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Polished Diamond Market Boosts Demand for Generic Diamonds

1990: Polished Diamond Market Has Been Facing Lumps for Past Years

March 1998

It may be the biggest news to hit the diamond market in the last decade, or it may be not much at all. That’s the market reaction to De Beers’ announcement that it will test-market diamonds whose tables are inscribed with the name "De Beers" and an individual security number. The test will take place at a retail chain in England later this year.

The inscribing uses a special process that is invisible to the naked eye and a loupe. But while the current effort is only a test, De Beers already seems to be looking ahead, noting that it may offer the service "to sightholders and involving leading jewelry manufacturers and retailers."

The benefits for De Beers are many. For one, if the test proves that consumers are interested in the "De Beers" name, it could boost overall sales by increasing consumer confidence. (De Beers said it is would be similar to the "Woolmark and appellation controllee in wine.") And if a successful synthetic gem diamond ever comes on the market, it would give consumers an easy way to distinguish "natural" stones — no laser-drilled or filled stones would be granted the De Beers mark.

Furthermore, the service would only be offered to De Beers sightholders, and so it would be a way to give added value to its sometimes-ornery customers, similar to the way sightholders have become the point people for J. Walter Thompson's co-op programs.

And finally, if the program is expanded, and De Beers-inscribed stones are indeed valued more than others, then that would give miners more incentive to join the cartel — and mean De Beers wouldn't be spending its $200 million advertising budget on "other people’s" stones.

Still, there are a lot of unanswered questions. For one thing, the strategy could backfire — with other producers entering into the fray with their own brands. The Russians could emphasize their finely cut stones. Argyle could promote themselves as the fancy-color brand. Perhaps Canada could even sell its own branded diamonds in a "Buy Canadian" campaign.

Another question raised: How would it be efficient for De Beers to sell rough to sightholders, then have the sightholders send the stones back to De Beers for inscriptions? (Some think De Beers might have to set up inscribing offices in the cutting centers, which may not be possible in New York, for anti-trust reasons.)

Some also wonder if the distribution of these diamonds will be tightly monitored, and if so, what would happen to the standard distribution channels? And how could De Beers ensure it was inscribing its rough, and not other people’s? (After all, most sightholders buy rough and polished from many sources outside De Beers.) Similarly, how could De Beers ensure its inscribed stones remained "pure" — without any filling or drilling? And if De Beers starts advertising its own products in the U.S., will that catch the eye of anti-trust regulators?

And finally: If De Beers starts advertising its own stones, does that mean it will stop advertising diamonds as a generic product? This could be the most important issue of all. De Beers has always maintained that its single-channel system works for the good of all by increasing demand for diamonds as a generic product. But in the last few years, the "single-channel" system has taken some lumps.

Although the overwhelming majority of the world's diamonds are still sold through the De Beers cartel, it is no longer a given that new producers will continue to do so. And recently there have been a number of prominent defections, including Argyle and the Congo.

Until now, most of the defections have been in the small stone area, which many think that De Beers no longer has much interest in marketing. But if the large stone-rich Canadian mine does not sign up — and due to anti-trust reasons, some think the chances are "iffy" — it could hurt De Beers’ control of the big-stone market.

Indeed, at a recent conference, De Beers Managing Director Gary Ralfe speculated that, if the company loses more market share, it may one day have to promote its own diamonds "rather than giving a free ride in promotion to those diamonds which remain outside the CSO system."

And so this so-called "branding" test could be De Beers’ way of acknowledging the old order has changed. Which is why a small test at an English retail chain could turn out to be big news indeed.


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