Question

Why is De Beers exploring the diamond reselling market? How does the creation of IIDV affect the market for polished diamonds? The market for rough diamonds?

Answer 1

De Beers is exploring the diamond reselling market because they want to “improve costumer reselling experience, and in doing so, enhance diamond equity”. They want to offer higher selling prices, greater transparency, and be a trusted name as the buyer. Also, they feel as if consumers have been “underserved in this area” where prices have been unreasonably low, and the selling experience could make individuals more reluctant to purchase diamonds in the future. Montgomery has noted several times in the article that “diamonds are beautiful and do not depreciate”. He makes a good point. This is different from buying a car where as soon as you put miles on it, the car depreciates due to the wear and tear on the engine. Diamonds are some of the hardiest minerals on earth and unless you’re breaking them into smaller pieces,they hold their value.

IIDV affects the market for polished diamonds by paying more for rough and polished diamonds allowingthe seller to receive more compensation. They were returning gross margins of 25% to 40% on the production of rough diamonds depending on the year and the mine. De Beers set up a program where theyhad a statement of “Diamonds are a valuable asset” and their customers agreed. This brought more supplybecause De Beers made the product more valuable. The strategy put into place was an instore option, a send-in option, and a bode-fide offer. This resulted in higher offer prices of 60% to 75% of the wholesale price versus the 50% to 60% in the store.