World-famous diamond company, De Beers, attempts to put competitors in the budding lab-grown diamond business out of work by drastically undercutting their prices.
High quality lab grown diamonds look identical to the real thing, but they offer a special appeal to some consumers, especially Millennials, who want stones that are obtained in ethically responsible and sustainable ways.
Diamonds grown in the lab also sell for substantially less. Whereas a mined one-carat diamond might carry a $6,000 price tag, a one-carat lab-grown stone averages $4,200.
However, De Beers prices its Lightbox lab-grown line at an average $800 per carat, hoping to further differentiate lab-grown diamonds from “real” diamonds to preserve their status and appeal and also to drive the competition out of business.
Video Spotlight: Are lab-grown diamonds here to stay? (video is included in the article)
This post is based on The Star Online article, Lab-grown diamonds are forever too!, no author given, January 26, 2019; and the Yahoo Finance article, Lab-grown diamonds will survive Big Diamond’s attempt to kill them, startup says, by Zack Guzman, January 14, 2019. Image source: © McGraw-Hill Education/Charles D. Winters.
1. Why do some customers prefer lab-grown diamonds? What sustainability or ethical issues are involved?
Guidance: The low price is enticing. In addition, “blood diamonds,” or diamonds mined and sold to generate funding to finance wars against governments, have led to new industry practices.
The Kimberly Process is a certification program started in 2003 to try to block the sale of conflict diamonds. Those responsible for the program state that 99.8% of diamonds available today meet their standards. However, critics doubt the accuracy of that figure, due to smuggling of diamonds out of some African nations. Thus, some consumers prefer to buy lab-grown diamonds, circumventing the issue entirely.
2. How have the costs to make a high-quality lab grown diamond changed over the last decade? Why can De Beers sell them for so much less than competitors?
Guidance: In 2008, it cost about $4,000 per carat to grow a large stone such as the center stones in engagement rings. The cost dropped to $300 per carat in 2018, according to a report by Bain & Company.
The prices charged to consumers by companies other than De Beers are still relatively higher, perhaps to build in a profit margin to justify the time and expense of making the lab-grown diamonds.
However, since De Beers appears primarily interested in making lab-grown diamonds seem like a different class of jewels (“for fun and fashion” rather than for major life events like weddings and anniversaries), charging an extremely low price helps them further this goal while potentially making it harder for others to compete. De Beers is not having its stones rated independently by outside firms as its competitors do, perhaps because it does not want to further emphasize their similarity.
At present, the demand for lab-grown stones, especially large, center stones, still outstrips supply. Some observers feel it will be hard for De Beers to accomplish its goals.