The De Beers Group: Exploring the

Diamond Reselling Opportunity

Strategic Management
Discussion Highlights
Overview to De Beers Group-Background and Early Strategies

Early Industry Challenges and Problem Identification

Details to Pilot Program

Pilot Program: Strategy and Market Analysis

Pilot Program: Financial Aspects

Closing Remarks
 Overview of De Beers Group- Diamond
Industry Leader
• Functional for last ~135 years, • ~2012, branched into related
Survived 2 world wars Business-as “De Beers Group of
• Founded in 1888 in South Africa; Companies”;
• Focussed on mining & Selling of • As of now shares division, 85% with
Rough Diamonds (Upstream De Beers & 15% with govt. of Republic
Business) Botswana (a south African country)
• Till 1970- controlled global supply of
Foundation Progress diamonds for almost 80 years

Early Outcome
Business of Early
• Operational: Controlled Supply; Single Strategies Strategies
Channel of Distribution; 125 Sight holders • 1938-1941- Diamond sales in U.S
• Marketing: 1930s-Associate Diamond as rose by 55%
synonyms of Eternal Love; Men spend 1-2 • By 20th century-80% of U.S brides
month’s salary on engagement rings; 1947- received diamond engagement
‘Diamond is Forever’ rings vs 10% in 1930
 Early Industry Challenges and Strategies
to Handle
• Purpose- To turn Diamond
dreams into lasting reality
Strategies to • Vision-Economies of Scales
• 1980s-New Mines in Countries Handle Challenges across Diamond Pipeline
Russia, Australia and Canada- • Strategy-to safely and
market share fell from 90% in • Consulted with Bain and sustainably maximize the
1980 to 45% in 2000 value of every carat mined
• 1990s-Conflict/Blood Diamonds Company- advised to focus
on demand & branding and and sold
• Synthetic Diamonds • While, revision-Bain &
embrace 4 pillars: Creating
Retail Demand through Company, Mc Kinsey and
branding; Entering luxury one De Beers Group self
Retailing; reducing sight study-suggested “Entering
Early Industry holders 125 to 50; Improving Reselling Diamond
Efficiency Business” could be One
Challenges • No much luck- shares fallen Revised Corporate
Possibility
to 33% in 2015 Purpose, Vision
and Strategy
 Diamonds

• Diamonds were created when carbon atoms are exposed to extreme temperature and
pressure

• The diamond industry can be separated into two distinct categories: one dealing with
gem-grade diamonds and another for industrial-grade diamonds

• About 30% of diamonds are of gem quality and are distributed to experts for cutting,
polishing and jewellery manufacture.

• Remaining 70% of diamonds are sold for industrial applications including cutting, drilling,
grinding and polishing in industrial applications.
 Mine to Customer

• Changes hand 4-5 times, thereby

increasing price up to five times
• Three segments: upstream, midstream and
downstream
Industry Value Chain –
Upstream

• Most concentrated and profitable segment

• Incudes all activities associated with finding and producing “rough diamonds”

• After producing , the gem-quality diamonds are separated from industrial grade and sold to
separate distribution channels

• Issues: demand for rough diamond has outstripped supply since 2019 and is likely to
persist indefinitely
Industry Value Chain –
Midstream
• Cutting and polishing rough diamond and transforming them into “polished”
diamonds

• Cutting process reduces the weight of a rough diamond by 50 – 60 per cent but
increases the wholesale price to $500 per carat

• Dominated by fragmented and low-margin firms located in India and China

Industry Value Chain –
Downstream
• Final segment, consisting of three categories of retail outlets
1. Jewellery store chains: Zale's and Kay Jewellers

2. Speciality Retailers: Tiffany, De Beers, Cartier and Harry Winston

3. Online Retailers: Blue Nile and Union diamonds

• Retail price up to $900 per carat

Industry Challenges –
Conflict Diamonds
• Conflict” or “blood” diamonds—diamonds mined and then sold to finance wars—from
countries like Sierra Leone and Angola

• Consumers could not easily establish the country of the origin of the product

• Kimberley Process(K P) - Multilateral trade regime established in 2003 with the goal
of preventing the flow of conflict. Today, participants actively prevent 99.8% of the
worldwide trade.
Industry Challenges – Conflict
Diamonds
Industry Challenges – Lab
grown Diamonds

• Synthetic diamond being sold as gemstones

• Chemically, physically and visually similar to natural diamond, making them

extremely difficult to detect without specialized equipment
• Hit De beers hard, and it led to 2 key changes:
1. Created Diamond Producers Association
2. Disclosure requirement for synthetic diamonds
Industry Challenges – Lab
grown Diamonds
Industry Opportunity –
Recycled Diamond

• A downstream business -sold to both wholesaler and retail buyers without any
obligation to describe as “recycled”
• Three type of buyers :
1. Individuals who bought through online platforms for general merchandise (e.g., Craigslist and eBay)
or online auctions for jewelry (e.g., IDoNowIDont.com and Worthy.com)
2. Retail businesses including jewelry stores and pawn shops
3. Dedicated diamond buyers such as Circa Jewels and White Pine Diamonds
Industry Opportunity –
Recycled Diamond
• The segment creates opportunity for established players because of following
reasons:
1. Buyer Side : Diamond Buyers are relatively dispersed; absence of trust and lack of transparent
pricing
2. Seller Side: Difficulty to get reasonable price

• End-result: Zero-sum game where, where the jeweler placed greater emphasis on
achieving short-term profits than on building a long-term customer relationships
 Diamond Pricing
Based on 4Cs criteria to classify gemstones:
 Process involved

Cutting & Jewelry

Exploration Mining Sorting Retailing
Polishing Mfg
 The Proposal – Goal

• Launch IIDV as a standalone business unit in 2016 and to capitalize with up to $20 million
over the next three years.

“Our plan is to ramp up buying over the next three years, to generate gross margins of 20%–
25%, and to cover our operating costs of $4 million to $5 million per year by 2018. We don’t
expect IIDV to be a huge profit generator, but we do expect it to break even in the next few
years and then make money in future years as we grow the concept and expand
internationally. And if, over time, we achieve higher selling prices on the stones we sell
through better assortments and re-cutting improvements, we can and will pay consumers
even more.”
The Proposal – Potential risks

1.Opportunity for recycled diamonds—how big was it likely to be, would it cannibalize sales
of rough diamonds
2.How to cope up if the supply increased dramatically as publicity surrounding the new
venture grew
3.Impact on De Beers’ various stakeholders
4.Would a business unit dedicated to reselling diamonds undermine the deep-seated belief
that “diamonds were forever,” or anger wholesalers who regarded De Beers as an upstream
supplier rather than a midstream competitor in the trading of polished diamonds
 The Proposal – Unknown Unknowns

1. Higher prices for recycled diamonds to affect prices of either new-to-market polished or
rough diamonds

2. Will demand for diamonds increase due to improvement in reselling experience

3. Would increase in demand help De Beers

Reselling Diamond Business
Opportunity: Supporting Facts
Per Bain & Company-trade in reselling diamond was ~$1 billion in
2014 (3 to 5% of whole segment)-par with 35% of recycled gold
McKinsey & Company Indicated Same as part of firm’s growth avenue

Bad experience of Customer market not offering fair reselling price;

lack of trust b/w buyer & seller – less likely diamond purchase in future
by customers = reduction in demand

2 New companies in reselling (in diamond, jeweller, watches)-

expecting revenue $50 million in 2015
 Financial Aspects
The De Beers Group’s financial strategy is highly feasible. This is because the company already operates along with
this mission and has high levels of market research and information regarding high-income groups. This information
could be utilized to create a suitable menu for high-income groups. At the same time, the company also has the
financial power to introduce premium menu items for the higher class – to expand its menu accordingly. Thus, as
such, the strategy does not pose any risk – financially and otherwise and is also palatable for stakeholder reactions
with promises to give high returns. The De Beers Group Exploring the Diamond Reselling Opportunity may use
environmental issues to adjust financial, natural, and social performance.
UNIQUENESS
The company has a unique and diversified portfolio. This has allowed it to penetrate different consumer groups. And maintain income from
different streams. Into urn, that gives a strong financial cushioning to the business.

ACCEPTABILITY
The strategy on financial investment appears moderately acceptable because it poses a risk through diversification with high levels of finances
invested, the company can never be too sure of the consumer reactions.

FEASIBILITY
The company can afford to increase its budget for marketing purposes because the company has a strong financial standing. However, for the
strategy to be successful, it is important that the company makes sure that all promotional campaigns developed are in sync with consumer
needs, demands, and behavior.
Marketing mix
Product Price
•The company has a unique and diversified portfolio. This has allowed it to •The De Beers Group Exploring the Diamond Reselling Opportunity ensures
penetrate different consumer groups. And maintain income from different competitive pricing in the industry among the high number of market players.
streams. Into urn, that gives a strong financial cushioning to the business. •For new products, the De Beers Group Exploring the Diamond Reselling
•Brand-building activities built positive associations for The De Beers Group Opportunity maintained an introductory pricing strategy to encourage trials and
purchases.
exploring the Diamond Reselling Opportunity which led to repeat purchases as
well as high consumer loyalty. •For its star products, the company maintained penetrative pricing strategies to
allow maximum trial.
•The De Beers Group ensured that its products were available in different SKU
sizes to cater to the needs of different groups within its target audience. They •For mature products, the De Beers Group engaged in aggressive and
also offered a warranty for their products. competitive pricing. It offered regular discounts to appeal to consumers, clear
stocks, as well as for increasing footfall.

Promotion Placement
•The De Beers Group Exploring the Diamond Reselling Opportunity used •The De Beers Group Exploring the Diamond Reselling Opportunity ensures that
traditional promotional platforms of television to reach the masses with its all its product offerings are highly accessible in physical retail setups like
product portfolio and also engaged in radio and print promotional activities and supermarkets and hypermarkets as well as e-tailers such as Amazon so
advertisements. consumers can easily access the products.
•The company used social media as the modern promotional mode to reach out •The Company also has an online system on its website for managing orders
to its audiences and influence them. placed directly using the company website/platform.
•They have developed expertise in interesting and relevant content creation, •Besides, it has a strong distribution network, as well as competent and quick
which attracts its primary as well as secondary target consumer groups and consumer service.
uses influencers to create a positive buzz and hype regarding its products, as
well as to ensure high reach.
•All promotional content is integrated and uses emotional appeals to create a
lasting relationship with the consumers.
Value Chain
•The core capabilities and strengths of the De Beers Group Exploring the Diamond Reselling Opportunity have enabled it to overcome obstacles and challenges and achieve its strategic
goals and targets.The core strengths and competencies of The De Beers Group Exploring the Diamond Reselling Opportunity form an important part of the company’s value chain.

Primary Activities Secondary activities

•Inbound Logistics- These activities of Diamond Beers are associated with receiving, storing, •Firm Infrastructure- Firm infrastructure support activities at Diamonds Beers consist of activities

and disseminating the inputs of the products. It can include material handling, warehousing of such as – general management, legal services, quality management, finance accounting, and

physical products, as well as architecture to receive and store customer information for digital planning. It supports the entire value chain though the scope varies given that Diamonds Beers is

media companies. Diamonds Beers at present has outsourced most of its inbound logistics a diversified company even within the industry. For example, the finance and planning at

activities. Diamonds Beers are managed at the corporate level while quality management, accounting, and
•Operations- Activities that help the organization transform raw materials into finished products. legal issues are managed at the business unit level.

For the purpose of this article, the definition is broad – it can mean using customer data to serve •Human Resources Management- HRM support activities include – Recruiting, Hiring, Training

advertisements based on usage behavior to clients, molding plastic to make products, etc. and development, Selection, Skill Assessment, People Planning, and Compensation at both the
•Outbound Logistics- Diamonds Beers undertakes these activities to distribute the finished business unit level and corporate level. Human resource management affects competitive

products to channel partners and final buyers. Outbound logistics activities include – advantage in any firm, but in some industries, it is a defining factor.

warehousing, scheduling, wholesalers and retailer’s order fulfillment, distribution network, and •Technology Development- Technology supports almost all activities in modern-day

processing. organizations. In the technology industry, technology development has become a source of
•Marketing and Sales- These activities are undertaken by Diamonds Beers to create means competitive advantage. Technology development at Diamonds Beers may include activities such
through which the buyer can buy a firm’s products. These activities include – channel selection, as - process engineering, feature design, technology selection, field testing, and component

sales force management, advertising and promotion, pricing, marketing, etc. design.
•Services- Diamonds Beers needs to provide after-sales services and maintenance for •Procurement Activities- Procurement activities at Diamonds Beers include activities that are

successful usage of the product. Service activities of Diamonds Beers can include – post-sales undertaken to purchase inputs that are used by Diamonds Beers’s value chain. It doesn’t include

maintenance, installation services, training, part supply, and product forward and backend purchase inputs themselves. Like all other value chain activities procurement also employs

alignment of software. technology for things such as – procedures, vendor management, information systems, supply
chain partner qualification rules, and ongoing performance evaluation.
 VRIO Analysis
Value Rarity Imitability Organization

engages and invests in holds special patents and enjoys high brand apply innovation as well as
acquiring advanced and licenses for manufacturing equity based on new knowledge for
progressive technology for processes, as well as for being consistently high improving existing
operational efficiency able to manufacture off-site in deliverance of product processes and schedules
other countries quality within the company

Focus on extrinsic as Network

Strong research and Rare product offering at well as intrinsic
development capacity lower rates development to
drivers for employee support its
performance operations

focuses on research has access to unique raw

and development materials, which helps it based on the unique values, access to advanced
internally to identify maintain high quality as and implementation of the physical
market gaps and well as differentiation in same – including infrastructure and
demands its product offerings transparency, honesty, and international
commitment exposure
De Beers is quite capable of diamond sellers. high price. other.
exploiting the opportunity of
increasing profit margins and Most of the purchaser of used Competitors like Pawn Shops, The firm is quite able to explore
demand for diamonds, as it diamonds do not provide high individuals etc. have less capability the opportunity, as it has tried it in
provide a possible price, much value to the sellers, as they are of providing high price to the its pilot program and got favorable
closer to the wholesale price to unable to detect the quality of the diamond seller, as they have lack results from it.
diamond provided, thus charge a of trust worthiness among each