Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How De Beers Invented Diamond Pricing
Transcript
- Lucas: So there is a product that most people buy exactly once in their life, they have almost no idea what it should cost, and a single company controlled ninety percent of the global supply for roughly a century. I want to talk about how that company, De Beers, basically invented the pricing model for the entire diamond industry. Luna: And you're talking about the engagement ring, right? That one purchase where the price tag is almost as important as the product? Lucas: Exactly. And before I get into the mechanics — if these conversations have ever helped you think differently about pricing in your own work, the reason the show stays ad-free is listener support. You can keep that going at buy me a coffee dot com slash fexingo. Just a quick thank you to the people who already do that; it really matters. Luna: Yeah, absolutely. It's a small way to say this content has value. Lucas: So back to the diamonds. The story starts in the 1870s when massive diamond deposits were discovered in Kimberley, South Africa. A British businessman named Cecil Rhodes started buying up claims, and by 1888 he had consolidated them into De Beers Consolidated Mines. The key insight was not just getting the supply — it was controlling how much of it reached the market. Luna: Because if you flood the market, diamonds become cheap glass. They had to create artificial scarcity. Lucas: Right. De Beers created a single channel for rough diamonds — the London-based Diamond Trading Company, which held 'sights' ten times a year. A handful of preferred buyers called sightholders would be offered a box of diamonds at a fixed price. Take it or leave it. No negotiation. And De Beers carefully limited the quantity to keep prices stable and high. Luna: That's a huge amount of pricing power. But they still had a demand problem, right? Diamonds weren't a must-have item in the early 1900s. Lucas: That's the part that really made the model work. In the 1930s, diamond sales were plummeting because of the Great Depression. De Beers hired the advertising agency N W Ayer, and they came up with the line 'A Diamond Is Forever' in 1947. The campaign tied diamonds to eternal love and made an engagement ring without a diamond seem incomplete. They also planted stories in movies and magazines — Marilyn Monroe sang 'Diamonds Are a Girl's Best Friend' — to wire the association into culture. Luna: So they created the demand. Then they could set the price however they wanted because there was no comparison shopping. How did they handle the pricing on the wholesale side? Lucas: The wholesale price was effectively set by De Beers, and they kept it incredibly stable. For example, the price of a one-carat diamond in the 1950s was roughly the same in the 1980s when you adjust for inflation. They didn't need to raise prices because they were controlling supply to match demand, and the real margin was in the retail markup. Most jewelers used the 'keystone' method — they doubled the wholesale cost to get the retail price. So a diamond that cost the jeweler one thousand dollars would sell for two thousand. Over time, that became the expected norm. Luna: Which is amazing because the customer has no idea what the wholesale price is. They only see the final number. And the jeweler is taught to never discount a diamond — it ruins the perceived value. Lucas: Exactly. De Beers even enforced that. If a retailer discounted rough diamonds, they'd be cut off from future supply. So the entire channel maintained pricing discipline. But the model started to crack in the 1990s when new mines opened in Russia and Australia. The Argyle mine in Australia produced a flood of small, low-quality diamonds that De Beers couldn't easily absorb. And the Russian diamond company Alrosa started selling outside the De Beers cartel. Luna: So their market share dropped from ninety percent to maybe thirty percent today. But the engagement ring price didn't collapse. Why? Lucas: Because the cultural norm was already baked in. People still felt they had to spend two to three months' salary on a ring — a marketing rule De Beers had promoted in the 1930s. And the diamond grading system — the four Cs — created a complex matrix that made price comparison very hard. Two diamonds with the same carat weight could be wildly different in price based on cut, color, and clarity. Consumers had no easy way to say 'this is overpriced.' Luna: Right, so the pricing power shifted from De Beers as a monopolist to the industry as a whole, supported by the grading system and the emotional weight. But now we have lab-grown diamonds that cost a fraction of natural ones. How does that change pricing? Lucas: That's the big challenge. Lab-grown diamonds are chemically identical and can be produced for maybe three hundred dollars per carat versus the roughly four thousand dollars for a mined stone. De Beers initially fought them but eventually pivoted — they started selling their own lab-grown diamonds under the brand 'Lightbox' at a fixed price of eight hundred dollars per carat, very clearly labeled as fashion jewelry, not engagement rings. The message is: if you want real meaning, buy a real diamond. Luna: That's interesting because they're using pricing to segment the market. Natural diamonds are emotional and expensive, lab-grown are affordable and practical. But will that hold as lab-grown quality improves and consumers become more rational? Lucas: It's an open question. In July 2026, we're seeing lab-grown diamonds take a bigger share of the fashion jewelry market, but the engagement ring market remains stubbornly natural. The price premium for natural is still about four to five times. That's essentially the 'story premium' — the marketing that De Beers spent a hundred years building. The question is whether that premium erodes as younger buyers value experience over objects, or if the diamond ring as a symbol has enough inertia. Luna: So the ultimate pricing power here isn't about supply or costs; it's about narrative. De Beers created a story that justified a price, and that story is still being told. But every story has a shelf life. Lucas: Exactly. And that's the lesson for any business thinking about pricing: the best moat isn't a patent or a mine; it's a belief that customers share. The diamond industry shows you can build that belief — and also shows how fragile it can become when the world changes. Luna: All right, a fascinating case study. And maybe a prompt for us to think about what beliefs underpin our own prices. Lucas: That's the note to end on. Thanks for listening.