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1) Keeping balance between supply and demand in order to keep stable prices. De
Beers could do so by purchasing most of diamonds produced in the world, setting a list price and
controlling release of diamonds on the market. It prevented the market to be flooded with diamonds.
2) Marketing diamonds which was beneficial for the whole industry. SCO heavily
advertised for diamonds in order to maintain the notion that diamonds are a scarce commodity
and keep demand high and stable. 3) Keeping demand and supply stable. CSO could project
demand for diamonds and adjust its supply accordingly. It carefully monitored supply pipes and
made sure that retailers and jewelers didn’t stockpile diamonds. CSO then would forecast
producers and the rest of the diamond pipeline. CSO enforced discipline in the whole
market (Ex. antismuggling policy). 5) Controlling quality. Diamonds were sorted and valued
in CSO. By being able to keep prices high, by creating an image of luxury product for customers and
generally sustaining discipline in the market De Beers was able to constantly expand economic pie of the
diamond industry. Table 1 for supply and Table 2 for demand show how economic pie of diamond
2. The strong monopolistic policy of CSO determined the division of economic pie among various players
in diamond industry. The diamond pipeline depicted in Table 4 and Table 5 demonstrate all links of the
chain with De Beers being the main player between supply and demand. The process worked in the
following way: CSO is a channel of distribution for countries with mines (such as Zaire, South Africa,
Botswana, Soviet Union etc.).1 De Beers bough out most of diamonds from them (including illegal
diamonds) and stored them to release according to market’s demand. Neither mines nor sightholders had
power: they had to deal with what De Beers says. Gradually, some suppliers begun to realize that they have
enough capacity to reach to the rest of the chain without help from De Beers. In the 80s because
production capacity of various suppliers increased it became harder for DeBeers to control it. Besides,
1 Even though Siberia stopped contract due to political reasons they unofficial continued to market through CSO.
demand for diamonds changed. Table 6 looks into recent developments on supply and demand side which
3. In late 70s and beginning of 80s De Beers face serious problems.2 Demand side: slow demand;
although enjoying increase in profits from price increase, De Beers foresaw disaster: up to that time
diamonds were forever and not to be resold, as soon as they were hold as investment the exact quantities
in the market at a given time would be beyond De Beer’s control. For example, if many people decide to
sell a lot at once, prices would drop thus hurting the image of diamonds as a rare product. Supply side:
swelling supply; key suppliers wanted to act independently3; although De Beers owned the richest mines in
South Africa, Namibia and Botswana but only accounted for 44 % of the total supply in 1982. The rest
came via contracts with independent suppliers which allowed CSO buy 100 % of mined diamonds on its
We suggest the following strategy: De Beers should abandon stockpiling strategy because the
market is changing and the players should change too. Otherwise, they will not be able to survive.
2 Exhibit 9 shows De Beer’s balance sheet & income statement from 1978 to 1982. It’s cash decreased by 92% to $119
million, while its diamond inventory increased from $294 inventory to 5.8 times to $1,704 million dollars. During this
period CSO’s profit also decreased by half, and its diamond operating profit fell by nearly 3/4.
3 De Beers had similar problems before. However, compared to 1933 when they simply bought
all diamonds to keep the price it wasn’t possible this time because of problems with suppliers.
Here is what the company is suggested to do: 1) Given its current inventory of diamonds (as of
1982) and its limited cash flow, De Beers should be careful of which type of diamonds it
purchases. It should focus investment on gems & near-gems, but not on industrial diamonds. 2)
Switch from “the only one” to “one of the best” position on the diamond market, start competing
for market share by means of advertisement in developing countries such as China and Southeast
Asia to increase demand & thus price. 3) Continue with the intelligence group that helped predict
demand for each particular category to adjust quantity to be released. 4) Implement smarter
marketing strategy focusing on adding value and bring back consumers to the previous
perception of diamonds as a luxury good focus on adding value--through marketing and branding
Table 1
Table shows supply of natural diamonds from 1950 to 1982. Although it flattened in 70s, a
Table 2 show that world’s diamond wholesale value as well as retail value was constantly
Table 3
De Beers’ position
Table 4
Table 5
different commissions.
Table 6