Global Markets for Diamonds – Part 12

• 2.3.9 Performance

2.3.9 Performance

The market power (or control of the market), total sales and the marketing approaches of the diamond industry players show their strategies and how their performances lead them to further expand their market base. According to Even-Zohar (2011), the major diamond producers are adopting a business model in which a segment of the products are marketed through long-term contracts and by auctions. Minor diamond producers have solely shifted to auctions in selling their outputs. Once again, De Beers is pioneering the shift towards diamond auctions through its subsidiary, Diamdel.

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In this case, undifferentiated marketing approach will become more popular rather than the differentiated and concentrated approaches, since the diamonds sold at auctions have commoditized the products and lessened its perceived value of luxury. The following describes the market performances of the major players in the global diamond industry.

1. De Beers - even with a marked decrease in consumer confidence brought by the global financial crisis, De Beers nevertheless performed well in 2011. It has total sales of US$7.4 billion, a 25.4 percent increase from its US$5.9 billion sales in 2010. (De Beers Annual Report, 2011) It has an EBITDA of US$1.7 billion.

The company's profits amounted to $968 million, which is an impressive 62 percent increase from the previous year. Its company's retail joint venture with LVMH and De Beers Diamond Jewellers also showed strong growth in terms of gross sales across all regions. De Beers' largest regional sales come from China. These indicators reflect the industry leader's focus on maximizing the life and value of its diamond resources while remarkably reducing its operating costs. Its rough diamond sales boosted its growth coupled with the unprecedented consumer demand in the first two quarters of 2011. The second two quarters saw a decrease in the company's growth rate due to the debt servicing for its cutting and polishing centers. Aside from rough diamonds, the polished diamonds also fared well in terms of sales.

The strong consumer demand for diamond jewelry was fueled by the markets in China, India and the U.S. (Forbes Online, 2012) The company utilized category marketing and differentiated approach and it was able to channel majority of its rough diamond sales to the market. (World Diamond Council, 2007) De Beers' sight holders have also significantly invested in marketing and they joined the company's Supplier of Choice program. (World Diamond Council, 2007) This is a generic marketing program that elicited positive responses from its customers. De Beers hold a considerable market power for it still influences the diamond industry. However, their hold is not the same as before, when the company can control the supplies, the demand and even the market players in the global diamond industry.

2. ALROSA - is the world's leader in terms of diamond outputs. The company's group production came close to 34.44 carats of diamonds in 2011. (Buillion Street Website, 2012) This volume includes its subsidiaries namely, Diamonds Anabara, Alrosa-Nyurba, and Severalmaz. ALROSA's total sales for the same year were $4.42 billion. The company has a strong market power considering that it holds a significant amount of diamonds produced in Russia. It has also overtaken De Beers in such a short period of time.

Being a world leader in terms of diamond output, its diamond production is a significant aspect of the industry which, if it increases or decreases, will have a remarkable impact in the prices and supplies of diamonds around the world. By opening its diamonds to various manufacturers and retailers worldwide, the company reflects its undifferentiated marketing approach. It sells about 50 percent of its rough diamonds in foreign markets. (Yahoo Finance, 2012)

3. Aber - Aber's Harry Winston Diamond Corporation successfully raised its total sales to $624 million, from its total sales of $412.9 million in 2010. The company was also able to reduce its cost of goods sold by 7.9 percent, from 70.65 percent in 2010 to 62.75 percent in 2011. This drove the company's profit from a loss of $73.2 million in 2010 to a profit of $21.7 million in 2011. ("Harry Winston Diamond Corp (HW: Toronto)," 2012)

The company utilizes a concentrated marketing approach as it targets high end consumers. Specifically, for retail markets, Harry Winston maintains a lead position in its most exclusive and very prestigious diamond jeweler and luxury products like watches. Its brand is also known for its fine craftsmanship, quality gems, exquisite settings of gemstones, and top diamond expertise. The company is nestled in the high end street of New York and its 19 retail salons worldwide reflect its high end concentration. The company also has select outlets for its exclusive lines of quality timepieces. It has shops in key locations like Paris, New York, Beverly Hills, London, Beijing, and Tokyo. (Harry Winston Website, 2010)

This marketing approach earns the company its solid reputation. Its strategies put its company at the top of the luxury jewelry market, its intended niche. However, the company does not have a strong control of the market in terms of its diamond production and its retail operations. As it is, it maintains a market presence through its less than 10 percent share of the overall diamond market worldwide.

4. Leviev - the company's total sales for 2011 was undisclosed but the closest sales figure was for its polished diamond exports through its L.L.D. Diamonds. This has been reported to have increased by 52 percent to an amount of $366 million in 2010. The company has apparently topped the list of diamond exporters in Israel for the tenth consecutive times. (Krawitz, 2011) It was reported that in 2011, Leviev was challenged by other diamond exporters and it has not disclosed its total diamond outputs or sales. The leading diamond exporter was Leo Schachter Diamonds and Leviev did not join the list (JCK Staff, 2012).

It has an undifferentiated marketing campaign, which is focused to the more high-end market as it showcases its diamonds as "the world's most extraordinary diamonds." (Leviev Website, 2012). It attracts its customers to a privileged access to some of the world's most extraordinary stones. It also boasts of its unique assortment of rare, big and colored diamonds. Its flagship boutiques are located in central upper class cities of London, New York, Moscow, Singapore, and Dubai. Having less than 10 percent of the total markets, the market control of Leviev is not very strong. It does not have a direct influence in the overall prices of diamonds. Yet, it is trying to leverage through its vertical integration strategy.

5. Rio Tinto - the year 2011 did not fare well for the company as its diamond business only registered for less than 0.1 percent of Rio Tinto's group net revenues, which decreased by 86 percent to a mere $10 million diamond sales out of $727 million. (Paul & Regan, 2012) While the long term fundamentals of its diamonds operations remain strong, it was beset by the floods in its Argyle mine. (Rio Tinto Annual Report, 2011)

It has a differentiated approach to its various markets as it sells loose polished diamonds under its brand, Argyle Pink Diamonds Tender. It also sells its rough or uncut diamonds through its centralized sales and marketing office in London and Antwerp. It used to have a strong market power in terms of influencing the diamond jewellery players to establish improved systems in governance, environmental and social performance. It is also a founding member of the Responsible Jewelry Council (RJC), which provides industry wide certification process to strengthen the end users' confidence in the jewelry that they buy .

6. BHP Billiton - for its diamond operations, the company did not perform well in 2011. Presently, the company is planning to sell its diamond business. While the company's diamond assets are large compared with the diamond mining operations around the world, they constitute a trivial 2 percent of the overall revenues of the company. (Simpson, 2011) To illustrate, BHP Billiton's total diamond revenues for 2011 was a mere 1.42 billion out of its hefty $71 billion revenues across all its business sectors. This means that the company's capital is just tied up with its diamond operations and the company can invest its money in their other promising sectors such as shale gas. Also, the quality of the diamonds in their EKATI mines has been declining.

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The company has an undifferentiated approach to marketing to its various customers. It also has a small influence in the overall diamond industry. Among industry players, De Beers and ALROSA performed very well in the base year 2011. On the contrary, both BHP Billiton and Rio Tinto slowed its carat output due to some transition stages in its underground mining operations. However, they have pulled good diamond sales that exceeded its previous years' performances. This was due to the sharp increases in the prices of rough diamonds in 2011. (Buillion Street Website, 2012) However, Both BHP Billiton and Rio Tinto cannot match the global diamond production of De Beers and ALROSA and they are now trying to sell their diamond businesses.