The De Beers Group: Exploring the Diamond Reselling Opportunity
HBS Strategy Case No. 717-430
Posted: 5 Jun 2017 Last revised: 6 Feb 2019
Date Written: February 21, 2017
In September 2014, Tom Montgomery (SVP of Strategic Initiatives at the De Beers Group) and his team launched a pilot program in the United States to explore the $1 billion market for pre-owned (recycled) diamonds. According to Montgomery, the motivation for the pilot program was to improve the consumer reselling experience and to enhance “diamond equity.” Somewhat paradoxically, consumers often received very low prices when they tried to resell diamonds leaving them reluctant to purchase diamonds in the future and making them into ambassadors of ill will. At a meeting scheduled for November 2015, the De Beers Executive Committee would have to decide whether to end the pilot program, extend it for another year to gather more information, or convert it into a new standalone business unit. Because De Beers had historically focused on producing rough diamonds (the “upstream” business), yet the new business unit offered an opportunity to enter and enhance the market for polished diamonds (the “downstream” business), the decision was particularly noteworthy.
This case illustrates the process of strategy implementation as it analyzes the decision to vertically integrate at one of the world’s most iconic companies and brands (De Beers: A Diamond is Forever). De Beers created a pilot program designed to enhance customer value (common value) by creating a more viable secondary market for pre-owned diamonds. The case challenges students to understand whether and how the secondary market will impact the primary market for diamonds. The answer to this question lies on the balance between the benefits and the risks of changing scope. Through this analysis, students must resolve two apparent paradoxes present in the diamond industry: first, why diamonds, a product with little intrinsic value, sell for such high prices; and second, why “recycled” or pre-owned diamonds, an infinitely durable good, sell for such low prices (often 10-20% or retail price)? In answering these two questions, students learn about the role of advertising in creating a strategic asset, the difference between creating common value and creating competitive advantage, and the challenge of selling durable goods.
Keywords: diamonds, corporate strategy, scope, common value, marketing, advertising, branding, strategy development, supply and demand, strategy execution, vertical integration, go-to-market ,strategy, pilot program, secondary market, consumer durables, willingness-to-pay, cartel
JEL Classification: M31, M37, M16, L1, L72, L25, L12, L68
Suggested Citation: Suggested Citation