Diamonds have always been associated with glamour and privileges. In the past, South Africa's De Beers has promoted white stones as the ultimate gift of love and while pink diamonds did sell, brown stones were, until recently, completely neglected. For Argyle, the operator of Australia's largest diamond mine, this represented a marketing nightmare. The 40-hectare Kimberely mine was discovered in 1979 and since 1986 has supplied more than a third of the world total output of diamonds. Unfortunately, only 5 percent of these are of the gem quality, of which 50 percent are coloured. In 1993, the mine produced approximately 41 million carats and generated A$0.5 billion in revenue.

Jewellers prefer white gems. Research shows that consumers exposed to the coloured gems express favourable attitudes toward them but that retailers still perceive them as risky. It is a catch-22 situation: retailers won't stock brown diamonds which they think won't sell and this results in no customer exposure and therefore no sales!

De Beers has complete control of the world market, buying 80 percent of Argyle's industrial and near-gem quality products and nearly 100 percent of gem quality stones of colour but it does not promote them. Argyle, which produces 50 per cent of the world's output, therefore took the initiative and targeted the US, the largest initiative diamond market in the world, valued at US$12 billion. The company made sure, however, that sales would not harm sales of the white diamond variety and hence would not threaten De Beers.

The product name was changed to Champagne and Cognac, which had classy and desirable connotations. Rather than presenting it as the ideal romantic gift, Argyle portrayed the product as suitable for the thirty-something woman, upwardly mobile and able to pay for her own indulgences, a population on the increase and expected to provide more growth opportunities.

In Australia, demand for Champagne and Cognac is still quite small but in the US sales have increased dramatically. Awareness of the product among retailers increased from 5 per cent to 95 percent in the past four years and the market grew to $200 million during the same period of time. Argyle also arranged for the diamonds to be cut in India rather than Europe, lowering the costs. Diamond mining is a risky business, but with the emergence of exotic stones from exotic places it seems ripe to tap the growing market of wealthy women.

1. How Argyle did changed the Problem into an Opportunity? (2 Marks)

1. Define the characteristics of the segment chosen by applying the relevant theory? (2 Marks)

1. What are the advantages of choosing the Segment( 1 mark)