Friday, August 29, 2014

Branding Diamonds

De Beers Consolidated Mines, Ltd. has essentially owned the diamond market for over 100 years, supplying over 85% of the world’s diamonds. It is known throughout the world for both mining diamonds and for acquiring the diamonds mined by its few competitors, thus positioning itself to control the world’s supply and set pricing much as it wished to. Its supremacy has been unprecedented.

During the 1990s, De Beers began the then seemingly unusual practice of “Branding” its diamonds. Despite the fact of its near-total monopoly of the diamond market, it began inscribing a small Brand Mark on its stones to differentiate its products within the commodity marketplace, and to ensure their worth against the inexorable declining value of non-oil commodities1.

At the same time, De Beers embarked upon its now famous consumer advertising campaign, “A Diamond Is Forever,” despite the fact that the company does not even sell diamonds directly to the consumer.

The growing success of Brands, Branding and the strategies of Consumer Packaged Goods (CPG) Marketing are widely recognized within the global business community. Today many non-packaged goods enterprises have adopted these approaches, some as an escape from the infamous “commodity trap.”

During the 19th century and much of the 20th century, as the industrial era heated up, wealth was found in commodities. Today, with the dawn of the era of Intellectual Capital, wealth resides in knowledge-based assets such as Brands. Coke and Pepsi have successfully demonstrated this fact with their new bottled water businesses. Today “branded bottled city water” products like Coke’s Dasani and Pepsi’s Aquafina costs more per gallon than gasoline – oil crisis or not.

De Beers, wisely taking a page from Intel’s “Intel Inside” playbook, embarked upon its Branding and CPG activities to reposition its diamonds from commodities into “Branded goods.” As commodities, diamonds were viewed as merely interchangeable items in a vast global trade which rarely differentiated the source of goods. Now, as Branded goods are supported by CPG marketing, De Beers diamonds are differentiated from commodities and freed from a supply-driven market.

Recently De Beers began encouraging new and emerging players in the diamond marketplace at the raw materials level to develop their own Brands and marketing programs to vie for the attention of consumers, all with the goal of lifting diamonds out of the commodity market by creating a consumer market where Brands and Brand Awareness matters.

De Beers can only leverage its own Branding and Marketing activities by driving the creation of a multi-player non-commodity marketplace around diamonds per se. Branded goods carry greater margins and create end-user demand. Raw materials and commodities can’t drive margins because their prices keep falling in the commodity marketplace. Studies accomplished for the IMF indicate that there is no correlation between world commodity prices, which keep falling, and the retail prices of value-added products, which keep delivering often increasing margins.

De Beers has recently teamed with LVMH Moet Hennessy Louis Vuitton, the well-known European luxury goods giant, to form De Beers LV. The purpose of the joint-venture is to unlock the value in the De Beers name, and to turn it into a global luxury Brand.

While originally motivated by market and financial considerations, the De Beers Branding and Marketing initiatives are also allowing customers an unexpected benefit: the ability to differentiate legitimate “ethical” diamonds from diamonds produced by terrorist organizations – the so-called “conflict” or “blood diamonds,” thus providing consumers a guaranteed ethical choice.

¹The International Monetary Fund (IMF) has calculated the trend of non-oil commodity prices across the 20th century, and reports that such prices have declined on average 0.6% a year since 1900.

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