The Dyson Difficulty

This week, new EU rules on the power of vacuum cleaner motors came into force.  From 1 September 2017, it will be illegal to place a vacuum cleaner on the market which has a motor rated above 900 watts.

You may be aware of this EU directive as the Brexit supporting vacuum cleaner tycoon Sir James Dyson has used it as a justification for the UK leaving the European Union.  In fact, Sir James was so disgruntled with the new rule, he took the EU to court to try to have the law struck out.

Dyson is an avid Brexiteer and earlier this summer publicly stated that he would have no issues with the payment of tariffs once the UK leaves the EU.

Given Dyson’s biography, I find his attitude to both the issue of tariffs and the new energy efficiency requirements puzzling.

First, the issue of tariffs.  There is a simple reason why Sir James is so relaxed about the application of tariffs.  Dyson designs his products in the UK.  He has a major design campus in Oxfordshire which employs around 3000 people.  In 2016, he spent £7 Billion a week on new product development.  In recent years he has diversified his business into other electrical goods including fans, de-humidifiers, and hair dryers.

But Dyson moved the manufacture of his products out of the UK in 2001.  Dyson cleaners are manufactured in Malaysia.  The reason Dyson is so relaxed about the imposition of tariffs post-Brexit may be down to the fact that he is already paying them on his Malaysian imports.

It must also be mentioned that Sir James, in recent years, has invested heavily in UK agriculture.  He has been described as Britain’s biggest farmer.  Dyson’s agricultural holdings employ large numbers of EU workers and he is in receipt of millions of pounds of EU subsidies.

Dyson studied design at the Royal College of Art before studying engineering.  His first major innovation was the ball barrow; a design of wheelbarrow where a plastic ball replaced the wheel.  This design made the barrow more stable and made it easier to manoeuvre.

The barrow won the Prince Phillip Designer’s prize.

Dyson received a knighthood for his contribution to British design and innovation.  His order of merit citation focused on Dyson’s services to industrial design.

Dyson is a designer and innovator, not an inventor.  Many people confuse these terms. Inventors create a new process or product.  Innovators find commercial uses for inventions or they find new purposes for existing technologies.

The idea of replacing the wheel of a barrow with a ball came from Dyson’s brother but it was Sir James who had the engineering and design knowledge to turn that idea into a viable product.

The description of Dyson as an innovator also applies to his vacuum cleaners.  Dyson spotted that traditional vacuum cleaners lost power as their dust bags filled.  He designed a new cleaner which had no bag and which used cyclone technology so that suction power was not lost.

Cyclone technology had been used for decades in saw and flour mills to remove dust.  Dyson did not invent that technology; he applied it to domestic cleaners.

Dyson uses intellectual property rights to protect his products.  He holds numerous patents and he successfully achieved £4 million in damages when Hoover tried to copy his patented designs.

It is Dyson’s innovative nature and use of intellectual property rights which make me puzzled at his attitude to the new EU rules in relation to the motor power of vacuum cleaners.  I suspect some of the answers may be found in where his cleaners sit in the market.

Applying the Boston Consulting Group Matrix, Dyson cleaners are likely to sit on the boundary between the Star and Cash Cow quadrants.  Dyson has high market share in an expanding market.

Dyson cleaners are also premium products.  They are in no way the cheapest products on the market as they are sold at a price premium.  One of the reasons Dyson shifted production to Malaysia was to reduce labour costs and maintain profit margins.

Then we need to look at the stage in Dyson Cleaners product life cycle.  I suspect they are moving out of the growth stage into the mature stage of their life cycle.

BCG Matrix stars are often not the most profitable products in the market.  the focus on star products is to maintain market share, not profit margins.  This means high promotional spend and using tools such as intellectual property rights to fend off competitors.

In recent years, Dyson has seen increased competition from Shark and other cleaner brands.  Perhaps Dyson is a victim of his own success.  One of the reasons given by the EU for the new power limitations was that manufacturers, unable to copy Dyson’s patented technology, had been installing ever more powerful motors in cleaners to increase and maintain strong suction.

The different stages of the product life cycle infer different pricing strategies:

  1. Introduction – In this stage of the PLC costs tend to be high as you promote and develop the new product.  Sales tend to be low as only first adopting consumers are buying.  Therefore firms have to set relatively high prices.
  2. Growth – At this stage sales rise rapidly and revenues rise.  the increase in sales volume allow firms to lower prices.  However as the product exits the growth stage and moves towards maturity profits may decline as competition from other manufacturers intensifies.
  3. Maturity – At this stage sales levels flatten out.  The focus in the market is a battle for share.  As a result manufactures look to reduce costs and set the lowest price possible.  There is a danger that the market becomes saturated.  At the maturity stage tactics such as brand extension and reformulation are used to maintain peak sales.
  4. Decline – At this stage, sales fall as the consumers shift to new replacement products or they already own the product type and see no need to replace it. At the decline stage, many firms shift to targeting a market niche.  Reduced sales volumes result in a need for higher prices.

You can cross reference the product life cycle with the BCG matrix.  Products at the introduction stage are generally classed as problem children.  As the product grows, it becomes either a star; a market leader; or a cash cow; a follower product which has higher margins as less promotional effort is needed to maintain market position.  Many dog products are in the decline stage of their life cycle and are only required by particular market niches.

If Dyson’s cleaners are sitting on the cusp between Star and Cash Cow; and are entering the maturity stage of their life cycle, this can be a difficult place strategically.  You have to spend to maintain your market leader position.  You have increased competition from competitors who may be able to leverage higher margins.  Sales are flattening out and it is difficult to maintain growth.  Most consumers may only purchase a vacuum cleaner once a decade or less.

I can therefore see that a firm in this position may resent a new law which places what it sees as unnecessary costs on it as an unfair imposition.  Such costs would eat into profit margins.

It is clear that Dyson views the power restriction as such as cost and he has firmly placed this change as a threat to his business.  What Sir James has not done is assessed his strengths in order to deal with this ‘threat’.  If it is true that Dyson’s product development budget is £7 million a year, surely his firm is well placed to develop an answer to the power restriction problem.  His firm has a strong track record in intellectual property development.  surely he is best placed to develop patented new technologies which allow his products to better meet the challenge.

In fact, the new law is the second stage of the power reduction criteria.  In 2013, a limit of 1600w was placed on cleaners.  Many of Dyson’s competitors were affected by the 2013 power reduction.  None of Dyson’s products were affected at that time as they all had motors rated below the 1600 watt limit.  In fact, Dyson has had almost a decade to adjust to the new requirement and to steal a march on his competitors.

If I was to advise James Dyson, I would tell him to treat the new regulations not as a threat to his business but as an opportunity, a chance to use his businesses innovative approach and engineering expertise to develop patented technologies which can be used as a defence against increased competition.  I would also remind him that environmental improvements are not limited to the EU.  Increasingly standards set in the single market are becoming worldwide standards.  Even outside the EU firms such as Honda and Elon Musk’s Tesla are pushing the concept of environmental standards and energy efficiency.  Sir James would be better getting with the programme rather than trying to defend the status quo.