De Beers Analysis

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De Beers Consolidated Mines Ltd. (A) Business Models Supply Control Since the company was founded in 1888, De Beers followed a strategy of supply control. In addition to mining its own diamonds, it bought diamonds from other producers and had what it called the "central selling organization," controlling some 90% of the world's diamonds. Its tight control over such a vast amount of supply enabled De Beers to keep prices high for a commodity that is neither particularly scarce nor useful. If a competitor offered diamonds on the market outside of De Beers' central selling organization, De Beers would simply flood the market with similar stones, thus eliminating any pricing power the competitor might offer. Besides it also stimulated demand by advertising heavily to its consumers on how it slogan “A diamond is forever” showing how romantic was the use of diamond. Economies of scale and scope * Indivisibilities and Spreading of Fixed Cost The discovery of the first Kimberlite pipes (1867) in South Africa led to great diamond rush which causes thousands of diggers staked out individual claims. Thus it made Cecil Rhodes secured a monopoly on pumps, steadily increased his fees and began taking payment in individual claims. The fixed amounts of pumps (until certain level) but the increasing number of diggers made the average cost decline (AC < MC), Cecil Rhodes achieves its economies of scale. * Economies of Scale and Scope in Purchasing Central Selling Organization (CSO) De Beers always bought rough diamond in bulk (100%), all types, and cash. So De Beers had high bargaining power toward its supplier. Thus it made De Beers gets economies of scale and in term of lower purchasing price (than the normal price). * Economies of Scale and Scope in Advertising De Beers cost of Advertising includes a. Internal market intelligence group to understand the
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