Synthetic Diamonds and Diamond Mining: Harmful to the Environment

Introduction

The purpose of this paper is to examine the diamond dilemma by examining the diamond industry and recommending strategies to ensure that market share is gained in synthetic diamonds, despite industry domination of DeBeers. This project will examine the competitive landscape of the diamond industry and analyze past and current strategies of DeBeers. It will also formulate strategies to mitigate DeBeers domination, and assess the need for diversification. Additionally, this paper will identify and justify, from a consumer point of view, which purchase option would be selected: a mined gemstone or synthetic.

The Industry and Competitive Landscape

The synthetic diamond industry is a rapidly growing industry, that threatens the $80 billion diamond industry (Bhattarai, 2017). Synthetic diamonds, also known as cultured diamonds, or cultivated diamonds, have the same chemical composition as mined diamonds and cannot be distinguished from the mined version without the use of laboratory equipment. Mined diamonds are formed deep in the earth, over millions of years. Synthetic diamonds are chemically identical to mined diamonds, but are grown in a laboratory, in a process that takes three months or less (Bain, 2011). There are two main processes for creating synthetic diamonds, that begin with carbon and a thin sliver of diamond referred to as a “seed.” The first process is the high pressure high temperature process, also known as HPHT. During HPHT, natural conditions are mimicked with a high pressure and high temperature environment, that allows the carbon to grow. The other process is the chemical vapor deposition process, or CVD. In this process, diamonds are formed using a hydrocarbon gas mixture. Both processes are complicated and have their own advantages and disadvantages. Synthetic diamonds can also be created in different colors by adding boron or nitrogen, or by using a process called irradiation. Mined diamonds can also be found in different colors, but are very expensive, often unavailable, and don’t fit into most consumers’ budgets. Synthetic diamonds are an economical option for consumers, as they are priced much lower than mined diamonds, up to 20 to 50 percent less (Adler, 2015). Part of the reason synthetic diamonds can be priced lower is because it costs less to grow diamonds in a lab than it does to mine them.

Sales of synthetic diamonds by companies like Applied Diamond, Diamond Foundry, New Diamond Technology, Heyaru Group,and Zhengzhou Sino-Crystal Diamond Company, were estimated to be about $150 million in 2017, and projected to grow to more than one billion by 2020, according to a Morgan Stanley report (Bhattarai, 2017). Sales of mined diamonds have recently slowed, dropping 25 percent in 2015 (Bhattarai, 2017).

DeBeers is a corporation that has specialized in diamond mining and mined diamond sales for over one hundred years, and for a time, had a monopoly over the diamond market. When their position was challenged, the company purchased diamonds from other manufacturers and stockpiled them, in order to limit the diamond supply and thus control prices. During the late 1990s and early 2000s, the link between conflicts in Africa and diamonds became a topic of films like Die Another Day and Blood Diamond. These films helped raise awareness of the ethical implications of purchasing mined diamonds. Other mined diamond companies include Alrosa, Petra Diamonds, Gem Diamonds, Dominion Diamond, and Rio Tinto (Adler, 2015).

Current DeBeer’s Strategies

One of DeBeers’ recent strategies is the “Real Is Rare” campaign, created by the Diamond Producer’s Association. The goal of this campaign was to appeal to millennials. DeBeers CEO, Bruce Cleaver acknowledged that the campaign targeted millennials, stating, “it’s not aimed at the traditional successful couple you’d see in advertising even five years ago – it’s not about diamond buyers on Fifth Avenue” (Banks, 2016). DeBeers data indicated that millennials spent almost $26 billion on diamond jewelry in 2015, which means that millennials are now the largest segment of retail customers in the industry. These numbers are expected to continue growing (Banks, 2016). DeBeers’ strategy is to appeal to the emotions of millennials, “They want fulfilling and meaningful relationships – and diamonds are given at life’s great moments, so they fulfill an enormous emotional need,” suggested Cleaver (Banks, 2016).

In addition to appealing to millennial emotions, DeBeers is investing in drilling and blasting technologies to make their mines more efficient, as well as synthetic diamond detection technology to deter certain buyers from buying lab grown diamonds (Banks, 2016). More recently, DeBeers has announced that they are also entering the synthetic diamond market, with their own lab grown diamond brand called Lightbox Jewelry. DeBeers hopes to drive down prices of synthetic diamonds with this new low-priced synthetic brand (Garrahan, 2018).

Past and Current Strategies

Synthetic diamond retailers have avoided the “diamond is forever” marketing strategy and instead aim to convince the younger generation that diamonds are about passion, rather than commitment. In an attempt to get this message to a new audience, Amish Shah, president of R.A. Riam Group, a wholesale jewelry company, brought a selection of lab grown diamonds to a newly engaged couple from the television show “The Bachelor” (Bhattarai, 2017).

Another recent strategy involves the range of colors available with synthetic diamonds. Canadian jeweler Michael Drechsler claims that the range of available colors provided by synthetic diamonds has enabled him to create pieces that would have otherwise been nearly impossible (Thompson, 2007). These unique stones fill a void in the mined diamond market and retailers have started making the public aware of the availability of these vividly colored diamonds that are available for a small fraction of the cost of the rarer mined version.

Strategies to Mitigate DeBeer’s Domination

While the natural diamond industry argues that diamonds are rare gemstones and a symbol of everlasting love, this was not the case until the 1940s, when DeBeers started their “Diamonds are Forever,” marketing strategy (Danziger, 2017). While DeBeers and others in the natural diamond field argue that the authenticity and rarity of mined diamonds is more appealing to consumers because of the symbolic value, diamonds are not actually that rare. Jeffrey Feero, managing partner of jewelry designer Alex Sepkus, recently stated that with the exception of colored diamonds, “I don’t consider most diamonds rare and unusual” (Sullivan, 2018). DeBeers has a long history of trying to control the natural diamond market, and thus keeping the price of diamonds high (Danziger, 2017). DeBeers and the rest of the mined diamond industry are counting on this idea that consumers will value mined diamonds more than synthetic diamonds, however, research shows that price is a key component in purchasing decisions, even among the affluent, and that 50% of consumers noting price as one of their top three factors in making a purchase (Danziger, 2017).

Ultimately, it will be marketing strategies that will determine whether the synthetic diamond industry will be able to disrupt the mined diamond market. If a diamond is referred to as synthetic, many will not buy it because they will think it is cubic zirconia. Synthetic diamond companies need to incorporate education into their marketing strategy if they are to gain market share in the diamond industry, despite the domination of DeBeers. Most consumers do not know the difference between a laboratory grown diamond and a simulated diamond, such as cubic zirconia. Lab-created diamonds have chemical, physical and optical properties identical to mined diamonds – the only difference is the origin of the diamond. A cubic zirconia is a simulated diamond, meaning it may look like a diamond, but it is comprised of entirely different material, and contains no carbon. Both mined and laboratory grown diamonds are made from carbon crystals. Consumers need to be made aware that a synthetic diamond is not a “fake” diamond.

In addition to education about the way lab grown diamonds are made, synthetic diamond companies need to emphasize the environmental and ethical reasons for purchasing a lab grown diamond instead of a mined diamond. Traditional diamond mining has had devastating impacts on the environment, destroying wildlife habitats and leaving enormous spans of empty, unproductive farmland. Lab grown diamonds use fewer resources and have less environmental impact, making them a better choice in terms of sustainability (McAdams & Reavis, 2008).. Synthetic diamonds are also considered conflict-free and are not associated with “blood diamonds,” or the exploitation of workers or funding of wars. Although, there is some truth to the argument that the synthetic diamond market could take jobs away from the countries where diamonds are mined, the conditions the laborers are forced to work in are deplorable, and DeBeers has been involved in contributing to these unspeakable working conditions. Marketing strategies that include images of the environmental destruction and human suffering caused by the mined diamond industry would appeal to consumers’ moral values.

With the recent introduction of Lightbox by De Beers, consumer education should also include the relationship of Lightbox to De Beers, so consumers will be aware that money spent on Lightbox products will support the ethical, political, and environmental issues De Beers continues to play a role in.

The Need for Diversification

Diamonds can only be mined in certain parts of the world, where commercially viable diamond deposits are found. The exploration of potential diamond mining sites is a very complex endeavor, that takes enormous financial resources for exploration, prospecting and surveying, economic appraisal, and licensing. This process takes many years – with no promise that diamond deposits will actually be discovered (Bain, 2011). Most underground diamond deposits are found in South Africa, Australia, Canada and Russia. Synthetic diamonds do not require diamond deposits deep within the earth – laboratories can be created almost anywhere (Bain, 2011). Synthetic diamonds open the diamond industry to areas of the world that do not have underground diamond deposits.

Another type of diversification involved investing. Prior to making investment decisions, investors should consider diversification, which is the act of investing in a variety of assets in order to lower the risk exposure of one specific category (Boone, Kurtz, & Berston, 2016). Diamonds are a great way for investors to diversify their portfolios, as diamonds have shown very low correlations to other assets, which makes them an desirable source of diversification (Haranji, 2012). In addition to the use of jewelry, synthetic diamonds are being used increasingly for a variety of industrial applications such as thermal conductivity. More than 95 percent of all industrial diamonds are currently synthetic (Bain, 2011).

Purchase Option – Consumer Point of View

From a consumer point of view, the most sensible choice would be a synthetic diamond. A synthetic diamond is identical to a mined diamond, and does not have the ethical or environmental issues attached to the purchase. There is no need to worry that you may be wearing or giving someone a “blood diamond”. Synthetic diamonds are also cheaper, and for the same price as a tiny mined diamond, a much larger lab grown diamond can be purchased. According to investment banker Priya Kapoor, a woman can’t have too many diamonds, “and if I can add to my collection with a piece that is cheaper, I would definitely buy it” (Munyal, 2015).

Software developer and consumer, Jerry Singh, recently started searching for a diamond ring for his girlfriend, and found that his money would go a lot further if he chose a lab grown diamond. “I knew I was getting a lot more bang for my buck. When I saw the size and clarity of the diamond, I was sold,” (Bhattarai, 2017). Based on discussions with his girlfriend, Singh also knew that she was concerned about the possibility of getting a “blood diamond.” Singh felt a synthetic diamond, free from those ethical implications, would make more sense. He proposed to his girlfriend with a $5,500, 1.4 carat, synthetic diamond. Singh’s girlfriend was thrilled with the ring – and accepted his proposal (Bhattarai, 2017).

Conclusion

Stephen Morisseau, of the Gemological Institute of America stated that synthetic diamonds are the same as mined diamonds, having identical physical and chemical properties. “From our perspective, synthetic diamonds are diamonds.” (Bhattarai, 2017). Attracting millennials who are concerned about saving money and being green should be part of any synthetic diamond company’s marketing strategy. A recent DeBeers study found that millennials would rather spend money on vacations, weekend getaways, and electronics before purchasing diamonds (Bhattarai, 2017), and DeBeers has recently jumped into the synthetic market with their own brand. Marketing strategies for synthetic diamond companies should include educational information about synthetics, so consumers will understand that synthetic diamonds are not “fake” diamonds, as well as vivid imagery of the environmental destruction and deplorable working conditions in diamond mines.

Synthetic diamonds are becoming increasingly popular, and celebrities like Leonardo DiCaprio and Penelope Cruz have seen the benefit in associating themselves with jewelry that does not involve child labor or environmental destruction (Marikar, 2018). The Atelier Swarovski by Penelope Cruz collection recently debuted in Paris and Cruz commented on the positive impact the synthetic diamonds are able to provide in the industry (Bauer, 2017). Nadja Swarovski, who is an executive with Swarovski “created diamonds,” feels that synthetic diamonds are clearly more aligned with the values of the modern consumer. “I believe our children will only want to buy lab-grown diamonds, it’s a generational thing” (Garrahan, 2018). As the facts about synthetic diamonds become more well-known, consumers will be attracted to them. We have seen consumers gravitate toward alternatives in other industries, like the fur industry. Holly McIndoe, an FDA consultant argues that eco-friendly options are the future. “It’s like buying faux fur, and these are not even fake diamonds (Munyal, 2015).