DE

BE

This study source was downloaded by 100000794817435 from CourseHero.com on 02-15-2023 06:31:04 GMT -06:00

https://www.coursehero.com/file/130433432/A-1-The-De-Beers-Groupdocx/
 Case: The De Beers Group: Exploring the Diamond Reselling Opportunity
Assignment Questions:

Q1. Why are diamond prices so low in the secondary market for pre-owned diamonds?

Ans.

The diamond industry has predominantly made rarity of the stone as its strength. This has long
helped the industry to maintain high prices for Industrial as well as Gemstone Business.

This rarity of Diamond required the diamonds to be widely dispersed and to be in ‘safe hands’ of
the individuals as cherished possessions for lifetime. The Positioning of Diamond was done
using advertisement campaigns, the most successful one being ‘A Diamond is Forever’ which
served both the purposes: Rarity as well as Dispersion.

This strategy was threatened if the old diamonds were not kept off the market. Thus, the diamond
industry served low prices in the secondary market for pre-owned diamonds, which discouraged
the consumer from selling diamonds.

60% of cases were in case of financial distress which the pawn shops exploited by setting low
prices.

Added to that the lack of certifications or credibility also dissuades customers and drives down
the prices.

This study source was downloaded by 100000794817435 from CourseHero.com on 02-15-2023 06:31:04 GMT -06:00

https://www.coursehero.com/file/130433432/A-1-The-De-Beers-Groupdocx/
 Q2. Why is Tim Montgomery so concerned about the reselling market?

Ans. Using Tetra-threat framework,

Substitution
Higher utility Imitation
items like cars can Already present
substitute synthetic diamonds
diamonds due to can imitate and drive
poor resale value down value.
of diamond.

Slack Holdup
Retail stores can
No info present as
cause holdup; in
org is only in pilot
both send-in and
phase right now.
in-store cases.

 Somewhat paradoxically, consumers typically received very low prices when they tried to
sell diamonds (5-20% of the original retail price) leaving them reluctant to purchase
diamonds in the future and impacting future sales of Diamond. Thus, to improve this
consumer reselling experience, Tim was concerned to boost the reselling market which
would readily enhance "diamond equity" and increase the fresh diamond sales.
 Demand is steadily increasing at 3-4% while supply is reducing at 1-2%. So, recycle
market is needed to fulfill needs of the market. For eg: In gold industry, recycle is equal
to 35% of total gold supply.
 Consumers suffering from a bad reselling experience and the exploitation by scrupulous
dealers in pawn shops have the potential to spread the negative word-of-mouth. This can
lead to them being just one-time customers and affecting regular customers which will
directly affect DeBeers.
 The diamond industry stands to lose credibility if recycled diamonds make it into the
regular supply chain without the knowledge of customers who seek fresh diamonds.
Possible certifications attached to these diamonds can help contribute to credibility.
 There was also the possibility of cannibalization of rough diamond markets
 Added to that the above-mentioned threats also add to the threats to the resale market.

Q3. What should De Beers do with International Institute of Diamond Valuation (IIDV):

This study source was downloaded by 100000794817435 from CourseHero.com on 02-15-2023 06:31:04 GMT -06:00

https://www.coursehero.com/file/130433432/A-1-The-De-Beers-Groupdocx/
 a) End the pilot program or
b) Extend the pilot program for one year or
c) Convert it into a stand-alone business?
Pick among the three options and explain the reasons for your choice.
Ans.
The options under consideration include winding down the pilot program or extending it for
another year. Further, the program could graduate into a stand-alone business.
The decision would be impacted by variety of factors which include:
1. Exploiting the economies of scope – consolidating the presence in upstream and
downstream value chain.
2. Economies of Learning and exploiting business synergies – Utilizing the existing
expertise in diamond trading to improve in the retail market as well
3. Exploiting Future Opportunities – Evaluating the future size of diamond industry
inclusive of the reselling business
4. Financial Investment – Financial cost of ending the pilot or starting a stand-alone
business.
5. Business Reputation Risk – Risk to the reputation of De Beers group in case the pilot /
business fails along with the loss of trust in the customers
6. Implementation Capability Requirement – As, the presence is minor in downstream
business, the capability to establish the retail business would be impacted by the decision.

Evaluation Criteria End the pilot Extend the pilot Convert it into a
program program for one stand-alone
year business
Economies of Scope Low Medium High
Economies of Learning Low Medium High
Exploiting Future Low Low High
Opportunities
Business Synergies Low Medium High
Financial Investment Low Low High
Business Reputation Low Low Medium
Risk
Implementation N/A Low High
Capability Requirement

Basis the evaluation criteria, we recommend De Beers to convert the current pilot project into a
stand-alone business. The diamonds could be tracked through blockchain generating
transparency and credibility in the valuation of diamonds in the secondary market. We also
recommend that the De Beers should continue to operate in the retail space via joint venture

This study source was downloaded by 100000794817435 from CourseHero.com on 02-15-2023 06:31:04 GMT -06:00

https://www.coursehero.com/file/130433432/A-1-The-De-Beers-Groupdocx/
 rather than completely owning the store to minimize the reputational risk in case of failure of the
business model.

This study source was downloaded by 100000794817435 from CourseHero.com on 02-15-2023 06:31:04 GMT -06:00

https://www.coursehero.com/file/130433432/A-1-The-De-Beers-Groupdocx/
Powered by TCPDF (www.tcpdf.org)