De Beers Case

DEMAND

3 categories of diamonds:

* gem

* near gems

* industrial diamonds

the belonging to a particular category depends on:

* carat

* color

* clarity

* cuttability

there are 3000 differet grades on the basis of the four Cs.

(rough gems lost 52% of the weight in cutting and polishing while near gems lost 80-85%)

Rough gems from south africa, namibia and botswana was sorted in Africa and then shipped to London. Rough from other places was sorted directly in London.

Ater sorting they were inspected on different tables by senior De Beers.

Then they were weighed and logged on to a computer and CSO make a list price.

To sell the rough diamonds CSO engaged 150 sightholders (invited 10 times a year)

The sightholders couldn’t question the quantities or grades of diamonds or negotiate the price they had to accept the parcels otherwise they could loose invitations to future sights.

Morepver they had to answer to any question made by the CSO and they were supposed to help mantain pricing stability further downstream.

The penalty banishment or a slap on the wrist.

In 1982:

4/5 of sightholders were engaged in cutting and polishing

cutting industry was in Antwerp, NY, Tel Aviv and bombay.

The competitiveness of the cutting industry limitated the mark-ups (max 20% more than CSO’s price). After polishing the gems passed via dealers to manufactures and on to retailers.

Time:

cutters 5/6 months

dealers 3 months

manufactures 4 months

retailers 14 months

CSO had an intelligence internal group to

understand the flow of diamonds through the pipeline.

Provide surveys every 3 years.

Monitorate inventory at each stage of distribution

To stimulate the demand heavy advertising (“a diamond is forever”, very romantic)

80 million $ spent in 1982 for adv.

THE BOOM AND BUST

1970s, economic disruption + high inflaction speculative demand for minerals.

The banks (first Israeli) used ti buy and hold gems in inventory. WHY?...