Diamonds are a girl’s best friend – Marilyn Monroe docet.
Every woman dreams of a wonderful Tiffany solitary ring, or a Harry Winston Tiara with a rare yellow diamond.
But when looking at that diamond, do we ask ourself where it comes from?
It is absolutely not news that the diamond mining has a dark side due to child labour and blood diamonds. Now lets us analyse the supply chain of DE BEERS to see how it worked towards becoming more sustainable.
The diamonds supply chain
Before a diamond reaches the young couple buying an engagement ring, it passes through four to eight sets of hands and three distinct stages.
UPSTREAM STAGE: the diamond is mined from the ground, sorted and sold by the producer
MIDDLE STAGE: the diamond is cut, polished and assembled into jewellery
DOWNSTREAM STAGE: the diamond reaches the shop where it is sold to the end consumer
How big is the diamond market and where is the profit created?
Rough diamond mining generates revenues of $14.8 BILLION that grow to $47.2 BILLION when manufactured into jewellery and jumpt to $72.1 BILLION at retail level.
Rough diamonds mining remains the most attractive point on the value chain, boasting profit margins of 16-20%.
Diamonds mines are mainly located in poor/emerging countries where labour rights are still not well established. Profit margins are so high (16-20%) that it is easy to understand how many interests lie in this arena and that there is much room for improvement.
Many scandals of child labour and blood diamonds have affected the repuation of the product category itself and of the industry leaders.
How did DE BEERS react to mitigate the risks coming from these scandals and improve its supply chain value creation?
Surprisingly, and against all expectations, De Beers decided to introduce on the market synthetic diamonds to the market.
Certainly this is an epochal take by De Beers considering that it had been striving for years to protect its leadership in the field.
Introducing synthetic diamonds has a dual interpretation:
- Brand reputation risk: it is clear and a known fact that diamonds are dirty products and consumers are aware of what is behind this business. The brand has to look after its own reputation not to lose premium positioning and market share
- Emerging trend: future generations of consumers have a totally different understaing of the meaning of luxury. One of the major asset is the origin of the product and the way it has been produced. To protect its leading position, the company has to grant the production of “natural diamonds” by introducing an alternative of “sustainable once”.
This will serve as:
- Alternative for new consumers looking for sustainable products – new market
- Protection for the actual business made of natural diamonds
Is this a smart strategy for the company?
I see this strategy as “dual”.
It is smart If consumers will really “read” this choice as a decision of the company to invest in a sustainable product to improve labour conditions.
On the flip side, this could be a “tricky” strategy for the company for two reasons.
- Consumers could interpret this as a “way to mitigate” the problem and make the image of the brand greener
- The introduction of synthetic diamonds could affect the standard sales thus creating confusion among the end consumers. They could be afraid of being cheated between a natural and a synthetic diamond.
Are synthetic diamonds sustainable?
If we look at the product itself, it is more sustainable than the natural one. Certainly it would be a great addition to have part of the revenues reinvested in other sustainable activities, such as education programs for miners.
To make the synthetic diamonds even more sustainble a proram of reverse logistic would be recommended (closed-loop).
What is a closed-loop system?
It is a process that engage customers to give back the product bought to the seller in exchange of a new one, or to obtain a discount.
This helps the companies to recycle raw materials and attract its audience for a longer period.
What, in my opinion should DE BEERS have been done to become more sustainble and really create an impact?
By having introduced a complemenetary line of synthetic diamonds, DE BEERS contributed to reduce the level of extraction of new diamonds and offered a new alternative way to customers keen on buying “alternative” diamonds.
On the other hand, considering that the main problem lies on where the diamonds are extracted from, I would have worked with social sustainability activities to:
- Improve labour and safety standard conditions
- Create free educational program for workers and their families
Is this strategy successfull?
As of today, it is hard to say beause synthetic diamonds are sold only in the USA and no other big players have followed DE BEERS’ strategy. Apparently there is no news about this activity since its launch in 2019.
Let’s wait and see how the market will react.