Moissanite Gemstone – Marketing Dynamite

Selling synthetic moissanite is a lot like selling dynamite you have to be careful how you handle it. Here's how C3 plans to make their sales explode.

It's called moissanite and it's described as a proprietary, near colorless, lab created gemstone. It's visually almost identical to diamond, and has, due to the unusual marketing approach taken by its producers and their success with it, created quivers throughout the industry.

The stones are produced by C3 Inc. (Nasdaq: CTHR) of Morrisville, North Carolina, and the company is doing very well with them, although it has not shown a profit since the product was introduced commercially in June 1998. The C3 financial report for the first quarter of 1999 shows revenues of $3.2 million, consisting of gemstone sales of about $3 million and test instrument revenues of more than $160,000. Net loss for the quarter was reportedly $700,000. In the year earlier quarter, there were $250,000 in sales and a net loss of approximately $2.1 million.

But C3 executives are confident that these initial losses will be quickly overcome. More than 14,000 carats of moissanite were shipped in the first quarter of 1999, and new orders are keeping the production line working full pitch. In a conference call with investors last October, C3 President Bob Thomas told investors he expects C3 to be profitable once they are shipping 18,000 carats to 20,000 carats of material per quarter, which they project will happen in 1999. Growth has exceeded estimates, and the company anticipates quarterly sequential increases of 20 to 25 percent.

They attribute much of their success to a marketing concept unique in the gemstone industry. Instead of going through the traditional supply chain, C3 markets directly to retailers in the United States , aiming a vigorous advertising and promotional campaign directly at consumers.

Thomas told Colored Stone: "New developments in the jewelry industry are infrequent, and this certainly qualifies as something new and unique and is a challenge for the industry."

So how come moissanite is doing so well in a market that expressed initial skepticism at the need for another diamond simulant, especially one that could be passed off as real?

Jessica Blue of Richard French & Associates, who handles C3's publicity, says that C3's marketing approach is to promote moissanite as a unique gemstone in its own right, not as a diamond substitute.

"We have said from the beginning that this product targets working women," she explains. "It's a bridge jewelry product, in between very expensive, fine, high end jewelry and costume jewelry, and that bridge stretches a wide band. We think moissanite's niche is within that bridge market. The target is working women, 25 plus, with upper end incomes, and the idea is that the women who fall into that category want to accessorize for work, look nice and well put together, but they don't want to spend thousands and thousands of dollars to do it. The strategy involves reaching those women through a number of different media. Part of that is direct advertising from C3.

"The ads that we've run to date were regional ads because, at the time, the majority of our retailers were in the southeast. But today the distribution has expanded so much in the U.S. that we would launch a national campaign, primarily print magazine, but there will also be targeted radio and newspapers within specific launch areas."

To that end, the company named a new advertising agency in March: Barber Martin & Associates Inc. of Richmond , Virginia . The agency has substantial jewelry and fashion experience. The advertising budget for 1999 is estimated at about $1.5 million, and the ads will be directed at both consumer and trade audiences.

"This is really still a work in progress," says Blue. "The ad agency just came on board in March, so they're still in the research and development phase, and of course they presented prototype creative [proposals] when they pitched for the business. But that's obviously being refined and will continue to be refined."

C3 has also hired the Lazin & Katalan Design Studio of New York City to develop a moissanite logo and product image. The studio has done work for jewelry and fashion designers such as Nina Ricci, K. Mikimoto & Co., and Ghurka.

"[The design company's] role is to create a look and a feel and a creative application around the gemstones," continues Blue. "That includes the packaging, the material that is given to a retailer, in store displays.

"The woman who's buying this, there's no reason to market C3 to her. She needs to know moissanite. And because we are the only supplier of moissanite gemstones today, it's not as important for us to brand C3. The real objective is to brand moissanite."

The national campaign is scheduled to debut in late fall.

Blue says that all of the domestic advertising material will be made available to overseas distributors, and they are encouraged to use the same angle used in the United States , promoting moissanite as a unique gemstone and not as a diamond substitute. C3 has the right to review all the material their distributors produce, but the distributors are responsible for translating it into their own languages and applying photography with jewelry they've created.

C3 has positioned itself in the market by declaring moissanite a rival to emerald, sapphire, and especially diamond, which it more closely resembles than any other known gemstone material. The company pushes the product by calling it equal in passion, desire, fire, and brilliance to any other gem. And so far, the public seems to be reacting favorably.

Positive media response was a boon to the Golden Resources jewelry store in Waldorf , Maryland . Owner Randall Heim says his store has carried moissanite since October of last year. "Moissanite was very difficult to market between October and February," he says. "There was no validation until a Washington , D.C. , television station did a segment on it, and starting the next day, and for six weeks, we were flooded. It validated the product, saying, here's a new gemstone that's a synthetic, lab-created gemstone, but resembles other gemstones in brilliance."

Heim says he "thinks it's fantastic" that C3 deals directly with retailers in the North American market, because it brings him right into the picture and makes him an important part of the supply chain.

Moissanite has also done well for Walter Leonard, owner of Leonard's Jewelers in Mount Airy , North Carolina . He says: "There hasn't been a great rush yet, but we have done very well with it. The customers seem well pleased. The pleasure comes from the fact that it tests out as a diamond," meaning that they can get a material that is very close to diamond for only a fraction of the price.

Many retailers have found the moissanite experience rewarding enough to have placed repeat orders faster than the lab can fill them. Most are seeing higher profit margins than they enjoy with diamonds, and some report attracting new gemstone customers because of moissanite's affordability. The stone averages $178 per carat retail, about one tenth the cost of diamond.

Despite the favorable response from consumers, one issue that continues to plague moissanite is the fact that it passes for diamond on many conventional testers, and can therefore be misrepresented.

Several cases of fraud have already been reported. In one instance, a pawn shop owner in Tallahassee, Florida, tested a pair of 'diamonds' on a conventional tester and offered two men $1,600 for the set. It was only after they left the shop with his money that he tested the stones on a moissanite tester and found out they were the synthetics.

"Because of the characteristics of the product, there is some potential for abuse," says Thomas. "We are taking a very ethical, in our view, stance that the product has to be represented and sold for exactly what it is, and nothing else."

Along with some other companies, C3 sells a special tester that differentiates moissanite from diamond. In addition to the tester, there are several low tech gemological techniques that can be used to separate moissanite from diamond.

Because of the potential for fraud, marketing moissanite requires a lot of attention and care. Thomas affirms that working directly with retailers in North America was a deliberate decision on the company's part to keep the product on a short leash.

The domestic distribution chain goes directly from C3 to the retailer, while the international arrangement involves a distributor.

"One of the requirements is that they are only one step above the jeweler. We would not want to put two or three tiers of distribution between our product and the consumer," because that would make it more difficult to control how the stone is represented, Thomas says.

The company depends on Cree Research Inc. to grow the silicon carbide, or SiC, crystals from which the gems are cut. Both Cree and C3 hold patents that should allow them exclusive domination of the market in the foreseeable future.

Moissanite is a rare, naturally occurring mineral primarily found in meteorites and first identified by Henri Moissan in 1893. In nature the mineral is generally very small in size, dark green or black in color, and usually considered unsuitable for commercial gemstones. Cree has developed and perfected a means of growing moissanite crystals of about two inches, and has made them virtually, but not entirely, colorless.

The company is now developing 3 inch crystals in the K L M N color range, while attempting to maximize the yield, which Thomas says is about equal to natural gemstone rough. Production capacity is approximately three times what it was when the company started up. The lab is experimenting with green, blue, yellow, and amber crystals, but Thomas says the focus remains on near colorless gemstones.

Several new offshore distributors have recently been signed, and the product is finding its way into stores in almost every part of the world. In the United States , moissanite is available in more than 150 retail jewelry stores in 30 states.

The forecast for 1999 calls for an output of 120,000 to 140,000 carats, and the bean counters expect earnings of 25 to 30 cents per common share. Presently, the demand for moissanite outweighs the supply, and if Cree is successful in increasing yield, C3 has every reason to remain optimistic that its future, and that of its diamond like product, is bright.

Thomas declares: "In five years we should expect to have revenue in the hundreds of millions of dollars on an annual basis. We would have approximately 2,500 to 3,000 retailers in the United States and we would have total worldwide distribution."

And what would thwart this prediction? "Inability to build the infrastructure and the consumer turning a deaf ear," he concedes.

By Martin Stone

June 1999

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Colored Stone is a bimonthly, international trade magazine that covers all facets of the colored gemstone industry, including new sources for colored gemstones, mining and processing, manufacturing, retail sales, consumer buying trends, marketing and promotion, gem cutting and jewelry design, and technological developments pertaining to the trade.