Should A Diamond Be For Never?

We’ve all heard the slogan: “A diamond is forever.” But who really made that decision? What exactly is a diamond and why is it worth so much?

 

The word diamond is derived from the ancient Greek word adamas, meaning unbreakable. Diamonds are formed 100 miles deep in the Earth’s mantle where carbon is subjected to extremes in pressure and heat. As they harden, they are pushed to the surface by volcanic eruptions. These volcanos push rocks to the Earth’s surface from a depth of 100 miles. As diamonds move toward the surface, they begin to cool, becoming embedded in other types of rocks that are also cooling and moving toward the surface. Most diamonds are formed this way.

 

A small percentage of diamonds did not originate on the Earth. One type, called carbonado, is purported by scientists to have originated in asteroids that hit the Earth in South America and Africa three billion years ago. Similar stones have been found at the sites of more recent meteorite strikes. The Popigai Asteroid Crater in Russia contains trillions of carats of microdiamonds.

 

Scientists also claim that the cores of white dwarf stars are made of highly crystalized carbon and oxygen, the same materials of which diamonds are made. In fact, in the constellation of Centaurus, the white dwarf, BPM37093, has a diamond core 2500 miles wide. It has been nicknamed Lucy, after the Beatles song Lucy in the Sky with Diamonds. Though it’s fifty light years away, diamond cutters are already trying to decide how to carve it up.

 

A diamond is the hardest substance in the world. About 50% of diamond production today is used for industrial cutting applications. Industrial diamonds are utilized for cutting, engraving, and polishing other materials, especially very hard metal compositions and other diamonds. Being comprised of carbon and oxygen, diamonds are also one of the most efficient thermal conductive materials in existence.

 

Diamonds, first mined in India, have been used for cutting and engraving since the early days of human civilization. They were first set in religious idols over 3000 years ago. It wasn’t until the late 19th Century that the market for diamonds began to flourish. Before 1870, it was very rare for anyone other than royalty or the very wealthy to own a diamond. Even then, diamonds were used mostly for ornaments in crowns or necklaces. In 1870, a huge deposit of diamonds was found in South Africa, creating a supply which led to the development of worldwide demand for inexpensive stones. As more and more diamonds flooded the market, prices continued to drop. Diamond suppliers were undercutting their own market. To keep the market from completely collapsing, one mine owner, Cecil Rhodes, started buying up his competitors; thereby gaining control of supply and pricing. One of the companies Rhodes acquired was the DeBeers Brothers mine.

 

Rhodes stopped at nothing to build a worldwide diamond monopoly. Those who rebuffed his buyout requests or refused to sell all their production to him were massively pressured, punished, or ostracized until they gave in. By 1888, Rhodes was in control of the entire South African mining industry and, as a result, the world’s supply of diamonds. Rhodes wielded so much influence in the region that the country of Rhodesia, known today as Zimbabwe, was originally named after him.

 

In 1902, the same year Rhodes died, an enormous mine was discovered that contained more diamonds than all of Rhodes’ mines combined. The mine’s owner, Ernest Oppenheimer, decided it would be much healthier for the diamond industry if he collaborated with Rhodes’ group, by then known as DeBeers. In 1917, Oppenheimer founded the Anglo American Corporation of South Africa, and, by 1927, he had finessed himself into the leadership of DeBeers, while continuing to run the Anglo American group. He kept DeBeers as the company name. By directing both companies and the market, Oppenheimer, through DeBeers and Anglo American, controlled total global supply and prices. In 2012, Anglo American acquired 85% ownership in DeBeers.

 

DeBeers set up a group called the Central Selling Organization (CSO). They funneled all sales and distribution of diamonds through the CSO, using the organization to determine global pricing and availability of the world’s supply of diamonds. The CSO sorted the diamonds and put them in boxes which were shipped to approximately 250 partners worldwide. Prices were non-negotiable. If a merchant refused the boxes or pricing, he was out of the diamond business.

 

After taking over DeBeers, Oppenheimer made the statement, “Our only risk is the discovery of new mines, which human nature will work recklessly to the detriment of us all.” In other words, DeBeers needed to squash all competition. In 1957, the Soviet Union discovered a huge deposit of diamonds. DeBeers immediately went in and purchased the whole output. When a massive cache of diamonds was discovered in Australia, the mine owners refused to cooperate with DeBeers. In retaliation, DeBeers flooded the market with diamonds, driving down the price and pressuring the Australians to cooperate. In the 1970’s, a group of CSO partners in Israel began hoarding diamonds. When they finally released their holdings, the price of diamonds around the world plummeted. Once the rogue dealers had depleted their supply, however, the CSO cut them off and forced them out of the business.

 

In 1969, an enormous diamond mine was found in Botswana. DeBeers felt the cache was important enough for them to enter into a partnership with the Botswanan government, the only outside control ever allowed in their organization. Today, the government of Botswana still owns a 15% share of DeBeers.

 

So what makes diamonds so valuable and such a sought after commodity? It can be summed up in one simple word – marketing.

 

Before the end of the 1800’s, diamonds were strictly for monarchs and the upper class. By the turn of the century, the discovery of huge deposits of inexpensive diamonds had flooded the market and created huge demand at low prices. During the early 1930’s, the depression was taking hold and the price of diamonds on the world market hit bottom.

 

Diamond rocks

 

In 1938, Ernest Oppenheimer’s son, Henry, traveled to the US where he met with the advertising agency, N.W. Ayer. They discussed how “the use of propaganda in various forms” might boost the sale of diamonds in the United States. Together they formulated a plan to build a market for diamonds. The program targeted young males, convincing them that their love was reflected in the size of the diamond they bought. Product placement became an important tool as movie stars were filmed wearing large diamond rings. Radio shows talked about the “new diamond trend.” Even the British royal family and their diamonds became a popular media topic. The program was a success, creating a booming market for diamonds. Between 1930 and 1940, diamond sales increased by 55%. After World War II, the market exploded and, by the end of the 1950’s, 80% of American brides wore diamond rings.

 

In 1947, Frances Gerety, a copywriter, coined the slogan “A Diamond is Forever.” She wrote all DeBeers’ advertising for the next twenty five years.

 

Because of antitrust rules and their total control of the global diamond market, DeBeers never needed to advertise the company’s name. Instead, they chose to promote the intrinsic emotional and perceived investment value of diamonds.

 

In the 1960’s, DeBeers targeted new markets including Japan, Germany, and Brazil. Prior to 1960, Japanese brides did not wear wedding bands. DeBeers launched an advertising program to convince Japanese men that wedding rings were a sign of the modern Western world and they should break with their old traditions. By 1967, 5% of Japanese brides received diamond rings. In 1981, that number had increased to almost 60%.

 

DeBeers no longer retains a stranglehold on the diamond industry, but still controls about 50% of the world market. In addition to Anglo American and the Botswanan government, the Louis Vuitton group owns a substantial piece of the company.

 

We can learn a lesson from DeBeers. If you want to build a market from nothing into a worldwide luxury monopoly, hire the right advertising company. DeBeers did it and successfully convinced men the best way to prove their love is by purchasing a shiny piece of rock.

 

And remember that while the marriage may not last, “A Diamond is Forever.”

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