gem beryl, or emerald, usually contain inclusions and fractures that make them somewhat fragile. They should be mounted and worn with care. Jewels are most often cut in a characteristic step-cut rectangle or square. The cut best displays the gemís color and is called the emerald cut. A trace of iron in pure beryl creates shades of blue ranging from pale to deep blue or blue-green. Much aquamarine is produced today by heating greenish-blue beryl which causes a permanent color change to a shade of blue.

 

Amethyst is the most precious variety of quartz, a combination of silicon and oxygen. The color of amethyst ranges form almost colorless to deep purple. A trace of iron and natural long-term, low-level radiation cause the color. The chemical composition of quartz and opal differs by one ingredient, water. This unique structure gives rise to opalís play of color. The arrangement of silicon and oxygen affects the way opal transmits light. When white light hits the particles and the spaces between them, it separates into wavelengths of different colors or flashes of rainbow hues.

 

Jade has been an important gemstone for centuries. It is durable enough for tools and weapons yet beautiful enough for jewelry and carvings. It comes in many colors and is so rare in gem quality that it is highly prized. The name jade is used for two distinct minerals. One is nephrite, a calcium magnesium silicate. The other is jadeite, a sodium aluminum silicate. Both are of metamorphic origin, and they often look alike. Positive identification may require sophisticated laboratory tests.

 

Bright, robinís egg blue is the distinctive color of turquoise. Copper controls the color of this hydrous copper aluminum phosphate. Iron impurities cause occasional green shading. It is, however, relatively soft and great care must be taken to maintain its appearance.

 

Alexandrite is a gem variety of the mineral chrysoberyl, beryllium aluminum oxide. In daylight, alexandrite is grass green. In most interior lighting, it is raspberry red. Trace amounts of chromium cause this remarkable phenomenon called change of color. Alexandrite is very rare and extremely costly. Moreover, garnet is the name for a group or series of related silicate minerals. Garnets are red, orange, yellow, brown, green, purple, colorless, or change of color. Red, however, is the best-known color in the gem garnet. Since garnets can be cut in virtually any direction, these stones are suitable for many types of jewelry.

 

A distinctive bright bottle green color is the attraction of peridot. The shade is less intense than that of emerald. Hues range from olive to yellowish green. It is the gem form of olivine, a magnesium iron silicate. Besides silicon, the gemstones contain about one part of iron to eight parts of magnesium. A trace of nickel is usually present and may brighten the color. Because peridot is somewhat fragile it may loose its polish and show scratches in time.

 

One of the most colorful gemstones is the tourmaline. Gem tourmaline occurs in pink, red, blue, colorless, brown, reddish violet, yellow, and green. It is a complex silicate of sodium, aluminum, beryllium, hydrogen, and iron. Variations in the amounts of these elements, plus additions or substitutions of lithium, magnesium, or calcium, account for the wide range of colors.

 

Another factor which affects product is cut. A good cut is something that may not cost more but can add or subtract a lot of beauty. Almost any colored stone can have a beautiful sparkle and brilliance when cut well. A

well-cut faceted gemstone reflects light back evenly across its surface area when held face up. If the stone is too deep and narrow, some areas will appear dark. If, on the other hand, the stone is too shallow and wide, parts of will be washed out and dull. The best way to judge cut is to look at similar gemstones next to each other. Primarily speaking, however, if a stone is superbly cut, its shape for ultimate beauty is in the eyes of the purchaser. For ultimately a stoneís variety is infinite in possible shapes and sizes. Examples of common cut shapes include: round, oval, cushion, pear, marquise, and heart.

 

In conclusion, colored gemstones vary greatly in types, color, and chemical compounds. Jewelers tend to use both precious and semiprecious stones in all styles of jewelry, including rings, bracelets, necklaces, and charms to entice consumers to purchase these wares.

 

 

Price

The factors influencing the esteem in which gems are held are few in number but extremely important because they so directly affect value. These are attractiveness, durability, rarity, fashion, and size.

 

The fascination felt for gems is mainly a visual appreciation of their beauty. There is little doubt that beauty is the most important quality that any gem can have, for without it no gem will be highly prized. Beauty, however, lies mainly in vivid coloration. The most attractive colors appear to be those which are pure and rich is hue, such as red, green, blue, purple, orange, and yellow.

 

The ability of gems to resist normal wear while set in jewelry is a perfectly understandable requirement. Durability depends upon hardness, or the ability to resist abrasion, and upon toughness, or resistance to fracture. The generally accepted rule of thumb for classifying gemstones as durable is that they be as hard or harder than quartz. Moreover, it is human nature to treasure the rare, and as such, a gemstoneís rarity comes into play.

 

The factor of fashion is closely related to those of attractiveness and rarity. What was considered attractive yesterday may not be attractive today, and todayís standards may be displaced by others tomorrow. Lastly, the use of the expression "bigger and better" summarizes the human factor of size. Increasing size in gems is symbolic of greater wealth and higher position, with some exceptions of course.

 

The following prices for top-quality cut gemstones, flawless or nearly so, of best color, are taken from recent lists and other sources, including the Richard H. Jahns chapter of gem materials in the Industrial Minerals and Rocks and of the American Institute of Mining, Metallurgical and Petroleum Engineers, and from J. Sinkankasís Gemstones of North America, 3rd supplement.

 

Dollars Per Carat - Price Trend

 

Gemstone (cut) Color Grade Carats 1960 1975 1990

Aquamarine good blue 3-15 $10-$75 $45-$750 $100-$475

Emerald fine green 1-10 250-5,000 1,500-26,000 6,000-30,000

Chrysoberyl catís eye 3-25 60-600 10-6,400 800-7,500

Adexandrite fine color change 3-10 50-1,200 200-9,000 2,000-30,000

Ruby finest pure red 1-10 40-7,000 250-35,000 5,000-50,000

Star Ruby fine color and star 1-10 60-1,800 100-15,000 1,500-25,000

Sapphire good blue 1-10 50-400 75-1,100 500-18,000

Star Sapphire fine color and star 1-10 30-500 50-5,500 225-10,000

Garnets demantoid 1-10 10-300 20-500 1,000-6,000

Grossularite

(Tsavorite) 1-10 100-500 800-10,000

Opal white-body and

play of color 1-10 10-150 10-1,450 150-2,000

Quarts - Amethyst reddish violet 5-20 4-25 5-90 35-150

Kunzite pink to lilac 5-20 12-60 3-90 40-180

Topaz fine imperial color 5-15 10-100 20-900 60-2,000

Tourmaline, Red fine medium color 5-15 15-50 12-350 6-1,500

Tourmaline, Green fine medium color 5-15 5-30 5-80 200-2,000

Turquoise fine blue 15-20 10-50 10-75 60-225

 

 

 

Place

The major types of stones that are sold around the Northwest are mostly the "birthstones" associated with specific months of birth (i.e. January - Garnet, February - Amethyst, etc.). These stones are typically placed in the rear of the stores away form the diamonds. Of the four stores that were visited, one department and three chain stores, none of them presented the gemstones in front or in a place where people could easily locate them. However, this seemed to be the preferred method of displaying the colored gemstones.

 

Most of the pieces that were looked at seemed to be mass produced. The selection of stones centered around: bracelets, necklaces, earrings, and pendants. None of the stores that were visited had any unique of special designs on display, nor did they suggest the possibility of custom work. All of the pieces looked similar in appearance form store to store. Furthermore, all of the stores displayed the current monthsí birthstone with more options of designs and cuts than any of the other available gemstones.

 

Sales people seemed to shy away from requests for a price sheet. The common response was that customers tend to pay only for what they like. This is obvious, since prices of various gemstones were determined upon:

1. The origin of the stone (stones that were naturally mined were much more expensive than the synthetic or

"laboratory created" ones as it was referred to by one of the sales people). A naturally mined stone is

usually so rich in content that light cannot penetrate through it and thus appears darker in color than a

synthetic, which in contrast appears lighter when exposed to a strong light source.

2. Level of workmanship - From the jewelers visited, it was obvious that the stones were cut to obtain an

optimal fit. However the setting in which the gem is placed was one of the most significant factors in

determining the price. For example, gemstones are not typically sold in silver settings. Instead, they are

sold in gold settings. This use of gold versus silver, coupled with the gemís carat weight, is what

determines the final price.

 

In addition, the sales people shied away from providing a price list because gemstone prices fluctuate depending upon the month as mentioned before. In retrospect, there needs to be a set standard for determining the values of these stones. Unlike diamonds, colored stone prices seem to be at the mercy of the jewelry stores. In short, this is found to be a serious problem since one could not tell the difference in appearance without having either a strong background in colored stones or just having faith and personal conviction in what the sales person tells you. Moreover, colored stones cannot be compared and analyzed by the consumer without some type of standardized pricing.

 

The first store that was visited was JC Penny. The displays there were all equally distributed. However, this department store was the only store we encountered that had a fairly substantial selection of gemstones, including a large catalogue that helps shoppers determine the differences among the various stones. The sales woman behind the counter was extremely knowledgeable about the different characteristics of many of the gems. In addition, she had some insight as to where the stones originated from and what their individual properties were and so forth. We were surprised to learn that the knowledge she gained was primarily derived from reading articles, books, and other publications. Out of the four stores that were reviewed, it was decided that JC Penny was the best place to make any future purchase

 

The next place that was visited was Fred Meyer Jewelers. The sales lady that assisted us also seemed familiar with some of the basics regarding the gemstones. In fact, she was the only one in the store that had any knowledge of where the stones came from. However, she kept pushing diamonds and pearls.

 

The third store that was visited was Zales. Here, the sales woman that helped us also kept pushing diamonds and pearls over the requested colored gemstones. Furthermore, the information that was given at this location contradicted all of the previous information that had been surmised for this project. The sales woman was not sure exactly where the stones came from of what they were made of, if synthesized. In light of this lack of knowledge, she was quick to point out that this information did not essentially matter and that she had been in the jewelry business for the last 25 years.

 

Lastly, Weisfields was visited. Surprisingly, this store was a major disappointment since the sales clerk possessed the least amount of knowledge about colored gemstones. In fact she tried to sell us a ruby that was in reality a garnet. This fact was not even apparent to her until she looked at the price tag and noticed her error. Thus it is evident that unless one has some formidable knowledge in colored stones it would be difficult to tell the differences between various stones.

 

From visiting all four stores it can be concluded that colored stones come from very distinct, but different, parts of the world. In turn, these stones are then purchased by brokers who sell them to wholesalers, which then resale them to independent jewelers of department store buyers. The buyers usually contract with some of these chain stores and retail stores in order to make large purchases. The retail jewelry stores and department stores ultimately determine the retail price that consumers pay. For example, some stones depending on geographic location, can be priced upon consumer demand while still others are priced according to the conceptual rarity. It is also noted that no literature regarding how to buy, what to look for, or what types of prices one could expect to pay for colored gemstones was available from these retail locations.

 

Product Channel Chart

 

Mine

 

ò

 

Broker

 

ò

 

Wholesaler

 

ò

 

Jewelry Store

 

ò

 

Consumer

 

 

 

Promotion

Sales promotion is generally defined as marketing activities that provide extra value or incentives to the sales force, distributors, or the ultimate consumer and can stimulate immediate sales (Belch 12). Consumer-oriented sales promotion is targeted to the ultimate user of a product and includes premiums, rebates, contests, sweepstakes, and various point-of-purchase materials. However, in the colored gemstone market, the use of consumer oriented sales promotion is almost non existent.

 

In an attempt to assess the promotional efforts at the consumer level, both the Zales homepage (www.zales.com) and the store located at Alderwood Mall were visited. The website was divided into three major sections: (1) diamonds, (2) gold & watches, and (3) gemstones. The inventory that was offered over the internet was later determined to be identical to their color ad that appears in the store. After opening the "gemstone" section of the homepage, it was easy to determine that the ruby was being promoted in July as the "gemstone of the month." In fact, no other gemstone thumbnail pictures were able to be enlarged.

 

Inside the Alderwood Mall store, the first thing apparent to the eye was the Zales logo present on all pieces of point-of-purchase signage. This signage simply read "Zales--The Diamond Store." Walking around the store, it soon became obvious that diamonds were being displayed throughout most of the location as either rings, earrings, necklaces, bracelets, or as part of watches. In fact, of the fourteen display cases inside Zales only one is truly dedicated to colored gemstones. The display presented is typical of all jewelry stores which present colored gemstones as part of a birthstone collection.

 

Looking at the inventory and factoring in all the rings, earrings, and bracelets that contain colored stones, the total number of display cases featuring colored stones is approximately 5.5 out of 14. Furthermore, out of the ten point-of-purchase signs located on top of the respective display cabinets, only two were dedicated to colored gemstones.

 

Zales does very little to advertise colored gemstones, other than placing them in their color advertisements. The only exception would be that they do promote jewelry containing red stones--like the ruby--around Valentines Day. Other than that, the only observable promotion is the featured birthstone of the month, which takes up approximately one-half of a display cabinet.

 

In order to increase the promotion of gemstones (at the retail level), it is essential that the colored gemstone industry organize itself to acquire the services of a public relations firm that will provide continuity to the industry and establish an image that will be used to position colored gemstones against diamonds and/or promote the use of gemstones as a compliment to the diamond. In this attempt to promote colored gemstones, and thus stimulate sales, the colored gemstone industry needs to increase consumer awareness of the rarity and uniqueness of the colored gemstone by making the consumer come to the jewelry store to specifically ask for and look at colored gemstones. By increasing awareness, the industry could offer contests and sweepstakes, where winners would win trips to exotic places. The purpose of this type of promotion would be twofold: (1) it would increase in-store traffic by placing enter to win displays at the point-of-purchase and (2) would cause the consumer to associate these exotic places with the origin of the colored gemstone inventory.

 

 

Frequented Local Retailers

 

Name Location Address Phone

Fred Meyer Jewelers Tukwila 1119 Southcenter Shopping Center (206)244-6903

JC Penny Tukwila 1200 Southcenter Shopping Center (206)246-0850

Weisfields Tukwila Southcenter Shopping Center (206)244-7440

Zales Tukwila 921 Southcenter Shopping Center (206)246-6424

Lynnwood Alderwood Mall (425)771-7525