Impact of De Beers on the lab-grown diamond industry

Image Courtesy De Beers
February 19th, 2020

Since De Beers abandoned its decades-old policy of refusing to trade lab-grown diamonds jewelry. The value gap between CVD diamond stones and natural diamonds has widened – and therefore, the difference is about to get even bigger.

When De Beers shocked the industry with its U-turn in May, a 1-carat synthetic diamond cost about $4,200 while the same mined gem sold for $6,000, but since September, De Beers has been selling gem-quality CVD diamond stones for just $800 a carat.

Why De Beers Play an Important Role in Lab-grown Diamonds IndustriesDe Beers says it wants to make a transparent distinction between lab-grown diamonds and natural gems. The hope is that this will reinforce the mystique of stones formed within the earth’s crust, so consumers keep buying them for major events like engagements.

By diversity, its synthetic diamonds are grown in Britain at its Element Six labs. And traded in jewelry subsidiary Lightbox are marketed as sparkly, pink, blue, or white fashion accessories that are neither as rare nor precious as original gems.

The risk for the 130-year-old De Beers, which coined the marketing tag “A Diamond is Forever” in 1947, is that it is the branding of lab-grown gems that could undermine natural diamonds.

But so far, De Beers’ tactics have been working. According to analyst Paul Zimnisky, the standard discount of a 1-carat generic lab-grown diamond to a natural diamond had increased to 42 percent by mid-November from 29 percent in January.

At a similar time, production costs to create high-tech diamonds during a laboratory have plummeted to as little as $300 a carat from about $4,000 over the past decade, according to experts Bain & Company and two former De Beers’ employees.

That means De Beers has many scopes to cut prices further, to strengthen the cachet of natural gems and to undermine synthetic diamond competitors that are earning large margins in recent years, analysts say.

The cost of those CVD diamond will go right down to production costs and competitive profit margin. There’s no shortage, said Martin Rapaport, who writes a listing of natural diamond prices regarded by many within the industry as a benchmark.

“A Diamond Is Forever”

These four iconic words have looked in every single De Beers advertisement. Since 1948, and AdAge named it the #1 slogan of the century in 1999.

According to a new York Times article, the lady behind the signature line. I came up with it right before bed one night after forgetting to brainstorm it earlier for the future morning meeting. When she reviewed what she’d scribbled down the night before, she thought it absolutely was “just OK” — and, after presenting it at the morning meeting, nobody was particularly enthusiastic.

It’s unclear why the slogan was picked anyway, but it had been a choice that might contribute greatly to De Beers’ tremendous advertising success.

The slogan perfectly captured the sentiment De Beers was going for that a diamond. Like your relationship, it is constant – while also discouraging people from regularly reselling their diamonds. As mass reselling would upset the market and reveal the alarmingly low intrinsic value of the stones themselves.

The beginning of N.W. Ayer’s campaigns for De Beers within the late 1930s, the suggested spend on an engagement ring was one month’s salary. Within the 1980s, De Beers ran a campaign to reset the norm to 2 months’ salary. The advertisements said things like, “Isn’t two months’ salary a small cost to buy something that lasts forever?”

The story from the campaign stuck, and De Beers’ “two months’ salary rule” remains widely accepted within the U.S. today.

De Beers Take High Risk

While operating costs of synthetic diamonds are falling, initial investments are often steep, handing De Beers an advantage given mining company Anglo American backs it.

De Beers declined to comment on its costs. It said it had been selling lab-grown diamonds at a profit, refuting suggestions from rivals that it’s dumping the synthetic diamond on the market.

De Beers says it simply saw a requirement for lab-grown diamonds, and now technology is sophisticated sufficient to supply gem-quality also as industrial stones, it decided to fill it.

So far, lab-grown diamonds only account for about 2 percent of the general diamond jewelry market.

California’s Diamond Foundry, backed by DiCaprio and Silicon Valley investors, is with dozens of lab-grown gem producers to rise over the last decade as technology has evolved since the primary synthetic industrial-quality diamond was created in 1954.

Firms are attracted by high prices and, therefore, the ability to extract profits from several areas of the worth chain.

While the natural diamond industry involves miners, traders, polishers, jewelry creators, and retailers, all adding their margins, the CVD diamond sector controls many if not all of these functions in single firms.

German-born Diamond Foundry Chief Executive Martin Roscheisen, who has founded many Silicon Valley start-ups, said his firm has not had to cut costs due to Lightbox.

It’s a really high-risk gamble that De Beers is taking that thus far we don’t see mentality because they need primarily legitimized the CVD diamond category.

Another big initiative held its nerve within the united states, the country which accounts for many lab-grown diamond sales.

Major department shops J.C. Penney and Macy’s declared in October the roll-out of a bridal collection. The collection of lab-grown diamond jewelry in time for the peak Christmas season – and stuck to their guns on pricing.

A three-carat lab-grown diamond engagement ring is posted on Macy’s website for $19,950. The jewelry is formed by Richline Group, which his owned by Warren Buffett’s Berkshire Hathaway.

How De Beers Created a Multi-Billion Dollar Industry

One of the most important assets during a married couple’s relationship, the diamond engagement ring, could be an emotional asset and a symbol of love and commitment — but within the financial sense of the word, it is not actually an asset in the least.

And yet, we feel compelled to shop for them for our loved ones anyway. Heck, I still require one even after writing this article. How did that become the norm? It’s hard to imagine that it’s only been three-quarters of a century since diamonds became the symbol of wealth, power, and romance.

They’re in America today — and it had been all due to an excellent, multifaceted marketing strategy designed and executed by advertising agency N.W. Ayer within the early 1900s for his or her client, De Beers. Over the course of a few decades, N.W. Ayer advised De Beers to successfully turn a failing market into a psychological necessity, all during a period of war and economic turmoil.

Regardless of which side you’re on, De Beers may be a very interesting example to learn from. It’s fascinating how De Beers and N.W. Ayer created demand from nothing by coming up with a story and value statement around their product – and it’s still successful today.

Since the turn of the century, De Beers has effectively lost its monopoly of the world diamond trade, although they still usher in billions of dollars per annum. But by marketing an idea alternatively of a product, they built a powerful foundation for the $72 billion-per-year diamond industry. They dominated it for a good 80 years — and that is a story worth learning more about.


Disclaimer: This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.


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