drop shipper markup - fair broker price question

[johngalt2004]

I''m curious, what is typical rock bottom drop-shipper virtual list markup?

Is it correct to assume a broker can buy at the same price the big drop shippers can? Or do the big drop shippers have a buying advantage to the extent that a broker could be buying for very close to the same price that Union Diamond is selling for example? How close?

I''m asking because I''m trying to drop a resentment toward a broker who charged 12.5% more that a virtual list drop shipper for a diamond. He did spend many hours with me but some of that was due to his own slipperyness and mistrust he created himself.

I am starting to come around to a perspective that he may not have taken that great an advantage of me after all. when the dust was settled. While I would have preferred to go with the premium PS vendors and will next time, I am not sure whether I should regard my broker as a con man, or as a guy who can''t quite beat the internet, but isn''t an outright ripoff either.

Is 12.5% over virtual list drop ship price anywhere near reasonable for a GIA graduate gemologist broker? Should I let myself and this guy off the hook and cancel my resentment?

 

[oldminer]

I am not sure what you are meaning by "resentment". Maybe you want advice on whether you should stop being annoyed or angry over being charged more than you might have paid elsewhere. You need to consider that when an "expert" helps you make a selection that they need to make a living. How large a profit they make is more or less up to you as a buyer and up to them as an honest re-seller. If you can''t agree to do business, then you say "Thank you" and shop somewhere else. Truthfully, today the diamond business for commonly found diamonds is a buyer''s market. Mark-ups are very low for good shoppers. Mark-ups on major diamonds or in fine stores are not low, but this method of finding a diamond is not always essential. Some folks really want to make a luxury purchase while being treated to personal, direct service in a fine store. Some people hunting for a large, fine diamond must shop in venues where these rare stones are mostly sold. For more commonly marketed diamonds, like fine 1 carat stones, the Internet has begun to impact a good share of the market at very low percentages above actual dealer costs. Internet and broker deal mark-ups can be anywhere from what appears to be zero on up above the teens. Mark-ups on the mounting and side stones usually are somewhat more.

Consumers who fail to shop well often get what is called "buyer''s remorse". They find that they could have done a little better or a lot better on price had they shopped more, but only after they have made a purchase. There may be nothing at all wrong with the item they bought except they now are disgusted that they paid more than necessary. Why? Because they agreed to the sale... Caveat Emptor! It is the price paid for living in a free market economy. Look at the disasterous results of controlled economies such as the old USSR or East Germany. No merchandise for sale, no money in your pocket and never a smile. I''d rather have free markets where all the benefits far outweight the downside of a no profit, no gain economic system.

If this addresses your "resentment", then maybe you''ll feel you didn''t do so bad. I don''t want you to feel that you were taken advantage of because it does sound as if you know how to shop for price and maybe you just didn''t do it enough before saying "yes". I ahve often been somewhat angry with myself for being impulisive as a buyer. On the plus side, I have had many wonderful toys and gadgets which have pleased me a great deal. Had I waited until they were all bargains I would have delayeed my pleasures and probably never had some of these things. It is a personal choice.......

 

[johngalt2004]

I'm trying to figure out how much mystery profit he took.

Like the mortgage broker who says you are paying a "one point fee", but then you learn later that there was a 1% yield spread premium - a mystery profit.

Or a car dealer who sells at a small markup over invoice, but then you learn later that there is a 2% holdback - a mystery profit.


By resentment I mean, I have stewed and plotted various recourses (nothing violent, but more like what I will say to others about him, including the person who introduced us - whether to do a BBB complaint over some faulty communications early in the game, etc...). Yet in other moments I have shrugged it off as not that outrageous on a per-hour basis.... you know - tried to resolve the cognitive dissonance. Nobody wants to feel like a chump but sometimes I guess we can be chumps till we get more experience.

If I thought he made the known 12.5% plus an unknown lets say 7.5% for a total 20%, I would not feel screwed.
If I thought he made the known 12.5% plus an unknown lets say 22.5% for a total 35%, I would feel screwed and want to figure a way to get even.


As to the free market politics... I am for free market. A component of that is for disgruntled customers to be vocal about it and to impact future business for predatory sellers.

But much worse than laying down and being passively run over.... would be going beserk with retaliation when you weren't really wronged. So that is sort of where I am trying to feel my way to a balance.

 

[oldminer]

Few businesses actually report their net or gross profit margins to prospective consumer buyers. You can research the price of a new car until you are very smart about dealer cost, but you can''t know all about the incentives paid after the fact to dealers for meeting defined sales targets. If new cars are difficult, then used cars make an even more difficult case. These two big buys are blind to most consumers.

You can know the relative values of real estate where everyone pays approximately the same amount for similar housing within a narrow region of a neighborhood, but you can''t project the market value of a distant property based on comparables from another region of the country without a highly refined methodology for creating such a complex comparison.

Diamond dealers, brokers, drop-shippers and retailers of diamonds are not required to admit their profit margin to their customers. Many will exaggerate the discount they are giving by means of an inflated appraisal, or by verbally telling you the size of the "bargain". Others may give you a truly fine deal or give you the shaft and never mention the bargain, but just assure you the price is minimal and fair. If you don''t do your own diligent shopping, you will never know for sure.

Once you make a deal, I suggest you go onto the next one with renewed committment to do it better until you feel your way of making decisions is effective and self satisfying. Some of us enjoy a purchase more than others. Its the nature of some folks to always feel they could have done better. Others feel happy no matter what. Neither way is really the right course. MODERATION is key to the many pathways to overall happiness. This is the philosophy of many learned individuals and not simply my personal ramblings. These dead philosophers and religious gurus had it right. Learning how to make use of history, things taught and learned long, ago is the right way to doing it right even today in our modern world.

 

[johngalt2004]

ok ok ok ok ok ok ...

I wish somebody would break out a new model and just tell the plain truth - make the whole thing more transparent.

Why not say "I need to make $1000 to sell you the diamond. You contract with me up front to be your broker, and the books will be open - I will share the whole thing transparently with you". Less stress for customer and retailer alike.

There are guys doing this in the mortgage business called "up front Mortgage brokers". I don''t know if they do well because many people want to go play the shell game against the shell game masters... but at least it is out there - the opportunity for a truly transparent deal.

Fun as it is, and nice as diamonds are... it sure has a shadowy aspect to it that is weird sometimes. It seems the industry has not decided to let itself be transparent. Which makes it seem apparent that the margins are much much higher than anyone dare imagine... or it would not be so closely and fiercely guarded.

Well it is all good and diamonds are beautiful and cut is king and I love pricescope.

 

[JohnQuixote]

Date: 10/13/2007 12:47:08 PM
Author: johngalt2004
ok ok ok ok ok ok ...

I wish somebody would break out a new model and just tell the plain truth - make the whole thing more transparent.

Why not say 'I need to make $1000 to sell you the diamond. You contract with me up front to be your broker, and the books will be open - I will share the whole thing transparently with you'. Less stress for customer and retailer alike.

There are guys doing this in the mortgage business called 'up front Mortgage brokers'. I don't know if they do well because many people want to go play the shell game against the shell game masters... but at least it is out there - the opportunity for a truly transparent deal.

Fun as it is, and nice as diamonds are... it sure has a shadowy aspect to it that is weird sometimes. It seems the industry has not decided to let itself be transparent. Which makes it seem apparent that the margins are much much higher than anyone dare imagine... or it would not be so closely and fiercely guarded.

Well it is all good and diamonds are beautiful and cut is king and I love pricescope.

Actually the internet has made things much more transparent John. Want to see what diamonds are trading at? Use the PS search engine. It's far more convenient than it's been at any point in the past. In my opinion the PS search is more telling than rap, and puts you in a ballpark to know about how low you can expect anyone to retail a certain class & category.

Why low? Because unless you know more about any diamond's particulars and the place it's being sold you can't really know what the list is telling you and what's included beyond the basics. The same store might sell a 1ct F SI1 EX EX EX for much more than another 1ct F SI1 EX EX EX. Why? Maybe stone A is spot-on Tolkowsky with impeccable H&A and extremely eye-clean. Stone B is borderline steep/deep (still GIA EX) with horrible optical symmetry (not judged) and a noticeable black pique under the table (still SI1). The list doesn't tell you these things. Vendors with the diamonds on-hand will price them differently; according to pedigree and sale-ability on a stone-by-stone basis.

You have to consider the market you're shopping in too. A ski shop in Aspen will ask more for a given piece than a pawn shop in East LA. Similarly, a one-man internet company will ask less to drop-ship you a stone from an unseen supplier than a larger company will to bring it in, do gemological analysis and provide a benefits package with it. Drop shippers who flip diamonds with no photos, information or supplemental staff incur few additional costs. Even trivial benefits cost money. Remember, there's really no such a thing as "free shipping" or "free lifetime resizing." Such costs are spread across overall markup for client convenience...but they do cost. Factor in what the seller offers beyond just flipping the diamond: Is this someone who is encumbering shipping & insurance expenses for bringing items in? Are photos taken? Reports run? Is someone hired to document and post information, live or online? Is someone on-staff taking giving you their time, replying to your questions and concerns?

There is also a huge difference between running a company out of a basement and having a real business: Live sellers, brick & clicks, and the larger internet sellers are often based in upscale commercial areas where there is considerable rent & insurance, building security, power/water/air, and payroll to maintain a qualified staff (sales, processing, gemologists, benchworkers, platinumsmiths, designers). Showrooms require additional insurance and security. Some sellers have been around for decades and are not going anywhere. That kind of 'brand recognition' can be worth a premium - to know your seller won't disappear in a puff of smoke tomorrow. There is great security in buying from a company associated with quality and consistency. Sometimes the premium is modest, sometimes you pay more for it (see Tiffany).

Another thought: People are sometimes surprised to learn that a seller can't sell a diamond for what it cost him last year: He must sell based on how much it will cost to replace it in inventory today. This means you may find prices in a search (especially larger goods) that become obsolete as soon as the price of rough goes up. Depending on how often a company turns over its inventory those price hikes must happen today, or they may trickle down. This is not directly related to your question - it's just another thing to complicate the whys and wherefores of 'markup.'

 

[niceice]

The simple fact is that sitting down with somebody face to face costs money for the broker in terms of time and that time must be compensated for in the form of additional profits. It is true that it takes time to create a detailed web site (lots of time) and time to prepare diamond detail pages complete with detailed clarity photographs and a variety of reports, but probably less time than it takes to sit down with each client on a one to one basis. So I''m thinking that a 12% mark-up over net pricing is not that much of a stretch compared to many retailers who mark-up their diamonds 200 - 300% and sometimes more. Historically diamond prices were based upon "what the local market will bear" and then the internet came along and provided global insight for consumers to use as a basis for comparing prices. I can''t imagine a physical broker or retail jeweler saying candidly to their customers "we''re selling this diamond for ''X'' but you can probably save a little time if you walk out of here right now and look for it on the internet" but it''s a thought. I think it''s more likely to happen between internet dealers, "we don''t have it this week, but our friends over here do..."

This is just one more reason why PS is great! It provides consumers with much needed insight into the world of diamonds and enables them to make an educated decision with regards to the quality of diamond that they decide to purchase based on what they''ve learned in an honest and open environment and with the power to decide who they are going to purchase from!