Refunds, Buyback, Trade-up and Trade-in - by Neil Beaty

A very thorough write up of the various scenarios. This will help eliminte confusion for many foks. Consumers should keep in mind that when they buy something which includes a benefit, such as a buy-back on a diamond or something like 3 years of complete service on their new car with a free loaner, that they may be paying for some or all of it at the time of the purchase instead of later. It is a decision that individuals make as to how they will face the costs of ownership whether by taking it on up front or delaying some of it for later on.
A liberal return ploicy is very valuable. The rest are more marketing tools because most diamonds are sold and kept and these added features are only used by a small percentage of owners.

Great article and summary Neil! You really are an undervalued asset on this forum.

I wanted to add perspective about recent diamond price increases and the effect on “benefit morale” they have had here: I sense confusion and disenchantment from some people about upgrade-policies and buybacks, given diamond price increases over time. That is understandable… “Why would I pay for a policy that will lose some value in the long run if/when diamond prices increase?”

I agree with those who state they are comparable to a put-option or an insurance policy and also agree that with some vendors they may come at a premium to the buyer. I also think that if you examine the Pricescope vendors you will find that there is little, if any, discernable price difference that could be attributable to trade in or buy back policies. In fact, after this last round of price increases, I think you will find that most of the vendors are now very close together in prices. Since the price differential is so low already, I think that any kind of option for opting out of a trade up or buy back policy would be impractical or impossible for the vendor to accurately track and implement. Even if such a practice was feasible, I think that the one or two percent that could be offered would not be significant enough to affect the purchase decision. From Pricescope vendors, anyway, these policies are typically offered as confidence-builders as much as anything.

Over time it has been my experience that very few of my clients take advantage of the buy back provision and nearly all that did were clients who never envisioned the need to sell a diamond back to me. So even were I to offer someone an opt-out it might be to your disadvantage if you ever found yourself suddenly needing it. Saving one to two percent now would be miniscule compared to the loss you would now face if you needed to sell your diamond “in a pinch” and could not make as much as I offer as part of purchasing with me… If you look at the historical meaning of client, it means much more than customer. As a client you are under my protection in my area of expertise, if I allow you to make such a bad decision I am not really treating you as a client, but rather, merely a customer. If you only want to be a customer there are thousands of stores for you that will not require any expertise on the part of the sales person. I find it one of the wonderful ironies of the Internet that in many cases (in our world here) you get true professionals who provide incredible service and value; allowing you to be a client under their guidance and protection for less than you will pay a normal retail operation to be a customer.

I think consumers should also realize they have resources outside of their original vendor’s policies. If a diamond is really top-notch, even if it came from another seller, I have no problem when they call to say “Hey Wink I have (this) or (that)...with all these price increases what would you give me for it today?” In some cases they have been very happy with what I can offer. It does not hurt to call around and make inquiries. In such cases the people with guaranteed trade up and buy back may find multiple options open to them.

Wink

excellent Neil.

A return policy with very few restrictions and is clearly shown upfront is mandatory when I am buying.

One of the biggest reasons I look at buy back and trade in/up policies is that it shows the seller has confidence in the diamond they are offering.
If a seller is not willing to take the diamond back into stock then it shows to me a lack of confidence in the product. Why should I have confidence in the vendors products if they don't?

Thanks guys,

I agree that a not-too restricted buyback policy is a vote of confidence by the seller in what they’re selling but I still don’t put all that much stake in it. People make selections from dealers that the dealer wouldn’t particularly want in inventory routinely. I dare say the majority of diamond purchases probably fall into this category. It’s not about what the dealer wants, it’s about what the customer wants. Add to that the cash flow problem that nearly every small business has to deal with from time to time and the implication that they are inferior merchants because they don’t want to add expensive things to inventory without notice and without being able to choose based on what’s doing well THEN strikes me as overly harsh.

From a sellers perspective, the buy-back policy can become increasingly painful over time. I know this as I deal with buying from dealers who have inventory they bought back in good faith, but who find that many of the items they bought back are hurting their cash position, and are comprised mostly those kind of stones which are now out of favor or less in demand. Like Wink said, stones in strong demand always have many options for sellers and buyers to weigh, but less desired stones may only find the buy-back promise most beneficial. In the longer run, some of these buy back deals are not equitable treatment to the dealer as well as to the consumer and may become less a part of the sales promise. Also, as Wink suggested, very few people take any action on such promises. Extremely few anticipate this future element at the time of purchase. If you buy a really good quality diamond you will likely always have a good chance to sell it, trade-it or a good way to re-use it. If you buy an ugly duckling you may find no one wants it. Paying for a good stone to begin with pretty much guarantees that you will always have options when you decide a new diamond may be a good thing.

Hello David,

I’m not sure I was implying quite what you implied when you quoted me J but your points are valid.

<<very few people take action on such promises>>

Right. It may even be fewer than 1% of my clients over the years, even though many people express that having the option is appreciated when they make the purchase. I also consider the die-hard PS enthusiasts as a somewhat different breed than average quality-conscious consumers…they are familiar enough with different sellers and channels that they may be able to seek out different options for trade or buy by asking-around. Many of my clients may only know me, so it’s nice that I offer some channels to him, specifically, even if 99% of the my clients are perfectly happy to keep the original Infinity they purchased.

<<comprised mostly those kind of stones which are now out of favor or less in demand>>

I absolutely agree with you when it comes to stones that are in come-and-go configurations, or could suffer as grading systems develop further. It is why I offer only one diamond at this time, and have for some years. It is one that I know, from three-decades of experience, will not lose value, fall out of favor, lack for demand or be penalized in future grading systems. As an example, I believe it’s inevitable that one day the labs in this country will have no choice but to add a H&A assessment to their reports (this has already happened in China due to consumer-education and demand there). The wheels turn slower in our much-older jewelry society but it is the job of the labs to provide full disclose about factors which affect value…and you can look at any B2B trading network or cut-focused retailer and easily see that “H&A” stones do in fact trade at a premium. GIA waited a very long time to add a cut grade, which obviously held the world’s manufacturers to a higher standard, but it was a point of disclosure which affected value and more and more consumers were becoming aware of that and demanding it, so they finally added it in 2006. Before they ever did that I made sure all diamonds I sold were at the heart of the old and new AGSL systems, Garry’s HCA and your AGA system. Logically they are also GIA EX… As more points of disclosure are added (like H&A) I must plan for the diamonds I sell to be those which continue to receive the top marks, even as grading systems evolve. That has been a key consideration for me in offering a realistic and sustainable trade up program.

<< If you buy a really good quality diamond you will likely always have a good chance to sell it, trade-it or a good way to re-use it. If you buy an ugly duckling you may find no one wants it. Paying for a good stone to begin with pretty much guarantees that you will always have options when you decide a new diamond may be a good thing.>>

Well said. Although I will say that I’ve been successful in buying even ugly ducklings from consumers and then having them recut into something which meets my criteria for sustainability, above. Of course the price I am able to offer for the little duck may not be everything they hoped-for. But in more cases than one would imagine I’ve found that my offer was indeed better than they were hearing anywhere else! It never hurts to ask!

Wink

Great stuff Neil.

One problem that people in the USA (vendors and shoppers) are immune from is currency fluctuations.
Imagine the effect of such policy's in Australia:

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I applaud Neil for writing this.
However I have quite a different take on a few aspects of this. At the very beginning:

Most dealers will offer a refund if you’re unhappy with your purchases

Maybe I'm jaded, walking down 47th street every day, but it seems to me most dealers do not offer a refund policy.
For sure many do not. This was also well covered in the next paragraph- advising shoppers to find out about refund policy prior to purchase- but the opening line seemed out of touch

Trade up: Others have had different experiences, however we find trade up to be a VERY popular policy. At least 25% of buyers ask about it prior to purchase- and probably as high as 10% utilize it.

No question, trade up can place a strain on the seller, in some cases.
In my opinion a smart business person will look at long term implications, as opposed to case by case.
A seller offering trade up is showing a lot of confidence in their product.
We've found it to be a very important aspect of store policy

I agree with much of what has been said already. I will add that the trade-up benefit that we offer is redeemed at a much higher rate than I personally would have expected.

While it may seem like more of a comfort builder for the sale, and in fact most guys think it unlikely that his gal would ever consider giving up the original engagement diamond, the reality is that this is a benefit that some couples find valuable in the long run.

I do not have the actual statistics, and if I did I probably could not share them , but there are very few weeks that go by that we do not do a trade-up.

In some cases the trade-up is anticipated at the outset. The guy really wants to give his gal a one carat, but he wants the diamond to be really nice and his current budget will only allow for a three quarter carat. In that scenario, a trade-up benefit is great to have in your back pocket as a consumer. We always try to keep customers in their comfort zone in terms of dollars, and our trade up benefit is a helpful tool in that regard.

I will also agree with other posters who point out that there is a real cost associated with offering any type of guaranteed buy/sell/trade agreement. Particularly one that never expires! But this cost is hard to calculate (who knows exactly what the market is going to do, or who your target audience will be and what kind of inventory mix will be healthy for your business down the road) and therefore probably does not get adequately factored in to the sell price.

Possibly, if all the projections were run, we would all stop offering these benefits!

great information. Thanks for posting the thread!

Written by Texas Leaguer » June 13th, 2011, 5:08 pm:I agree with much of what has been said already. I will add that the trade-up benefit that we offer is redeemed at a much higher rate than I personally would have expected.

While it may seem like more of a comfort builder for the sale, and in fact most guys think it unlikely that his gal would ever consider giving up the original engagement diamond, the reality is that this is a benefit that some couples find valuable in the long run.

I do not have the actual statistics, and if I did I probably could not share them , but there are very few weeks that go by that we do not do a trade-up.

In some cases the trade-up is anticipated at the outset. The guy really wants to give his gal a one carat, but he wants the diamond to be really nice and his current budget will only allow for a three quarter carat. In that scenario, a trade-up benefit is great to have in your back pocket as a consumer. We always try to keep customers in their comfort zone in terms of dollars, and our trade up benefit is a helpful tool in that regard.

I will also agree with other posters who point out that there is a real cost associated with offering any type of guaranteed buy/sell/trade agreement. Particularly one that never expires! But this cost is hard to calculate (who knows exactly what the market is going to do, or who your target audience will be and what kind of inventory mix will be healthy for your business down the road) and therefore probably does not get adequately factored in to the sell price.

Possibly, if all the projections were run, we would all stop offering these benefits!

As a consumer, the 'trade up' option was absolutely central in my choice to go with my vendor.
I would recommend a trade up option to every engagement ring buyer. After all, an engagement ring is an item that is worn every day for life...very few people wear the same clothes for 20 years...or even live in the same house that they started married life in... personally I was bored brainless after some time and needed to change up!

Having a trade-up policy DOES show confidence in the diamond. My vendor had some inventory that was 'trade-up'... and an inventory that was not. Seems fair to me! I can see why offering a holus-bolus policy across the whole story could be a bit crazy.