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8/31/2010

Chandran R 32181 Priyanka Murthy 32176


Kaushal Lama 32226 Sreeparna Samanta 32239
Anwesita Biswas 32108 Aarti Shinde 32295

NATURAL DIAMONDS – Industry Structure

Diamonds are one of the world’s, and specifically Africa’s, major natural resources.
An estimated US$13 billion worth of rough diamonds are produced per year, of
which approximately US$8.5 billion are from Africa (approximately 65%).
The diamond industry employs approximately ten million people around the world,
both directly and indirectly, across a wide spectrum of roles from mining to retail.
Global diamond jewellery sales continue to grow, increasing three-fold in the past
25 years, and are currently worth in excess of US$72 billion every year.
The diamond industry can be separated into two distinct categories: one dealing with
gem-grade diamonds and another for industrial-grade diamonds.
About 30% of diamonds are of gem quality and are distributed to experts for cutting,
polishing and jewellery manufacture.
70% of diamonds are sold for industrial applications including cutting, drilling, grinding
and polishing in industrial applications.

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THE DIAMOND PIPELINE


Bringing diamonds from the earth to consumers

EXPLORATION
Diamonds often exist within kimberlite rock, a mineral located often
Main diamond producing countries are:
beneath overburden (such as sand, soil or glacier).
Angola, Australia, Botswana, Canada, the Democratic Republic of the
Kimberlite found by prospectors by testing the ground for changes in
Congo, Russia, and South Africa
magnetic fields.

MINING
Diamond mining methods – Open Pit, Underground, Alluvial, Coastal
[Locations – Same as above]
and Marine
DeBeers – major player in developing, constructing, operating and
The ore containing the rough diamonds goes through many stages of
maintaining a mine.
crushing and processing before it can be sorted and classified.

SORTING
Sorting experts sort and value diamonds into different categories for
sale.
Different categories - dependent on size, shape, quality and colour. Kimberley Process certificate proves that they are from conflict free
Range of standard colours - Very rare diamonds, known as ‘fancies’
Distinguishing marks, ‘inclusions’ make each diamond unique.

THE DIAMOND PIPELINE (Contd..)

CUTTING AND POLISHING


Diamantaires cut and polish the rough diamonds into shapes
Classified by their cut, colour, clarity and carat weight (the ‘Four Cs’) Main diamond cutting and trading centres - Antwerp, Mumbai, Tel
Sold to wholesalers or jewellery manufacturers in one of the 24 Aviv, New York, China, Thailand or Johannesburg.
registered known as bourses

JEWELLERY MANUFACTURING
Wholesalers sell these to jewellery designers, manufacturers or retailers. Manufacturers will produce diamond jewellery designed and
commissioned by a retailer or other jewellery designer. They may also create jewellery, designed by in-house teams, and sold direct to retailers.
System of Warranties

RETAILING
The final stage of the diamond pipeline is when diamond jewellery is Diamond Jewellery Markets –
sold by retailers to the consumer. USA represents the largest market (50%), Japan (15%), Italy (5%),
The value of diamond jewellery sold each year is approximately US$72 India (3%), China (2%), The Gulf (2%) and other countries (23%).
billion – including cost of diamonds, precious metals and other gems. Diamond jewellery is the most sought-after category of luxury goods

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PORTER’S 5-FORCES MODEL

INDIVIDUAL FORCES AND THEIR IMPACTS ON


INDUSTRY
FACTORS IMPACT
THREAT OF SUBSTITUTES
Growing market for synthetic diamonds Focus on educating the final consumer on the
CSR activities promoted by the companies
Marketing strategy - natural diamonds as an
object of desire, highlighting its exclusivity
Spending on R&D to develop and supply
machinery designed to distinguish man-made
from natural stones.
COMPETITIVE RIVALRY WITHIN THE INDUSTRY
Emergence of diamond producers Artificial market and price manipulation
Flood the market with similar diamonds at
below market prices
Hoard inventory by selling less
THREAT OF NEW ENTRANTS
Though raw diamonds are plentiful, it is hard for a new competitor to enter into the industry
Diamond industry is primarily a protected cartel. Diamond dealers and wholesalers work in a very
close-knit, vertically integrated chain which makes it hard for an outsider to penetrate.
Diamond mines are very capital intensive and are often in countries with unstable political
environments.

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INDIVIDUAL FORCES AND THEIR IMPACTS ON


INDUSTRY
FACTORS IMPACT
BARGAINING POWER OF SUPPLIERS
Increasing levels of forward and backward Change of supply focused industry to strategy
integration (mines were integrating forward into that was demand-driven and brand-focused
retail) whereby profits were more important than
Dependence on single supplier changing market share
Antitrust regulators Change in the relations with sightholders
Blood diamonds Kimberley Process Certification Scheme
Detailed documentation and certification

BARGAINING POWER OF CONSUMERS


Increasing level of forward and backward Increased focus on the demand side
integration (retail outlets were integrating Changes in brand positioning, marketing
backward by investing in mines) strategies
Supply-side driven, with little attention given to Differentiate the product by retailers and create
the end consumer value
Changing consumer perceptions
Emerging market for synthetic diamonds

De Beers

De Beers and the various companies within the De


Beers Family of Companies are in the diamond, diamond
mining, diamond trading and industrial diamond
manufacturing sectors. It is by far the largest company in
all these categories.
De Beers is active in every category of industrial
diamond mining: open-pit, underground, large-scale
alluvial, coastal and deep sea.

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POSITIVE RESPONSE – By De Beers

Growing market for Synthetic Diamonds


Consumer Education
Discovered 39 new diamond deposits
Emergence of new diamond producers
Focus on brand development
Change in relations with sightholders
Demand centered strategy -Supplier of Choice Program
Shrinking Market Position
Partially reimbursed sightholders
Guaranteed natural, ethically traded, non-treated polished diamonds –
Forevermark logo

NEGATIVE RESPONSE – By De Beers

Growing market for Synthetic Diamonds


̶ Gem Defensive Program – Lasering “lab-created”
Shrinking market position
– Market manipulation
Purchase of Blood Diamond
Stock piling from other diamond producing nations

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NATURAL DIAMONDS Vs. SYNTHETIC DIAMONDS

Factors Natural Diamonds Synthetic Diamonds


Creation Billions of Years 4 days, HTHP Process
Flaw and Blemishes More flaws and blemishes, Less, Unique carbon
adds beauty Inclusions, distinct colors
Quality Unique Colors and flaws No difference Chemically
Weight Heavy Light & < 1 Carat
Cost Expensive 30 – 90% of cost of Original
Diamonds

NATURAL DIMAONDS LAB MADE DIAMONDS CUBIC ZIRCONIA


Colorless Stones 1 Carat = $6,800 - $ 9,100 0.5 Carat = $ 900 - $ 1 Carat = $5 - $ 15
2,500
Colored Stones 1 Carat - $9,000 (yellow) 1 Carat = $2,000 - 1 Carat = $10 - $15
$ 1,00,000 (pink) $ 7,000

SHORT TERM STRATEGY

Enter Synthetic Low Cost Growth &


Diamond Diamonds Expansion

• Venture into • All forms of


new Product • Manufacture diamonds
Market low cost
• Increase reach
diamonds on a
globally
new brand

IMPLICATIONS

New
Huge Revenue
Company’s
Investments Stream
Growth

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LONG TERM STRATEGY

Commoditize
Mass Drive Consumer
Excess Supply Synthetic
Production Competition Awareness
Diamonds

Produce lowest cost diamonds on a Large Scale


Flood Market with cheap diamonds.
Excessive Supply shall increase competition in price
This shall clearly differentiate Synthetic Diamonds from Natural
Diamonds as a Commodity
In the long run, Natural Diamonds shall remain a premium and precious
product for its Rarity.

FEASIBILITY & POSITIONING


Feasibility

 De Beers has strong Financial strength to enter Synthetic Diamonds


 Growing demand for synthetic diamonds
 Synthetic diamonds usage more in Fashion segment than bridal segment
 Controlling supply was an illegal move, over production may be feasible and legal

Positioning
 Natural diamonds – for high class segment
 Positioned on emotions of relationship

 Ad campaign such as Price is just a tag, show your love Naturally!


 Synthetic Diamonds – Low cost – Diamond for all segments
 Positioned on as a add on for beauty.

 Ad campaign such as It completes you

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SONY’S PROBLEM

Sony’s name has been synonymous with Portable Music


from the beginning. In the ‘80’s when cassette tapes
were the popular medium, the Sony Walkman was the
leading audio cassette player. As the music industry
transitioned from analog to digital, Sony led the way with
their Discman line of CD players.
But coming to MP3 era, Sony's name stopped being
synonymous with "Portable Music“ and started being
associated with “proprietary”.

BASIC REASON & COUNTER MEASURES

• Reason: Reliance on MD (Mini Disk) format


even after the advent of MP3 player
• They came up with flash based music player
– NW-MS7 (1999) with 64 MB memory size
• Played ATRAC format
• Proprietary software SonicStage
• Duo port Memory stick
– NW-MS90D with 640 MB and very expensive

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COUNTER MEASURES(Contd…)

To fight with the success of IPod Sony came up


with few more models
NW-HD1(2004): ATRAC format
NW-HD3(2005): Software problem
NW-HD5(2007): Cosmetic design problem as
buttons developed small cracks

WHAT WENT WRONG WITH SONY?

• 2 huge anchors that prevented Sony's ship


from sailing
– MD player used their proprietary ATRAC format
– Sonic stage which works only in windows platform

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Finally Sony Accepted Mp3 format

• In 2004, Sony accepted Mp3 format


• In 2007, Sony came up with A-series music
players which supported many files including
mp3 format and also they removed the
dependency upon Sonicstage
• Later they came up with noise cancellation
model and other models that supported video
files also

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