Sun, 04 Sep 2005

Why isn’t Rapaport pricing important for consumers?

Let’s
start at the beginning. The Rappaport Diamond Report is a trade
magazine for jewelers and others in the diamond business. It’s a pretty
good magazine. It’s available by subscription only and interested
subscribers can inquire at www.diamonds.net.
One of the regular features is a diamond pricing grid that is used by
many in the trade as a benchmark for pricing their goods. It’s updated
weekly and distributed to subscribers by mail or fax. This grid is
known as Rappaport, Rapaport, Rap or List and it’s quoted regularly as
part of sales presentations.

Rap pricing is based on a four
dimensional pricing structure that cross-references weight, clarity,
color, and a few overall shapes into a single estimated price for each
stone. This price is identified as a high New York wholesale asking
price.

The primary problem lies in the fact that the four
dimensions in their pricing structure is simply not enough for most
consumer’s purpose, namely that of identifying if a stone that they are
considering is a bargain. It skips over things like cut quality,
grading lab, grading accuracy, location, optical performance, payment
terms, provenance and similar variables that can all have a
considerable affect on pricing. These ‘other’ variables can affect the
price by as much as a factor of four or even more. It simply doesn’t
serve as a stand-alone shopping tool and attempts to use it for this
purpose can regularly lead to disaster.

What Rap does do is allow
the dealers to keep the pricing of every stone current to the
marketplace with a minimum of effort. When they originally buy a stone,
they will examine that particular stone and set a price as a ratio of
Rap based on these other characteristics. One stone in their inventory
may be at Rap-40% while another superficially similar stone may be
priced at Rap+10%, all because of these other properties. If they don’t
think the details of the stone will support the price that they need to
charge, they simply won’t buy that particular stone and the seller can
either rethink their own pricing structure or simply find another
client. Internal to the trade it all becomes very self-correcting. When
Rap changes, a dealer can simultaneously adjust the price of their
entire inventory to reflect the new market reality with a single click
of a mouse because the discount ratio for each individual stone remains
the same. For a dealer that has thousands of stones, this can be an
enormously useful feature. It means that they don’t have to
continuously reprice their inventory, risk selling a stone for less
than they will need to replace it, or risk pricing themselves out of
the market. Remember, diamond prices can, and sometimes do, change on a
weekly basis. This is why almost every dealer uses Rap and why they are
willing to pay the $180/year subscription fee. It’s also the reason
that it’s not very useful for a consumer.

When a dealer tells a
customer that a stone is Rap-20% (this is known as ’20 back’ in trade
lingo), the customer has no way of knowing if similar stones should
cost 40 back or 35 over. It’s like knowing the blue book value of a car
without considering condition or even if it’s running! What the client
wants to know is whether they are getting a bargain and the information
simply isn’t there. The dealer has pointed to the Rap sheet as if it
was the voice of the great and powerful Oz. Listen to the other voice
that says, “Pay no attention to the man behind the curtain.”

by Neil Beaty
Professional Appraisals in Denver
http://www.americangemregistry.com/

American Gem Registry