Summary Harvard Case

The De Beers Group: Exploring the Diamond Reselling Opportunity

The diamond Industry:

o Diamonds were created when carbon atoms were exposed to extremely high temperatures
and intense pressure. The resulting stones were so hard, they were suitable for wide variety of
industrial applications and sold for prices ranging from $1 to $20 per carat.
o Are valued as gemstones because of their radiance. Don’t depreciate because a newly
diamond is the same as a diamond discovered 200 years ago because they both are billions of
years old.
o 4 Cs to classify diamond gemstones and define the cost:
 Carat: measured the stone´s weight
 Clarity: measured the existence of blemishes such as feathers, clouds, and chips.
 Color: although diamonds naturally came in many colors, including red, green, and
blue most diamonds were clear.
 Cut: a diamond´s cut affected is sparkle, the shape also affected a diamonds
appearance and value.

 The diamond industry value chain

o A s a diamond moved form a mine to the retail customer, it could often change hand four to
eight times as its price increased by up to five times.
o Industry analysts divided the value chain into three segments:
 Upstream: the most concentrated and profitable segment, included all activities
associated with finding and producing rough diamonds.
 Midstream: include firms responsible for cutting and polishing rough diamonds and
transforming them into polished diamonds.
 Downstream: consisted of retail outlets including single- site jewelry stores, jewelry
store chains, specialty retailers and online retailers.

 Selling the Diamond dream: a Diamond is forever

o In 20 centuries, De Beers sold diamonds for engagement rings, the people considered
diamonds to be a luxury item and preferred it spend their money on more practical items.
o Ayer was an advertising campaign to promoting diamonds as synonymous with the romance
and a testament of true love. Also recognized that the way to keep prices high was to keep old
diamonds of the market. The company increased the demand and created a new slogan “A
Diamond is Forever”, the slogan captured the idea of eternal love and encouraged people to
hold onto their diamonds forever.

 Industry Challenges
o The rise of conflict diamonds (diamonds mined and the sold to finance wars) and undisclosed
synthetic (laboratory- grown) diamonds threatened to reduce the value of natural diamonds.
 o 1- The consumers could not easily discern the provenance of most diamonds, the
governments, industry, and civil society developed a certification scheme to prevent conflict
diamonds from entering the legitimate trade.
o 2- These gemstones were chemically, physically, and visually similar to natural diamonds,
making them extremely difficult to detect without specialized equipment. As a result,
consumers could easily be tricked into buying synthetic diamonds from sellers who did not
disclose their origins. The company and other six diamond companies created the Diamond
Producers Association and began a series of advertisements to promote natural diamonds
with the slogan “Real is rare”

The De Beers Group, a Subsidiary of Anglo American

 De Beer´ Strategy: From controlling supply to driving demand

o As the financial pressure mounted, De Beers heired Bain & Company to conduct a strategic
review of its businesses, they recommended thar shift from controlling supply to driving
demand in the downstream segment
o The new strategy proposal had four pillars
1. Creating retail demand through branding
2. Reducing the number of Sightholders from 125 to 50 thereby strengthening
these partnerships and encouraging them to invest in branding
3. Entering luxury good retailing
4. Improving efficiency

They launched with Luis Vuitton and each polished diamond that was eligible for the
forevermark brand was inscribed with an icon and a unique identification number to
prove that it was beautiful, rare, and responsibly sourced.

 Recycled Diamonds
o Recycled diamonds were sold to both wholesale and retail buyers with no obligation to
describe them as recycled.
o When people chose to sell their diamond jewelry, it was far more difficult to get a
reasonable price then it was to find a buyer.
o Buyers of recycled diamonds fell into three categories
1. Individuals who bought through online platforms for general merchandise
2. Retail businesses including jewelry stores and pawn shops
3. Dedicated diamond buyers
o The absence of trust did occur, because the buyer send a large amount of cash to an
unknow seller and if the seller had a grading certificate, a byer might not trust its
authenticity. Also, most individuals could not assess diamond quality or history.
o At the same time, it was difficult for sellers to get offers anywhere close to wholesale
prices in part because jewelers could buy newly mined diamonds at wholesale prices. Low
offers could easily offend customers.
o For these reasons, process of recycled diamonds were far below wholesale prices.
 The pilot program
o The goal at this stage was to understand how recycling worked, who sold diamonds and
why , what factories affected the selling experience , could consumers be served better
and could we launch and operate a profitable business in the sector.

After surveying more than 3,000 people and conducting focus groups and in-depth
interviews with more than 100 people, we learned that consumers really didn't like the
sales experience, largely because the prices were very low, and they did not trust the
buyers. The experience was so disgusting indeed that some people said they were sorry
they bought the diamonds in the first place and that they were not likely to buy more in
the future. Clearly, this represented a pain point for consumers and a major risk for the
industry.

Surveys revealed that people generally sold diamonds for one of four reasons: heartbreak
(financial hardship: 60% of sellers), divorce, death, and disinterest.
The four types of salespeople could be future customers in different circumstances

Fue un éxito y el no sabia si funcionaria por un largo periodo si venia una recesión
económica.

 The proposal: Launch IIDV as a Standalone Business Unit.

o IIDV's growth and early successes convinced Montgomery that it should
seek approval for launch IIDV as an independent business unit.
o As the scale increased, Montgomery argued, so would the margins:
improve capacity utilization and achieve higher premiums by creating
more attractive assortments.
 Questions

1. Why do diamonds sell for such high prices?

Because its extraction process is difficult and expensive. In addition, so that they can reach
the hands of retailers and then consumers, they must go through many intermediaries,
which causes their price increased.
Due to its extraction process and also because for the transfer of the mines to the seller
and then to the client, the diamond goes through many intermediaries which causes its
price to increase.

2. Why do pre-owned diamonds typically sell for such low prices?

Because it is difficult to evaluate the quality or the history of the diamond, they must sell
them cheaper so that the client agrees to buy without having the assurance of
authenticity. The profit margins are much lower when reselling a diamond.

3. Why is De Beers exploring the diamond reselling market?

Because conflict diamonds and synthetic diamonds appeared on the market and were sold
much more.
In addition, more competitors appeared, and the supply of diamonds increased, causing
De Beers' market share and capital to fall.

4. How does the creation of IIDV affect the market for polished diamonds?
It helps because re-polishing diamonds for resale makes diamonds valuable again,
increases in price, and sellers can earn more.

5. How does the creation of IIDV affect the market for rough diamonds?
It also helps because by having the opportunity to review the offer both the seller and the
buyer can accept a fair price, also the buyer's experience would improve and therefore
sales would increase.

6. As Tom Montgomery, how would you convince the De Beers Executive Committee to
launch IIDV as a standalone business unit?
I would also sell the project to them as a way to help the environment, since it is known
that in this market natural resources need to be exploited. With this option to focus more
on recycling these diamonds and re-selling them, it could attract other types of consumers
who are more aware of environmental problems and create closer relationships in the
supply chain.

7. As a member of the De Beers Executive Committee (say from Anglo American or the
Government of Botswana/, would you vote to end the pilot program, to extend it for
another year, or to convert it into a standalone business unit?