De Beers

The De Beers Group is a London and Johannesburg based diamond mining and trading corporation. It has historically held a near total monopoly in the diamond trade, although recent Israeli interests have captured 20% of the market. In 1994 De Beers was charged by the United States Justice Department with antitrust violations for conspiring to fix prices for industrial diamonds. On July 14, 2004, De Beers pled guilty to the charges and paid a $10 million fine. The plea has enabled De Beers to trade directly in the United States diamond market after years of acting through intermediaries. The US diamond market is the largest in the world, purchasing approximatly $500 million in industrial stones and $60 billion in diamond jewelry annually.

Using its monopoly, De Beers has created an artificial scarcity of diamonds, thus keeping prices high. The modern tradition of diamonds as a part of engagement in many cultures has been largely created by De Beers through an amazingly effective advertising campaign started in 1939. The "A Diamond is Forever" campaign not only convinced the public that the only suitable gift for engagement is a diamond, but also served to limit the market in used diamonds. [1] (requires subscription)

De Beers distributes diamonds to favored customers (called sightholders) by selecting batches of diamonds themselves and offering them "as is". Following the distressing use of diamond revenues by African revolutionaries engaged in diamond smuggling (blood diamonds), De Beers now sells only diamonds mined from their own mines, most of which are in South Africa and Botswana. Currently, De Beers is involved in a joint venture which is developing a diamond prospect in Canada.

History

De Beers was founded on 13 March 1888 by Cecil Rhodes. In the 20th century the major shareholders became the Oppenheimer family. Sir Ernest, his son Harry Oppenheimer and his grandson Nicky Oppenheimer have been chairmen of the company.

The company's name comes from Johannes Nicholas de Beer and Diederik Arnoldus de Beer, two Afrikaner farmers on whose farm, called Vooruitzicht, near the confluence of the Orange River and the Vaal River, diamonds were discovered. The brothers were not able to protect the farm from the ensuing diamond rush, and sold it for Ł6300. Two diamond mines formed on the site, known as the "Big Hole", or Premier mine. Although the brothers did not become the owners of the mines, one of the mines was named after them. Cecil John Rhodes and Charles Rudd gained control of both the De Beers mine and the Kimberley mine and merged them, forming De Beers Consolidated Mines Limited.

Marketing

De Beers has actively promoted diamonds as being symbolic of eternity and love, and therefore the ideal jewel for an engagement or wedding ring. Their famously successful advertising campaigns have included measures such as:

showing diamonds as wedding gifts in popular romantic moviess

publishing stories in magazines and newspapers which would emphasize the romantic value of diamonds and associate them with celebrities

employing fashion designers and other trendsetters to promote the trend on radio and, later, television

enlisting the Royal Family of the United Kingdom to directly promote diamonds.

This campaign was described by De Beers' PR agency N. W. Ayer as "a new form of advertising which has been widely imitated ever since" with "no brand name to be impressed on the public mind. There was simply an idea -- the eternal emotional value surrounding the diamond." Indeed, the campaign succeeded in reviving the American diamond market, which had been weakened by "competitive luxuries", and in opening new markets where none had existed before. In Japan, for example, diamonds were successfully promoted as a western symbol of status, which coincided with Japan's cultural opening after World War II. Japan, which had no diamond tradition before the De Beers campaign, is today the second largest market for retail diamonds.

The slogan "A Diamond is Forever", invented by N.W. Ayer & Son, is one of the most successful slogans in marketing history. Its purpose is to prevent the creation of a secondary market by dissuading women from selling the diamonds they have received and by discouraging them from buying diamonds which other women have owned. The consequence of this is that retailers can sell diamonds at a high price without competition from a secondary market and to allow DeBeers to maintain control of the diamond trade at the wholesale level.

Retail joint venture

In 2001, De Beers launched a joint venture with luxury goods company LVMH in order to establish De Beers as a retail brand. The joint venture, called De Beers LV has a license from De Beers SA to use the De Beers brand name in a retail environment. The venture has since opened two stores, one in London and a second in Tokyo. Following the settling of the United States anti-trust case, De Beers said that it planned to open a store in New York. Before the venture was allowed to begin, the EU competition commission launched an investigation into whether the venture would give De Beers too great a control over the rough diamond market. An initial one month probe determined that a longer investigation was necessary. The commission eventually allowed the joint venture to go ahead in July 2001.

External links

De Beers official homepage

Official homepage of the De Beers/LMVH retail joint venture

Yahoo! - De Beers Centenary AG Company Profile

Yahoo! - De Beers Consolidated Mines Limited Company Profile

U.S. court case links

De Beers settles (17th July 2004) from BBC News

De Beers plans to settle (10th July 2004) from The Age

De Beers plans to settle (10th July 2004) from the Washington Times

The Times (London) 8 Feb 2004 article on recent developments.

Mail on Sunday (UK) 20 April 2004 article on history of USA indictment.

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