De Beers Market Control

A case study of how De Beers created and maintained a monopoly in the diamond industry through systematic control of supply, distribution, and demand creation.

Supply Control

• Before 1870, diamonds were naturally rare due to limited discovery
• Large deposit found in South Africa in 1870 created oversupply
• Cecil Rhodes (De Beers founder) consolidated mines to control supply
• De Beers achieved 90% market control through:
  • Intentionally restricting mining output
  • Could produce 10x more but limited supply
  • Aggressive takeover of new mines through market flooding or intimidation

Distribution Control

• Created exclusive "sight holder" system
  • Only 200 people allowed to buy directly from De Beers
  • Strict control over who could purchase and resell
• Prevented price competition by:
  • Monitoring dealer prices
  • Cutting off those who sold too cheaply
• Killed resale market
  • Banned merchants from making buyback offers
  • Diamonds lose 50% value immediately after purchase
  • Customers kept unaware of actual resale value

Demand Creation (1936 onwards)

• Hired ad agency and George Lock to create artificial demand
• Created cultural associations:
  • Diamonds = Love for women
  • Expensive diamonds = Masculinity for men
• Invented diamond engagement ring tradition
• Expanded globally:
  • US: Reached 90%+ engagement ring market share
  • Japan: 5% to 60% adoption in 20 years
• Created additional marketing concepts:
  • "Right hand ring" for independent women
  • 25th anniversary ring
  • Upgrade ring concept

Results

• Maintained monopoly until 2000
• Controlled 70-90% of market share
• Successfully created artificial scarcity
• Established diamonds as cultural necessity
• Created enduring marketing slogan "Diamonds are Forever"
• Transformed diamonds from commodity to emotional purchase