November 24th, 2005
By Charles Wyndham.
This whole issue of VAS, namely marketing services provided by the DTC or value added services, is becoming more of a talking point as the first six monthly payment comes due.
The thing about VAS is, to use the vernacular, ‘arse over tit’.
The usual business scenario I think most would agree is that you decide that there might be a business opportunity to meet a need, it is investigated, and all being well at that stage a product is launched, and then hopefully bought.
‘Bought’ implies that the potential audience has the right to buy or not.
VAS seems to have been arrived at from a somewhat different perspective.
Its first unique quality was that when announced, a ‘modest’ 2% charge on each customer’s turnover, the product was not in place.
The recent line taken by DTC in justifying its 10% margin in Namibia, also begs the question why there should be the need for VAS, in the first place.
That, of course, was not a concern for the DTC because the customers could not refuse. The lure of another $120 million income as sales head towards $6 billion was overwhelming.
To be fair, it would be for anyone if you can get away with it.
Since the announcement, DTC has been rushing around creating VAS services. These of course included the trip to Wales. More and more management speak has been gushing out of the DTC, but those sightholders to whom I speak do not see any great advantage in the actual product(s).
That is not to say that all is wrong and that some good things have not come out of VAS.
Everyone enjoyed their trip to Wales. But at 2% of turnover it does not represent value for money. Also, surely, VAS claims to provide services for which the client is already paying his broker 1%.
What is worse is that VAS and the need to justify the charge has exacerbated the problems that sightholders have in the DTC telling them how to market the goods. The interference is irritating if not downright damaging and certainly grossly expensive.
Being a service charge, VAS generates some boring issues about tax. Where should sightholders pay the VAS? Will this generate the need for withholding tax? What about Value Added Tax (VAT or GST)?
In South Africa GST is a nightmare in that it takes anything up to six months for firms to get their GST paid back to them.
All this is going to add to more bureaucracy, eat into cashflow, and, above all what is in effect to the sightholder a straight price increase, makes it difficult if not impossible to pass this onto its clients.
So what is a convenient way to try and invent purpose and cash for the DTC really is coming over more and more for what is really no more than a hurried stratagem to dig De Beers out of the financial plight its negotiations with the producers has landed it in.
Botswana used to provide over 70% of the profit in De Beers diamond account. As we have written before on PolishedPrices, last year's negotiations effectively halved the take for De Beers.
This leaves a big hole to fill which clearly DTC’s VAS is a key part of their corrective response, remembering that VAS has the huge advantage to the DTC that the producers do not share in the charge.
If DTC is correct that what they offer under VAS is so effective, as I have said before, why not simply charge clients for those services that clients choose to use?
At the moment, for the clients, who have no choice but to pay, it is simply a great big VAS mess.
Apart from the mess, it is no clearer evidence that DTC / De Beers has not changed its spots and remains at heart a simple monopoly.
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