For centuries, diamonds have been intertwined with the notions of opulence, sophistication, and timeless romance. From sparkling engagement rings to majestic crowns, these dazzling stones have epitomized status and prosperity like no other. Yet, little is known about the fact that before diamonds ascended to their current status, other gemstones, such as sapphires, rubies, and emeralds, were regarded as the preferred choices for such jewels.
So, what changed? It wasn't the diamonds, but rather their perception that shifted - fuelled by one of the most impactful marketing strategies in history, produced by diamond monopolists, De Beers. With numerous campaigns that were brilliantly executed over decades, De Beers managed to successfully create a global cultural narrative that associated diamonds with true love. These campaigns, including “A Diamond is Forever”, were not just responsible for the association of diamonds with a declaration of love, but also helped De Beers increase their revenues over ten-fold.
In this piece, we uncover the intricacies of the diamond industry as we delve into the subtleties of its demand and supply dynamics. We also reveal the truth about the rarity of these precious gemstones and investigate the savvy tactics employed by industry giants such as De Beers to create an aura of sophistication and luxury around them.
De Beers: The Rise of a Monopoly
De Beers has been a dominant force in the diamond industry since 1888 when Cecil Rhodes founded De Beers Consolidated Mines Limited. Rhodes' two-decade experience in the diamond trade proved invaluable in amassing diamond mine claims and securing a monopoly, ushering in De Beers' reign over the diamond industry for over a century. With an estimated 85% control of the global supply, the company exercised unchallenged power in the distribution of rough diamonds, shaping the industry's landscape for years to come.
Fuelled by this mining monopoly, De Beers ingeniously crafted a distribution channel known as the Diamond Trading Co. (DTC), exclusively permitting authorized bulk buyers, or "sightholders," to engage in non-negotiable DTC sales. In a calculated move, the company strategically manipulated supply dynamics to stabilize prices and ensure gradual increases. By carefully releasing only the required amount of rough diamonds in response to demand, they deftly maintained high prices while perpetuating the perception of diamonds as rare and precious gems. Such masterful control secured De Beers' unrivalled dominance in the diamond industry for decades.
A Diamond is Forever
Historically, engagement rings and royal jewels such as crowns did not usually feature diamonds. Instead, other gemstones such as coloured sapphires, emeralds, and rubies were more revered. This perception was changed in 1947 largely due to De Beers’ “A Diamond is Forever” campaign – one of the most effective marketing campaigns in history.
The "A Diamond is Forever" campaign was a highly successful advertising campaign designed to promote the idea that diamonds were not only a symbol of love and commitment but also an investment in the future. The slogan "A Diamond is Forever" became one of the most iconic and enduring advertising taglines in history. Part of their strategy was to convince people that the size and quality of the diamond was directly proportional to their love for their partner and to convince them that a big and expensive diamond was an absolute must for engagement rings.
They further posited spending two months’ worth of salary on an engagement ring – posing the question “How else could two months’ salary last forever?” and fuelling the perception that buying a diamond was not only a symbol of love but also a wise investment. This was a shrewd strategy as it eliminated the uncertainty of determining an appropriate spending for the ring. With a predetermined budget, selecting a diamond ring became effortless and relaxed, while also establishing a benchmark.
Today, the "A Diamond is Forever" campaign is still considered one of the most successful advertising campaigns in history, and the phrase is recognized worldwide as a powerful symbol of love and commitment. De Beers's marketing strategy was remarkably successful, resulting in a ten-fold increase in their wholesale diamond sales in the United States between 1939 and 1979, from $23 million to $2.1 billion.
The End of the Diamond Monopoly
During the latter half of the 20th century, De Beers faced challenges in controlling the global diamond supply due to the discovery of major mines in Russia, Canada and Australia. The primary threat to the De Beers cartel was the possibility that these mines would sell directly to the market instead of through De Beers.
Initially, the Russians agreed to sell their diamonds to De Beers, but their relationship was strained when Anti-Apartheid legislation came into effect in 1963. Russia's diamond production became further separated from De Beers after the collapse of the Soviet Union. In addition, due to De Beers' inflexibility regarding sightholder terms, the Argyle Mine in Australia, which was the largest diamond producer in the world by volume, parted ways with the cartel. Following this, other mines including new world-class mines in Canada also started selling their supplies independently of De Beers.
In addition to emerging global competition, De Beers was also embroiled in various controversies throughout history. One of the most notable charges against the company was that of price-fixing, and In 2004, the company pled guilty to this charge and was fined $10 million. De Beers has been accused of racism and labour exploitation, with these allegations dating back to the apartheid era in South Africa where De Beers had a significant presence. It was accused of supporting and benefiting from the apartheid regime, which enforced racial segregation and discrimination. Furthermore, the company has been criticized for purchasing blood diamonds, contributing to conflicts and human rights abuses in African nations.
As a result of these unethical practices and emerging global competition, De Beers lost its absolute monopoly on the diamond market, with its global share of rough diamonds dropping from almost 90% in the 1980s to 29.5% in 2019. Regardless, the organisation remains a major player in the diamond industry to this day.
Status Quo: Shifting Dynamics
Currently, the world's diamond supply is dominated by 3 major companies - De Beers (UK), Alrosa (Russia), and Rio Tinto (Australia). These companies hold a substantial portion of the global diamond market, accounting for 60% of global diamond production. As of 2021, Alrosa holds the largest market share of any diamond mining company in the world, at 27.8% and De Beers is a close second with a market share of around 27.5%. Other notable companies include Rio Tinto (3.4%) and Petra Diamonds (2.6%).
The diamond industry is currently also experiencing a surge in the popularity of lab-grown diamonds, specifically those produced by Chemical Vapor Deposition (CVD) technology since they cost significantly less than mined diamonds and are virtually indistinguishable from natural diamonds. This trend towards CVDs is largely driven millennials and Gen Z, with research suggesting that nearly 70% of millennials are considering purchasing a lab-grown alternative to natural diamonds. The predicament here is that this CVD technology allows for a virtually unlimited supply of diamonds, whereas natural/mined diamonds are limited - and following the basic principles of demand and supply, this would indicate that this increase in the popularity of CVDs will undoubtedly lead to a drastic decrease in their value.
Historically, this industry has been plagued with issues of violence, war, and discrimination. In response to these issues, several measures have been undertaken by governments across the world. One such measure is the Kimberley Process Certification Scheme (KPCS), which regulates the trade of rough diamonds and prohibits the sale of conflict diamonds. Another initiative is the use of blockchain technology to trace diamonds from mines to the market, thereby creating a tamper-proof supply chain verification system. While most of these tracking systems are still in development, they show promise in creating a reliable verification system for the diamond industry.
The Deceptive Rarity of Diamonds
Diamonds rate 10 on the Mohs hardness scale and are the hardest natural substances on Earth. They are also exceptionally scintillating and have many industrial applications. And while they are not the most common mineral in the Earth’s crust, they are a lot more abundant in nature, relative to other varieties of gemstones such as sapphires, rubies, and emeralds.
By artificially controlling supply, the diamond industry has maintained high value and exclusivity. This illusion of rarity has historically justified high prices and made mined diamonds seem more desirable than other coloured gemstones. In recent years, however, there has been a growing appreciation for colored gemstones, and they have become increasingly popular in engagement rings and other types of jewellery. As consumers become more educated and ethically conscious, the trend towards colored gemstones is likely to continue to grow.
In conclusion, the perceived rarity of diamonds is more of a marketing construct than a true reflection of their scarcity. The soaring demand for diamonds, along with De Beers' marketing strategies and monopoly, established diamonds as symbols of love and luxury, amplifying their overall value. As consumers become more informed and demand ethical and sustainable practices, the industry will need to adapt and change. Ultimately, the true value of a diamond lies not in its rarity, but in the sentiment behind it and the impact it has on the world around us.
