De beer's diamond dilemma case study

A case study on De beer's and the strategies used by them

1. Case Study on De Beers Diamond Dilemma Submitted by Arpita Tripathy

2. Summary De Beers is the world’s largest diamond mining and trading company in the world. At one time it controlled 45% of the world’s production and sold over 80% of all diamonds. It used monopolistic practices By using their massive size and control of the market, financially punished smaller miners and retailers who tried to break away from the De Beers “empire". It controlled most of the diamond cutting and polishing industry.

3. Summary However over the years due to Government oversight the advent of synthetic diamonds other reasons this monopoly of De Beers is under threat. Due to all of this the diamond industry is under disruption. It will be interesting to know How De Beers from a listed company focusing on supply control to a privatized company focused on driving demand by addressing challenges and setting new strategic goals.

4. Diamond Pipeline The Diamond Pipeline, the diagram above shows the key stages within the diamond industry .

5. Value Chain

6. Starting from the mines, De Beers held a monopoly in the market of producing 45% of the world diamonds. They always kept stockpile of diamonds which gave them the competitive advantage . They were controlling major diamond producing mines in the world. They sent diamonds to India for cutting and polishing as Indians only took $10 per crate to do the work. After the new political laws, conflicts De Beers changed the strategy and eliminated the stockpile method. They also listed sight holders which were legal and safe for suture transactions.

7. Contd….. DeBeers’s Forever mark, a tiny logo that was etched into natural diamonds. The Forever mark diamond was sold in Hong Kong, China, Japan, and India . Sight holders also benefited from DeBeers’s marketing data. Those sight holders that successfully built strong brands were partially reimbursed for the money they spent on advertising and marketing efforts. They also came into retail and wholesaler sector as well and began selling jewelry.

8. 23. Do not look for cost reduction Business Model Supplier Manufacturer -Produce based on forecast Consumer -Purchase what is pushed by the supplier Retailer -Hold inventory/ stock based on forecast Distributor -Buy products from Manufacturer Supply Driven Model A push-model supply chain is one where projected demand determines what enters the process. Push Model (De Beers) (Namibia, South Africa , Botswana) Sight holder

9. Supplier -Supply to order Manufacturer -Produce to order Consumer Retailer -Automatically replenish stock Distributor -automatically replenish warehouse Pull Model Change in Business Model (1998) Demand Driven Model D emand driven supply model operates on a pull-based customer-centric approach and allows demand to drive supply chain planning and execution (De Beers) (Namibia, South Africa , Botswana) Sight holder

10. P Political 1989 Alrosa entered into joint venture with Leviev Established Country’s first cutting factory Stones was supplied directly by Russian mines not through De Beers 1991 Soviet union disintegrated De Beers unable to enforce contracts Russian Diamonds were being smuggled onto international market causing prices to fall 1999 Namibia inserted a clause in new law permitting the government to force miners to sell a percentage of their diamonds to local polishers. External Factors

11. S Social T Technological 1950 Synthetic diamonds were lab created with the use of much easier processes like HPHT (High Pressure High Temperature) and CVD(Chemical Vapor Deposition) Turning into a public relations nightmare for the entire diamond industry by buying “blood diamonds “,the proceeds of which went toward financing the armed conflict

12. L Legal 1994 Indictment ,The US Accussed De Beers of violating the Sherman Antitrust Act by fixing the prices of industrial diamonds 2004  De Beers pled guilty and paid a US$10 million fine to the United States Department of Justice to settle a 1994 charge. 2005 South Africa passed Diamonds Amendment Act Establishing a State Diamond Trader as well as Diamonds & Precious Metals Regulator E Environmental Diamond Mining had taken a toll on land based wildlife habitats Diamond Mine required the use diesel to operate, adding to the production of greenhouse gases Synthetic Diamond was eco-friendly than natural diamonds

13. STRATEGY IMPLEMENTATION Strategy of controlling supply cost both financially and legally. Held back a large portion from market Purchased much of the excess supply often at inflated prices Control over buyers Situation: Early 1990s, De Beers ruled diamond industry Integration with Soviet Union Emergence of 3 producers. Emergence of Canada Situation : Collapse of Soviet Union Introduction of anti trust regulations by US and Europe. Accused for price fixing of industrial diamonds Involvement in “Blood diamond” trade was exposed Fall in market share (85% to 65%), share price ($17-$12). Growth of its diamond stockpile Strategy

14. STRATEGY IMPLEMENTATION Demand centered Strategy Ended stockpiling diamonds Sold only from own operations (conflict free) “Supplier of choice” Sales and Marketing Strategy (Shift of importance from financial strength and manufacturing to marketing savvy) Forever mark (tiny logo etched to guarantee natural, ethically traded and non treated) Collection of marketing data(studied consumer buying habits &patterns, no. of engagements worldwide) CSO(Central Selling Organization) was renamed as DTC (Diamond Trading Company) Positioned its diamonds as branded luxury items Marketing : BOSTON based wholesaler selling branded diamonds called “Hearts on Fire”(pattern-hearts and arrows) marketed as “the world’s most perfectly cut diamond” In 1999, DeBeers entered into the brand world by marketing a limited-edition (20,000 stones) Millennium diamond, engraved with the company’s logo and the year 2000. The Millennium diamond’s campaign came with a tagline of, “Show her you'll love her for the next thousand years.

15. Marketing (contd.) : Non-wedding advertisement campaigns were launched including the “Celebrate Her” campaign. “Women of the World Raise Your Right Hand” campaign, which encouraged women to indulge in a diamond ring to be worn on their right hand as an expression of personal style. New messages enticing consumers to buy diamonds for purposes other than engagements STRATEGY IMPLEMENTATION Retail Strategy In 2001, DeBeers entered into a joint venture with LVMH to open up a series of retail stores. Diamond jewelry was sold under the DeBeers name. By early 2007, DeBeers had 22 stores spanning the United States (3), Europe (4), the Middle East (1), and Asia (14). Public to Private Strategy Delisted from the Johannesburg Stock Exchange where it had traded since 1893. DeBeers became the world’s largest private diamond mining company.

16. STRATEGY IMPLEMENTATION Defensive Strategy 1 .Gem Defensive Program In 2000, Co. began supplying gem labs, at no charge, with machinery designed to distinguish man-made from natural stones. DeBeers had spent $17 million on research to differentiate natural and synthetic diamonds. 2 . Consumer education In anticipation of the movie Blood Diamond, DeBeers launched a completely different kind of diamond advertisement campaign Ads focused on how the industry provided mining communities with access to employment opportunities, schools for its children, and access to anti-HIV drugs for its mine workers. gave the general sentiment that buying a diamond from Southern Africa was “an act of altruism.” Means to Strategy : Cooperation among competitors: -In 2004, the company discovered 39 new diamond deposits and signed marketing agreements with producers in Canada, Botswana, India, Democratic Republic of the Congo, the Central African Republic, Russia, Australia, Brazil, and Madagascar Joint venture/Partnering: -In 2006, signed an agreement with the Botswana government to establish the Diamond Trading Company Botswana -In early 2007, DeBeers signed a similar agreement with the Namibian government.

17. Current Scenario The brand, called Light box, will offer synthetic diamonds at a fraction of the price it charges for stones pulled out of the earth . De Beers framed the move as a response to consumer demands . By stepping into the man-made diamond industry, De Beers can control the man-made diamond market, flooding it with diamonds and driving prices down. Perhaps the underlying goal is to both suppress and control the burgeoning market which has threatened their decade's long control of the diamond industry. 

18. References https:// www.debeersgroup.com/media/company-news/2018/de-beers-group-to-launch-new-fashion-jewelry-brand-with-laborato https:// www.thenational.ae/business/markets/de-beers-entry-into-synthetic-diamonds-shakes-up-lab-stones-producers-1.736384 https://www.forbes.com/sites/trevornace/2018/05/30/de-beers-gives-in-and-begins-selling-lab-made-diamonds / https://www.nicct.nl/new/wp-content/uploads/KPMG-Gems-Jewelry-report-2006.pdf