De Beers Case

Lissete Ramos Altamirano

MAK 0301E

Prof. Noah Federicci

September 08, 2016

De Beers Case

De Beers`s problem statement is that their revenues were declining. They had liquidity problems, less return on equity and as well as cash reserve. Also, they had bloated diamond stockpile, or rather, in the market the stock of diamond was distended. To understand this case it is necessary to review the De Beers´s story. In 1983, the marketplace was saturated of diamonds, and there were problems with public relations. There were also rumors of DeBeers´s demise. Then they made contract negotiations with key suppliers and emerging suppliers from developed countries.

De Beers managed the supply of rough diamonds to world market as a luxury product since 1934 to 1994, to be cut and polished, then sold and turned into jewelry. In 1998, economy recession decreased the demand of rough diamond in nearly half. As a consequence, De Beers started the promotion of diamond jewellery through advertising campaigns. The spent around US$200 million per year on this. It is important to say that according to De Beers the global retail market for diamond jewellery growth 40% more that the rate of inflation from 1980 to 1997. And, from 1986 to 1998 the rough diamonds` prices have raised, due to the CSO.

One of the most enduring and effective slogan was “A Diamond is Forever”, a phrase that also appeals to an emotional attachment. The diamond engagement ring became “a gift of love” in the United States and then became global. After that De Beers extended it to others events and rites such as youngster´s coming of age, or a couple´s 25th wedding anniversary.

In the mid-60s De Beers entered the Japanese market with the same slogan “a gift of love” because they considered that the personal incomes were higher and the Japanese society to western ideas. Later, Japan was taken the role model for ever countries because they were the second largest market in the world in diamond jewellery behind the United States. However, size and quality of the diamond was so much greater that prices were more than double, so the ownership rates were very high.  

Being the diamond prices so high the advertisement campaign focused on engagement rings. They started using sentences like the “ultimate treasure stone”, “a beauty and unmatched by others gemstones”, and “contemporary and modern”. As the engagement ceremony in Japan didn´t use the gift of diamond rings, De Beers made the first cinema advertisement that showed an unrealistic Hollywood scene from the 60s, for young people in Japan. The result was that women receiving a diamond engagement ring went from zero to 76%. The problem with this was that after the wedding the women did not dare to wear such an expensive ring. In spite of the recession, the diamond ring held steady for couples to be married. But, by 1996 the art recession rate were down to only 64% due to the new generation was against formal tradition.

In effect, the publicity advertisement adapted to the consumer behavior and to every change in society style to make people buy the diamond, for example the romantic period, the Hollywood period, the traditional period and then the ads directed to the actual women: free, independent and self-sufficient.

To analyze this case, it is important to study the macro-environment as well as the micro-environment. In the macro-environment we have factors such as political, economic, technological and socio-cultural. The micro-environment is about the consumers and suppliers' characteristics.

Political Sector

Analyzing the political sector and legal of De Beers Consolidated Mines Ltd., we need to study the taxes subject besides the fact that the existence of monopolistic politics may benefit the company in many cases. The good relationship between countries are an important factor in the moment of purchasing and selling the diamonds, because a good relationship may influence on obtaining lower prices. The supply and demand of diamonds and the different individual concessions consolidated monopolies, constantly increasing the income and receiving payments in right individual way. The location rights are a strategy to consolidate. The creation of syndicates and the associations between companies influence the creation of an enterprise empire.

Economic Sector

After the great recession, the cut and polished diamonds' prices fell down around 50%. The decrease of production and the purchase of diamonds in order to avoid the bloating in the market, having to re-negotiate the agreements of debts with their clients, is a factor that changed the scenarios in which the company actually is and how those can influence them on the competitors.

​Technological Sector

​The process of diamonds is divided in the four main categories are: carat, clarity, color and cut what make innovation a factor which could generate an increasing in the industry and create a competitive advantage in relation to its competitors, offering besides a better quality. Diamonds can be valued depending on their category. There are four main categories and 14,000 categories for detailed evaluation. The use of right, proper and actual technology in this industry is very important for the process of exploitation as well as commercialization and not to have it, creates high barriers to enter the market.

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