Why Are Diamonds Relatively Expensive?
The diamond industry has been monopolized by the De Beers company since 1887. Before 1867, diamonds were only found in Brazil and India, and were so rare that even royals had difficulty obtaining them. That all changed in 1867 when a vast supply of diamonds was discovered in South Africa. In order to maintain the perceived value of a diamond, the De Beers company has played on the sentiment of the consumer by linking the diamond to true love and employing strategic marketing campaigns. Does this Spark an idea?
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History of De Beers
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The De Beers company was founded by Cecil Rhodes in 1880. Rhodes managed to buy several claims to diamond mines in South Africa until he owned the majority of them and was able to create a company solely to manage the mines. Rhodes also controlled the distribution by creating "The Diamond Syndicate," which was an alliance of the merchants at the Kimberley mines in South Africa. These merchants agreed to Rhodes' business terms because they all wanted to keep the prices of diamonds high as well as the perception that they remained scarce.
In 1926, German investor Ernest Oppenheimer gained control of the De Beers company. He created a larger company called the Diamond Trading Corporation, which had subsidiaries that dealt with the production and selling of diamonds across the globe.
Marketing Campaigns
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Modern engagement rings have come to be associated with a solitaire diamond, but sapphire engagement rings were popular from the 17th century through the Edwardian period (1900 to 1920). In the 1930s the De Beers company was facing the decline in diamond prices. It began an aggressive marketing campaign that tied the idea of never-ending love to the symbol of a diamond. It saw sales increase 55 percent from 1939 to 1941, and in 1947 the famous slogan "A diamond is forever" was born.
The discovery of diamond mines in Russia in the 1950s resulted in a vast quantity of quality diamonds sized 0.5 carat and smaller. In response, De Beers marketed the eternity ring, a ring made up of small diamonds. During this period the company also marketed the value of cut, color and clarity over size.
In the 1970s the company began to go after the market of larger-size diamonds again. In 2000 De Beers began a campaign for the three-stone anniversary ring that was to signify the "past, present and future" of a relationship. Three years later it began pursuing a niche of independent-minded women with the concept of the "right-hand ring" as a symbol of their assertiveness.
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The Price of Sentiment
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With the help of the advertising agency N. W. Ayers, the De Beers company managed to mold the culture of the United States to psychologically equate love with diamonds. Over the better part of the 20th century the company conducted successful advertising in Japan, Brazil and parts of Europe.
Supply Control
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Part of the strategy by De Beers was that if "a diamond is forever" then the purchased stones would not be resold into the market by individuals, thereby keeping sold diamonds out of the market supply. Up until 2000 the company followed a strategy of supply control by only allowing a certain amount of diamonds into the market each year. De Beers also controlled 90 percent of the world's diamond supply, and used a branch of the company called the CSO or "Central Selling Organization" to market the diamonds. According to a 2009 article in "BusinessWeek," the tight control over supply helped to keep the prices high. The strategy was if a competitor decided to sell diamonds on the market for a lower price, De Beers would flood the market with comparable stones from its vast supply in order to invoke the natural economic pricing power of supply and demand.
Competition
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Since the 1990s, De Beers has taken a few hits to its monopoly. Major diamond mines have been discovered in Australia and Canada, and the collapse of the Soviet Union in 1991 adversely affected its holdings of Russian diamonds. Many Russian diamonds are sold without going through the CSO, and Australia has taken over some of the smaller markets of colored and lower-quality diamonds. Moreover, the Ekati mine in the Northwest Territory of Canada gives only 35 percent to De Beers.
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References
- Photo Credit diamond image by sumos from Fotolia.com
