The Concepts and Principles of Marketing in a Business Environment - Assignment Example

Marketing Plan for De Beers Executive Summary This report outlines the marketing plan for DeBeers Company which has a major focus in exploration, processing and retailing of diamond. The company was founded in South Africa in 1888 and has an extensive experience in this industry. The company has undergone numerous competitive phases as result of various dynamics such as opening up of competition space giving rise to new entrants, emergence of synthetic diamond and a tarnished reputation as result of being accused in dealing in blood diamond. This has seen them lose considerable market share in terms of rough diamond and polished diamond. For instance they used to account for 45% of rough diamond and 80% of polished diamond yet they currently account for 40% of rough diamond and 40% of those retailed. To prepare the marketing plan, the report first conducted a situational analysis. In this regard the report briefly examined the market statistics where it found the largest buyer of polished gold from retailers is America. This followed by China and India. Nevertheless, by projections, the future massive consumers would be China and India. Additionally, the paper did an external and internal analysis through SWOT techniques so as to identify gaps and opportunities that can be improved on so as to enable them improve on how lock out competitors and lock in consumers. Further, competition situation was examined through porters. Model so as to offer insight on how these can be countered through marketing and internal mechanisms. Finally, under this section, the report assessed the products they offers and how they distribute them. The last stage is the marketing plan which offers proposals on how DeBeers can improve their marketing approach so as to gain their lost market share based on the emerging data from situational analysis. Table of Contents Table of Contents ii List of Figures iii List of Tables iii 1.0 Introduction 1 2.0 The Company 1 3.0 Situation Analysis 2 3.1 Market Summary 2 3.2 SWOT Analysis 7 3.2.1 Strengths 7 3.2.2 Weakness 8 3.2.3 Opportunities 8 3.2.4 Threats 9 3.3 Competition 9 3.3.1 Rivalry among Existing Competitors 9 3.3.2 Threat of Substitute Products 9 3.3.3 Bargaining Power of Buyers 10 3.3.4 Threats of new Entrants 10 3.3.5 Bargaining Power of Suppliers and Partners 10 3.4 Product Offerings 10 3.5 Distribution 11 4.0 Marketing Plan 11 References 12 List of Figures Figure 1: Diamond jewellery retail sales 2010/ 2011 5 Figure 2: Market share of various jewellery segments 6 Figure 3: 8 key world markets 6 Figure 4: projected share of industry segment by 2015 6 Figure 5: projected key consumption markets by 2015 6 List of Tables Table 1: De Beers Strengths 7 1.0 Introduction Marketing is an integral process in the operations of the firm since in offers an inter-phase between the firm and consumers/ market and firm and competitors and firm & the macro-environment. This whole process rests on marketing and market research which offers information based on raw data about trends and expectation (Aaker, Kumar and Day, 2001, p.2, 3 & 4). It is on this basis that a firm/ marketing consultant can be able to build a marketing plan that enable the firm tap on the opportunities/ key success factors and counter threats/ completion while aligning the same into the context of the larger environment (Onkvisit & Shaw, 2008, p.7). Diamond industry has grown highly competitive since mid 1990s as result of liberation of the market & reduction of control of supply power of DeBeers and emergence of synthetic diamond that is cheap and sustainable as compared to the mined ones (Cadieux, 2005). Such trends have seen DeBeers significantly lose its market share from 80% to 45% (Economic Intelligence Unit, 2007). It is in regard to the above scenario that this report seeks to prepare a marketing plan For DeBeers so as to significantly regain its lost market share and reduced leadership. 2.0 The Company DeBeers is agglomeration of companies with global presence which emerged in 1988 in South Africa. The company operations in diamond industry are based on exploration, mining and marketing (Cadieux, 2005). According to (DeBeers, 2012), their mission and goal is to “turn diamond dreams into lasting reality”. For them to address such aspiration, they anchor the mission and goal on two objectives which are the pillar of the company. These are to employ their economic might in adding value to diamond and build linkages within the macro-environment. Additionally, they have overriding principles such as being passionate about their firm and their products, to converge their strength, guarantee trust in all of their operations, mind the communities they operate in and to positively impact on the future through research and risk taking. 3.0 Situation Analysis This section outlines the current situation in the diamond industry. To actualise this expectation, the report first assesses the trends in the market in a summarised overview by examining the demand, players, market share and other relevant trends. Secondly, the paper examines the internal and external environment through Strength, Weakness, Opportunity and Threat analysis (SWOT). In this regard, the internal environment is embodied on strengths and weaknesses (SW) since these are within their means and control and internal environment embodied on Opportunity and Threats (OT) since these are factors beyond the control of the firm. Thirdly, the paper analyses the competition within the industry using Porter’s five forces model/ framework. Fourth, the report outlines the product that the company offers/ product offerings and finally, the report asses how it distributes the same products it offers. 3.1 Market Summary The products traded in jewellery market are sourced from products such as diamond, diamond, platinum and others. According to KPMG (2006, p.3), in 2005, diamond based jewellery accounted for 47.2% of jewellery sold globally. This was followed by plain gold jewellery at 41.6%, plain platinum jewellery at 6.2% while the rest of precious metals and stones accounted for 5.0% (see figure 2). Diamond industry is a massive economic segment of the world. According to World Diamond Council (2013, p.1), diamond worth US$ 13 billion a produced annually with 65% or diamond worth US$ emanating from Africa. Additionally, they outline the process that diamond processing undergoes before it reaches the consumer. These include exploration, mining, sorting cutting & polishing, jewellery manufacturing and retailing. While the whole process are critical to marketing while approached from a holistic perspective, the important steps are cutting & polishing, jewellery and manufacturing because of the branding process that entails the 4Cs (cut, colour, clarity and carat weight) and the role of branding in marketing and the retailing segment. The hallmark/ focus of this section will be on retailing by examining demand and supply in the global market. In 2011, USA accounted for 26.9%, China including Hong Kong 9.2%, India 8.5%, EU 5.7%, Japan 5.7%, Persian Gulf 55 and others 9.9% (see figure 1). Form historical timeline, KPMG (2006, p.4) indicate that by 2005, America was the world’s largest purchaser of diamond by accounting for 30.8%. This was followed by Middle East and China at 8.9%, Japan and India at 8.3%, Italy, at 5%, UK at 3.1%, Turkey at 2.9% and the rest of the world accounted for 23.7% (see figure 3). During the same period, Dunn (2006) notes that demand for diamond with over 2 carats which worth $15, 000 was high in India and China because of their growing middles class that has increased disposable income as result of the vibrant economic growth they have been experiencing. Additionally, in the same period, India was ranked as the fastest expanding diamond jewellery market with a 19% growth rate. According projections by KPMG (2006, p.7), the dominance of diamond in the jewellery segment across the globe will significantly reduce to 41% which the same as plain gold as result of growth in segments like plain platinum jewellery to 7% and plain palladium jewellery to 6% (see figure 4). For markets, the trends is pointing towards India and China whereby it is projected that China by 2015 would account for 15% of the total sales/ demand, India 12% and America maintaining the lead however with a considerable drop to 26% (see figure 5). Based on their earlier approach to marketing and dominance of controlling supply through stock piling, up to mid 1990s the company accounted for 80% of polished diamond sold yet they only produced 45% of rough diamond. Nevertheless, this dominance changed as result of entry of three new players who were outside their control. These were Leviev and Argyle which operated in Russia and Australia respectively. Moreover, the issue of blood diamond greatly tarnished their reputation as a non responsible firm (Berman & Goldman, 2003). Further the coming up of synthetic diamond which is cheaper and friendlier to the environment has curtailed their market dominance. Therefore, from 2007, the DeBeers Company now controls 40% of rough diamond and a paltry 45% of the cut/ refined diamond sold globally (Economic Intelligence Unit, 2007). Figure 1: Diamond jewellery retail sales 2010/ 2011 Source: Bain & Company and Antwerp World Diamond Centre, 2012, p.5 Figure 2: Market share of various jewellery segments Source: KPMG, 2006, p.3 Figure 3: 8 key world markets Source: KPMG, 2006, p.4 Figure 4: projected share of industry segment by 2015 Source: KPMG, 2006, p.6 Figure 5: projected key consumption markets by 2015 Source: KPMG, 2006, p.6 3.2 SWOT Analysis 3.2.1 Strengths Table 1: De Beers Strengths Factor Issue Extensive experience and financial might The firm was the pioneer company in the diamond industry and has dealt with it since 1888 and they have massive financial might that enable them to enter virgin markets, do acquisitions and push out or limit competitors. Differentiation and Advertising The firm has changed tack and initiated massive branding and personalised advertising to market its products and reach its target market (Cadieux, 2005). In this regard, they have ventured in cutting and polishing. Most diamond companies used not to brand so as to distinguish their products (31). Currently the firm with it partners are branding. For instance they branded diamond called Hearts of Fire which has produced $ 40 million in sales annually since 1999. They now focus on a wider perspective from the initial wedding theme that most competitors have focused to non-wedding themes. Brand Loyalty Owing to their longer stay and branding exercise, the company has built a reputation as a trusted brand that churns out diamond products that ‘wow’ the customer and bring satisfaction and sense of class (Stein, 2001). They currently brand their diamond as luxury item (Freidman, 2006). Distribution channels, and integration The firm has a network and linkages for forward and backward integration (Friedman, 2006). Source: Author, 2013 3.2.2 Weakness Their initial focus of controlling supply which leads to stock piling and fall of prices instead of demand driven approach has really impacted on them. As result of this, in certain period they were denied permission to trade in lucrative markets like US for breaching anti-monopoly trends (Stein, 2001). Secondly, the firm has not thoroughly embarked on branding of diamond as a means to differentiation yet that is the future (Friedman, 2006). This means their products look alike with their competitors thus creating confusion. 3.2.3 Opportunities The opportunity for the company is to expand in the fast emerging economies specifically India and China. This is affirmed by Dunn, (2006), KPMG, (2006); Bain & Company and Antwerp World Diamond Centre, (2012) who notes that the two countries will account for the largest share of refined diamond bought from retailers as result of their growing middle class who have increased disposable income as result of economic growth and development (see figure 1 and 5). Equally, Bain & Company and Antwerp World Diamond Centre, (2012, p.3) indicates that the retail outlets and demand is growing in these countries as they adopt western practices giving gifts such as diamond jewellery to mark occasions such as engagements, wedding and anniversaries. Hence consumers are seeing diamond as investment and not luxury alone. 3.2.4 Threats The report treats the threats as being equal to the competition the company is facing and this is analyzed deeply under the competition segment which is the subsequent analysis. 3.3 Competition 3.3.1 Rivalry among Existing Competitors This comes from those dealing with mined diamond and those dealing with synthetic ones. Competition fronted by existing players is high since up to mid 1990s, 80% of retail sales were for DeBeers. This is not the case since they now account for 45% of retail sales (Economic Intelligence Unit, 2007). Moreover, companies like Alrosa have ventured in to retail to counter the completion level by being able to directly interact with customers (Aris, 2001). Further growth of synthetic diamond is equally eating into her total market share because they are cheap. Competitors include Alrosa, Rio Tinto and manufacturers of synthetic diamond such as Adia Diamonds, Gemesis and Life Gem. 3.3.2 Threat of Substitute Products The threat is in two levels, these are synthetic diamond and other sources for jewelry product such as gold. Substitute products threat is high. For instance, synthetic/ artificial diamond comes in various colours as compared to natural one yet it is cheaper. In terms of price, one carat diamond cost about $ 100, 000 while the synthetic one goes for $ 4, 000 (O’Connell, 2007). Other products like plain palladium, plain platinum and plain gold are major threats (compare figure 2 & 4). 3.3.3 Bargaining Power of Buyers The switching cost is low and hence bargaining power of buyers is high. For instance, one carat diamond cost about $ 100, 000 while the synthetic one goes for $ 4, 000 (O’Connell, 2007). This implies one can easily switch from one to another. 3.3.4 Threats of new Entrants Venturing into diamond business is an expensive affair because of massive requirements like mining license, capital investment and so on and hence barrier to new entrants is relatively high. The company should not be worried about this since they control numerous concessions in Africa which accounts for 65% of production giving them access to rough diamond. As an example, they control 45% of mined diamond and have 50% stakes in key countries like Botswana and Namibia (Cadieux, 2005). 3.3.5 Bargaining Power of Suppliers and Partners The firm has stakes diamond producing countries like Australia, Canada, Angola, South Africa and Botswana among others (Cadieux, 2005). Moreover, the firm has 50% stakes in firms like Debstwana and Namdeb. Since the firm controls 45% of rough diamond, it means it is the bulk purchaser of rough diamond. This gives it an upper edge over the suppliers and thus the bargaining power of buyers is medium. To an extent it can be argued that some suppliers/ countries depend on De Beers as their main purchaser. 3.4 Product Offerings There is numerous jewellery products sourced from different raw materials such diamond, gold plain platinum and so on (see figure 4). The company in its products offering is based on the level of engagement, which is business to business and business to consumer. In business-business engagement, after every other process they sell polished diamond which is unbranded for the final retailers to brand and sell. On business-consumer engagement, the firm has retail outlets where it sells branded and no-branded diamonds in different formats of jewellery to final consumers. 3.5 Distribution To counter completion and lack of retail presence, the company has initiated forward and backward integration of linkages (Friedman, 2006). In this regard, they have partners who sell the branded products, have stakes in the same distributors and lastly, they have their own shops. Under the programme of ‘supplier of choice’ the company has build a close working rapport with partners and suppliers where they are allowed to use DeBeer logo to affirm that the diamonds are natural and ethically traded (Cadieux, 2005). Through distribution partnership with LVMH, they have opened numerous retail outlets with all diamond jewellery sold bearing DeBeers trademark. Thus, by 2007, through this arrangement, they have 22 outlets. 3 In USA, 4 in Europe, 1 in Middle East and 14 in Asia. The same trend has been applied by competitors. For instance, Aber Diamond mining group which is based in Canada has purchased a US jewellery retailer known as Harry Winston giving it an entry point and storefronts in USA, Japan and Switzerland (Cadieux, 2005). The same trend was replicated by a Russian mining company referred to us as Alrosa which has opened a retail store in Red Square (Aris, 2001). 4.0 Marketing Plan This section…… References Aaker. D.A., Kumar, V and Day, G 2001, Marketing research, New York, John Wiley and Sons Aris, B 11th September, 2001, A Diamond in the Rough, The Moscow Times. Bain & Company and Antwerp World Diamond Centre 2012, The global diamond industry: portrait of growth, viewed 20th Sept. 2013 from http://www.bain.com/Images/BAIN_REPORT_Global_diamond_industry_portrait_of_gr owth_.PDF. Berman, P. and Goldman, L. (15 September, 2003), Cracked DeBeers, viewed 20th Sept. 2013 from http://www.forbes.com/forbes/2003/0915/108.html. Cadieux, D 2005, DeBeers and the Global Diamond Industry, Ivey Case Study No. 9B05M040. De Beers 2012, About us: De Beers Group of Companies, viewed 20th Sept. 2013 from http://www.debeersgroup.com/en/About-Us/The-Group-of-Companies/. Dunn, J 4 October, 2006). Glittering Prizes, The Australian. Friedman, V 10 May, 2006, The New Rocks on the Block, Financial Times. KPMG 20 December, 2006, Executive Summary: The Global Gems and Jewellery Industry Vision 2015: Transforming for Growth, viewed 20th Sept. 2013 from http://www.sbd.be/sites/sbd.be/files/KPMG%20-%20GJEPC%207.07.pdf. O’Connell, V 13 January, 2007, Gem war, The Wall Street Journal. Onkvisit, S. and Shaw, J 2008, International marketing: strategy and theory, New York, Routledge. Stein, N 19th February, 2001, The DeBeers Story: A New Cut On An Old Monopoly, viewed 20th Sept. 2013 from http://money.cnn.com/magazines/fortune/fortune_archive/2001/02/19/296863/. The Economist 17th July, 2004, The Cartel Isn’t Forever, viewed 20th Sept. 2013 from http://www.economist.com/node/2921462. World Diamond Council 2013, The diamond industry, viewed 20th Sept. 2013 from http://www.worlddiamondcouncil.org/download/resources/documents/Fact%20Sheet%20 %28The%20Diamond%20Industry%29.pdf. Read More