The De Beers Group: Exploring the Diamond Reselling Opportunity Case Study Solution
Introduction
The De Beers Group was established in the year 1888 and was founded by Cecil Rhodes. The De Beers Group mainly dealt with the upstream segment of the diamond industry in which the activities were to explore, find and produce rough diamonds. The upstream segment was most concentrated and profitable than the midstream and downstream segment. In the old days the demand for diamonds was low but through effective advertisement, by simply stating four words “A Diamond is forever” they encouraged people to buy diamonds and to hold it forever. This also led to the increase of demand of diamonds in the market.
As the competition in the diamond market had been on a significant rise, the De Beers Group had decided to shift to downstream segment due to rise in demand. It had started to take various steps such as creating demand of downstream through branding, reducing sight holder’s numbers and improving the efficiency of the company. The De Beers group had also started to partner with retailers such as the joint venture with LVMH for selling jewelry under the De Beers Group Brand.
A survey had been conducted to see as to why people sold diamonds, it was found that around 60% of the diamond was sold due to financial problems. However, there was an issue in the diamond market as the customers were facing depressing experience in terms of reselling of the diamond. People who were selling diamonds were not getting offers anywhere close to the retail prices meaning that the customer was buying expensive jewelry and sold it at a low price. In overcoming this issue, Tom Montgomery senior vice president launched a pilot program.
The name of the pilot program was International Institute of Diamond Valuation (IIDV). The purpose of IIDV was helping the customers in determining the price of the diamond who offered the retailer for selling. This process helped both the retailer and customer in which both of these were satisfied. The retailer would receive a commission which is based on the buying price of diamond from the customer. The final step of this program was to sell the diamonds which had been purchased by the customer.
Problem Statement
The program IIDV was a pilot or a testing program which meant that it could end at any time. Montgomery had developed a presentation to the executive for launching IIDV as a permanent standalone business. However, there were several complications from the IIDV program such as it might cannibalize sales of a rough diamond, enraging its wholesalers and impact of prices on the rough or polished diamond. These issues might influence the executive members for terminating the program.
Analysis
For analyzing the case, we use various tools and methods such as the PEST and Industry analysis through the porter 5 forces for conducting the external analysis. The PEST consist of apolitical, economic, social and technological factor. The Porter 5 forces consist of bargaining power of supplier and customer, the threat of new entrants and substitute and competitive rivalry.
PEST
Political
The political factor highly influences on the diamond market as most of the governments had started to intervene on the upstream segment. The major reason is due to the blood diamonds as the diamonds are collected from mines and sold for financing wars. The government had developed a scheme by the name of Kimberley process in which it would prevent the blood diamonds trading. The government had started to impose many laws in the diamond market that heavily impacts on the trading of diamonds.
Economic
The economic condition of the country also affected companies which deals with diamond and other luxurious products. At the times of financial crises such as in the year 2008, it had greatly impacted the performance of the diamond market as people had stopped buying luxurious goods. This caused the demand of the diamond to decrease and the supply had increased. However, if the economic condition of a particular country is in a good state, this would cause the demand for the diamond to increase.
Social
In the early days of the 20th century, many of the people considered diamond as an expensive product and would buy diamond rather buying other goods such as cars, dishwasher, and other equipment. But due to the changing of the environment and also the influence of heavy marketing on the diamond which has changed the buying behavior of people. Diamonds highly affects the psychology as it helps in boosting self-esteem, achievement and also men use it to express their love to women.
THE DE BEERS GROUP EXPLORING THE DIAMOND RESELLING OPPORTUNITY Harvard Case Solution & Analysis
Technological
The technological factor also affects the diamond market as the improvement of technology has caused innovation on the laboratory growth. This has also led the mining and extraction of diamonds easy as companies are able to produce a flawless synthetic diamond. However, the advancement of technology has increased the competition in the diamond industry.
Porter 5 forces
Bargaining power of Supplier
The bargaining power of supplier is low due to company De beers group owns distribution channel. It conducts upstream and downstream segments where it explores and produces the diamond. It further sells the product either to the wholesalers or to its partners such as LVMH a French jewelry retailer. The company has formed many alliances through either joint ventures or acquisition in which it sells the product to the customer under its brand name.
Bargaining power of Buyers
The bargaining power of buyers is low in the market as there is no substitute in the market for a diamond. The demand for the diamonds is increasing whereas it is forecasted that the supply of diamonds would decrease due to the scarcity of diamonds. People usually purchase diamonds to boost their self-esteem and whereas men give women as a present to express their love.................
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