De Beers, a significant producer of diamonds on the world market, has recently changed its strategy to stay competitive and profitable in a dynamic industry. De Beers has been historically known as a diamond cartel, having fairly exclusive rights to mining in Africa and selling diamond through the London market. Because De Beers possessed 80% market share in the world diamond market, the company was able to effectively act as a cartel. It did so by fixing the quantity, or output, of diamonds released for sale on the world market, and was able to maximize its profits by setting the quantity released as monopoly output. More recently, the article Changing facets; Diamonds argued that De Beers has been forced to change its strategy as a result of a changing industry. The cartel has loosening its grip, as governments in Africa have promoted change. One of the most significant changes currently observed in the industry is the emergence of synthetic diamonds, which have now captured a 90% market share in the industrial market. De Beers, under new management, has recognized the implications of synthetic diamonds as undermining the cartel. So in order to remain a competitive player in the diamond market, it has switched its strategy to focus more on product differentiation. By investing significantly in marketing, the fading cartel hopes to distinguish its African-mined diamonds from synthetic diamonds. In doing so, De Beers is hoping to maintain significant profits through a product differentiation strategy for goods that could be viewed, without any marketing initiative, as perfect substitutes.
By Brian Gavron, Wooi Yang Chang, and Jim Baltz
Subscribe to:
Post Comments (Atom)
2 comments:
It’s interesting to see the impact that technology has on firms. Even large cartels like De Beers with over 80% market share in the diamond industry are not sheltered from the effects of vast advancements in technology.
I am curious to see what kind of marketing strategy De Beers will employ and what the future outlook is for the diamond industry. From my perspective, De Beers has two options: it can lower the price of its diamonds to compete with the synthetic diamonds, or it can leverage the fact that diamonds are luxury goods that people associate with status.
The first option is not likely to be a viable strategy because it would lead to a price war. Even if De Beers were to engage in predatory pricing and price below its marginal cost, its doubtful that they could beat the low prices offered by synthetic diamond makers.
Therefore, the only option is for De Beers to undertake a marketing campaign that would differentiate its products from the synthetic diamonds. Since diamonds are luxury goods, marketing efforts would best be directed to those people who use status goods to represent themselves. If De Beers is to target those people who are only willing to purchase high quality diamonds, then it is possible that they are creating a niche market because people who place less value on the quality and rarity of diamonds will purchase synthetic ones. However, with the proper marketing strategy, De Beers can still maintain its position as the market leader.
The lesson from De Beers is that as technology and globalization increase, all firms, no matter how great their current market share is, will have to find points of product differentiation if they are to be sustainable in the long-run.
Vicky Ukritnukun, Tiffany Luong, and Marie Copolous
Great info, i glad to see this blog, such an informative article, Thanks for share this.
Web Development Karachi
Post a Comment