Even before De Beers’ DTC officially announced its Value Added Services (VAS), the market reacted skeptically and was awash with rumors. After the official announcement, some of the fog is clearing: 2.5 years Sight, a fee will be charged, but it is less then two percent. Initial reactions were heated.

 

At a presentation in London Tuesday, DTC Managing Director Gareth Penny and Sales Director Varda Shine, Sightholders first got an overview of what was achieved so far to a look at what other companies – such as car maker Ford – did: shifting from sole manufacturing to selling services.

 

Finally, presenting the tools that the DTC believes Sightholders need to make the shift from simply driving demand for diamonds to giving it added value, the elements of VAS were introduced.

 

VAS consists of two main components: Core Services and Growth Services. Core Services are those services dubbed by the DTC “supply planning tools”. They include what could be considered the basic elements of DTC’s services to its clients, the Sightholders:

• Two and half years of supply,
• The Intention to Offer (ITO),
• Consistency of boxes
• The client extranet
• A dedicated account management service.

This package is not elective and is part of the cost of being a Sightholder.

 

Growth Services are tools provided for business growth and development. They include seminars, workshops and generic advertising material at client requests. This package is elective and the charges will probably be per item.

 

First news is that Sightholders' contracts will be extended by six months. The next is that this entire package carries a fee. The fee is proportionate to the size of the Sight, starting at $180,000 for the first $15 million of annual supply, and climbs up in brackets of $15, $25, $50 and $100 million up to $400 million. Fees will decrease from 1.9 percent down to 1.6 percent.

 

According to the table, the fee for an annual Sight of $45 million, for example, will be $742,500. This is how it is calculated:

$180,000 - Base fee for the first $15 million

          +$285,000 - first bracket ($15 - $30 million) charge of 1.9%

          +$277,500 – second bracket ($30 - $50 million) 1.85% charge for the remaining $15 million. In other words, the fee is 1.65%.

 

Next question is how can the DTC ensure the consistency of boxes without holding on to a big stock? It was such a stock that allowed it to fill in the gaps when mining production did not yield exactly what was needed to supply clients.

 

This is a key element. What the DTC wants to do, says DTC Sales Director Varda Shine in an interview with IDEX Online, is to be able to take the worry of 'where do I get the exact goods I need' off their clients mind, so they can focus on other aspects of their business – adding value to diamonds.

 

To do this, Shine says, De Beers improved and implemented information systems that will allow it to better predict production. The firm is careful not to promise 100% consistency, it can't, but aims to make the boxes as consistent as possible.

 

"Until now, everyone competed on price, as if it's a commodity," she says. Now what's needed is Category Management, through custumer service, and creating an additional profit pool, she adds.

 

"The diamond industry focused in the past five years on how to create demand," Shine says. "Now we are starting the second chapter of SoC." De Beers wants to give its clients the benefit of its experience and know-how to do this – through these services.

 

She rejects some Sightholders' views that the fee is nothing more than a way to charge more from clients who would rather simply have a 2% price hike they can pass on. "In five years we will sit with our clients and they will feel differently about this."

 

But Sightholders, asking questions politely after the presentation, sounded heated once outside of DTC earshot, one going so far as to describe Sightholders as being “furious”.

 

With shrinking margins and increased spending, naturally Sightholders prefer to keep their eyes on the road right ahead of them, rather than up at the distant horizon.

 

With a sentiment in the market that the company is taking advantage of its dominance, some said acting like a monopoly, a long road seems to be ahead of the DTC in explaining itself and soothing negative sentiments among its clients.