Why Are Diamonds So Expensive?

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Tom Sawyer: "There are wealthy gentlemen in England who drive four-horse passenger-coaches twenty or thirty miles on a daily line, in the summer, because the privilege costs them considerable money; but if they were offered wages for the service that would turn it into work, then they would resign."

  • Scenario A: You pay to do X.
  • Scenario B: Someone pays you to do X.

In Scenario A, you think of X as a privilege. In Scenario B, you see X as work/drudgery/SUCK -- even though you'd consider X as a privilege if you had to pay for it.

The price of X manipulates your mind when you're valuing X.

WTFUHH?

Take diamonds.

  • 1910: What's so special about these shiny rocks?
  • 2010: I WONT MARRY ANYONE WHO GIVES ME A DIAMOND RING BELOW $25,000!!!!!11one

In 1947, De Beers slapped this marketing slogan on their advertising:

  • "A Diamond is Forever."

...a symbol of love. A family jewel.

Price tag: $999999999999999999999999999999999

  • OMG OMG OMG I NEED DIAMONDS OMG

The perception of diamond rings skyrocketed with the high price tags, causing females (and some males) all over to go into frenzies wanting these diamond rings.

  • Because De Beers marketed the diamond rings by placing ridiculous values on the shiny rocks, peeps started placing ridiculous value on the diamonds.
  • To maintain its value, De Beers controlled the supply of diamonds, preventing a saturation of diamonds that would drop its prices.

The Luxurious

A price tag on an item changes your perception of the item.

To get customers to place higher values on products, luxury companies make their products extravagant:

  1. Hike up prices.
  2. Tweak production to use (at the least, slightly) better material.
  3. Slap on a "precious" marketing campaign.

Get higher margins.

OMG

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Posted on March 07

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