The Development of The Diamond Industry Through an Analysis of De Beers

Diamonds together with graphite are the solid form of carbon. The difference is in the molecular structure, which makes it the hardest known material and the one with the greatest thermal conductivity. It is extremely resistant to melt (melting point of 4090° C) and has high electrical resistance, making it attractive for numerous applications. Many of these unique characteristics can be explained by their formation process. Diamonds were formed billions of years ago, under extreme pressures and temperatures of the earth mantle and then carried to the surface through volcanic geological activity. Initially, they were only found in India and Brazil, in secondary alluvial deposits, but in the 18th century, it was discovered the first kimberlite pipe in South Africa, greatly increasing the scale of extractions. Over the years, many other diamond reserves were discovered, however, not all of them are economically viable, making the diamonds extraction concentrated in around 50 mines worldwide. Nowadays, Russia, Botswana, Canada, Democratic Republic of Congo and Australia account for more than 80% of the diamond global extraction.

De Beers is arguably the biggest player in the diamond industry of the past century. Founded in 1888 by Cecil John Rhodes, a British business magnate who bought several mining claims during the South African diamond rush of the late 19th century, the company focused on acquiring and consolidating as many South African diamond mines as possible and in so doing, created a monopoly on the production and distribution of all diamonds coming out of South Africa. It is estimated that by the time Rhodes died in 1902, the organization controlled 90% of the world’s rough-diamond production and distribution.

Under the leadership of Ernest Oppenheimer in the 1930s, De Beers established the Central Selling Organization (CSO), a “marketing and distribution channel” also known as a cartel, through which most of the world’s diamonds were traded. They used to establish exclusive contracts with diamond suppliers and buyers. Each year, De Beers would announce the number of diamonds it planned to sell through the CSO, and every producer would be guaranteed a fixed percentage of the total output. By controlling the supply of diamonds based on demand and other market forces, De Beers maintained steady price levels for its diamonds. Small, less competitive producers outright used to sell their diamonds to De Beers and any excess diamonds which were produced would be bought by the company and kept in a stockpile to be sold in subsequent years.

The resilience of diamonds as a prized commodity can largely be attributed to De Beers’ ingenious marketing strategy. After the Great Depression of the 1930s, there was a decline in diamond sales across the globe and the company contracted a US-based advertising agency, N.W. Ayer, in 1938, which created an extensive marketing strategy to attract more customers. Targeting young, soon-to-be-married men, the basic premise of the campaign was that diamonds were a true sign of love. As such, men should buy expensive diamond rings as a sign of the love they have for their soon-to-be-wives. They used movie stars, celebrities, billboards, ad placement in movies to normalize the idea that you need to buy a diamond ring for every wedding proposal, wedding, anniversary, and any special occasion where love is the theme.

Recently, Synthetic Diamonds for long used in industrial applications started to be produced with gemstone quality. Initially, DeBeers resisted entering this market, investing around $17 million on research to differentiate natural and synthetic diamonds, supplying the labs at no charge with machinery designed to distinguish man-made from natural stones. However, in 2018, the company launched its own laboratory-grown diamonds through its Lightbox jewelry brand. A 1-carat synthetic diamond cost about $4,200 while an equivalent mined-gem is sold for $6,000. But De Beers has been selling gem-quality man-made stones for just $800 a carat. It says it wants to create a clear distinction between lab-grown diamonds and natural gems. However, nowadays, the branding of lab-grown gems may represent a threat to the 130-year-old company and could undermine the natural diamonds business.

Diamonds Presentation


Author: GEN