ABN AMRO Sees De Beers’ Lightbox as a Move to Ultimately Protect Natural Diamonds

ABN AMRO Sees De Beers’ Lightbox as Natural Diamonds

ABN AMRO bank yesterday published an Insights article anchored by Georgette Boele, Senior Precious Metals & Diamond Analyst which analysed the launch by De Beers of a subsidiary Lightbox Jewellery; and its proposed plans to launch a jewellery brand under the same name.

Describing the move as a “shock to the industry”, the bank went on to sketch out the backdrop to the move saying: “For most diamond miners and producers gem-quality laboratory grown diamonds have been a threat for several reasons. For a start, undisclosed mixing of laboratory grown diamonds with natural diamonds had a serious impact on confidence in the industry. However, since the introduction of the detection machines the fear of mixing laboratory grown diamonds with natural diamonds has eased. Moreover, the miners have not only been confronted with a substitution product but also the entrance of a large number of new market participants who threaten to end the oligopolic industry structure. Furthermore, the marketing campaign of the miners to defend their turf has not been particularly successful up to now. In fact, there are signs that the laboratory grown diamond producers have the upper hand.”

Applauding De Beers for being a “proactive” industry leader, the article goes on to trace the steps taken (through its subsidiary Element Six) and reinforced by the International Institute of Diamond Grading & Research (IIDGR), to produce the technology and set up facilities, to test diamonds to distinguish betweensynthetics and natural stones.

ABN AMRO opines that the introduction of Lightbox –seen as a business disruption – is another method of taking up (and countering) the challenge of lab grown diamonds.

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While ABN AMRO clarifies it has no first-hand knowledge of De Beers’ thinking behind the move,it goes on to postulate some of the possible strategies behind it.

“First, De Beers would like to create clear segmentation of the two different industries: a natural diamond industry and a laboratory grown diamond industry. If successful it could protect the revenues from the mined diamond business. It is possible to create two different industries. However, it remains to be seen if this will happen. Markets will only remain separated if the products in the two different markets are sufficiently different,” the bank outlines.

It adds: “Second, both industries have different industry structures: oligopoly for the natural diamond industry where the strategy of supply limitation is important. Meanwhile full competition will characterise the laboratory grown diamond industry.

“Third, there is a new set of generic strategies. For the natural diamond industry, the strategy seems to be differentiation and focus, while for the laboratory grown diamond industry the strategy is economies of scale and focus. De Beers has priced the laboratory grown diamonds based on the production costs rather than as a discount on the natural diamonds, like the other laboratory grown diamond producers have done. This pricing strategy should help create the perception that the two products are different enough to have separate markets. The other laboratory grown diamond producers are being challenged to follow with De Beers’ low pricing strategy (not pricing off the natural diamonds) and the perception that laboratory grown diamonds are not special and rare.

“Fourth, by having two completely different products, different pricing strategies and marketing campaigns, De Beers hopes that these will become and stay two different industries. For example: for laboratory grown diamond jewellery setting De Beers uses silver or 10 karat gold (with natural diamonds the standard is a higher purity gold or platinum). By introducing silver and lower purity gold as a possible setting De Beers would like to show that it is less valuable. Less valuable gemstones and simulants are often set in silver or lower purity gold. Indeed, they would like to create the feeling that it is just a cheap mass product.”

About the move, the bank concludes: “The ultimate goal seems to be that laboratory grown diamonds will be sufficiently separated from the natural diamond industry to leave the characteristics of that market in tact as much as possible.”

Moreover, with this move, ABN AMRO says, the ball has now been thrown in the court of the producers of lab grown diamonds. But it is not only them that must chalk out a response; it is necessary for other players – including those in other segments of the pipeline – to also work out what strategy they will follow.

And, while it is too early to predict the final outcome of the move in the long run, one thing the bank says with confidence is that the ultimate winners will be the consumers.

News Source : gjepc.org

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