A False Economy

This week, I was speaking to the manager of one of my local employment agencies.  I asked her why so many local firms misunderstood the definition of marketing and combined that strategy role with other activities.

For example, I keep seeing job listings that describe the following:

Wanted Sales/Marketing Manager/Assistant

Joe Bloggs Ltd seeks an experienced candidate for the above post.  The successful candidate will:

  • Create and manage our marketing strategy
  • Manage our sales team
  • Maintain the company’s website
  • Organise and contribute to firm’s social media accounts
  • Optimise the firms internet presence
  • Design and publish company sales brochure and staff magazine
  • Write professional copy
  • General administration and office duties
  • Manage firm’s marketing budget.

We are looking for a candidate with the following skill set:

  • 2 years experience in an appropriate marketing role
  • A marketing/sales qualification (degree & CIM diploma)
  • Copywriting skills including two year’s portfolio of published material
  • Graphic design skills and experience with Adobe Creative suite
  • Experience of Search Engine optimisation and web analytics software (including Google Analytics)
  • Experienced photographer
  • Web design qualifications and experience of creating professional websites
  • Experience of managing sales representatives and setting KPIs

And here is the kicker:

Job is part-time (25 hours) and offers a salary of £20,000 per annum (pro rata).

Yes, the above details are fictional but they are typical of the types of advertisement I see in my local area.  It seems that firms are expecting candidates to be an excellent IT professional, a marketing strategist, a graphic designer and a professional copywriter simultaneously.  They then expect that varied role, a job at the centre of the firms commercial strategy, to be undertaken on part-time hours and for a salary more usually associated with a middle-ranking administrator.

I cannot see where you would find a candidate to meet all the above qualification and experience requirements.

The manager of the employment agency agreed.  A qualified copywriter or graphic designer has a completely different skill set to that of a professional marketing strategist and to ask one individual to carry out all of the above activities simultaneously is a huge task.  In fact, it is almost impossible to find a single candidate which will meet all of the above essential requirements.  It is likely that the successful candidate will be a jack of all trades and master of none.  In the experience of the employment agency it was common to find that local employers were massively undervaluing the role of marketing in their business.

The employment agency manager also stated that local firms were still struggling after the long economic downturn and as a result were combining roles to save money.

It is noticeable that the UK, following the Brexit referendum, has the slowest growth of the G20 nations, a significantly devalued currency, the highest inflation rate in Europe and the lowest productivity.  Those firms who have benefitted from increased exports as a result of the lower pound have not reinvested the money in their business.  Instead they have banked the money to build a war chest for the expected chaos of a no deal Brexit outcome.  For example, until recently, raw material factory gate inflation has been running at close to 18%.

However, I feel that companies looking to save money by combining several technical and professional roles into one job are in danger of creating false economies.  It’s the old chestnut of ‘if you pay peanuts, you get monkeys”.

I have just started to read a book entitled Inbound Marketing and SEO: Insights from the Moz Blog.

The book contains entries from a blog created by the expert in Search Engine Optimisation, Rand Fishkin.

In the first chapter of the book, Fishkin discusses the difference between Black Hat and White Hat SEO.

The terms ‘white hat’ and ‘black hat’ come from old B movie westerns where the heroes tended to wear white Stetsons and the villains black Stetsons.

Fishkin points out the differences between professional search engine optimisation professionals,  inbound marketers and social media managers.  He is absolutely clear that inbound marketing is not just a new name for search engine optimisation and that it is a strategy process.  He also clearly states that the skill set of a social medial management professional is significantly different to that of someone expert in maximising your Page ranking.

Think of it like this.  Inbound marketing is your strategy level.  SEO is one of the promotional channels you intend to pursue. Social media management is one tactic employed to meet your inbound marketing strategic goals by raising your digital ‘share of voice’.

Personally, I feel social media is less about lead generation and raising sales revenue and is best used to develop customer retention, move clients up the ladder from customer  to advocate and to increase word of mouth.

If you persist in under valuing the role of an SEO professional in your organisation; you may end up relying on Black Hat SEO tactics such as the use of spam, the abuse of keyword variants, Advertising blocks dominating web pages and keyword stuffed titles.

With the latter of these dubious tactics, one of the worst culprits is the Mail online where article headlines are often as long as the article itself.

Such Black Hat tactics can devalue your brand and lead to significant reputation damage.  You may also end up breaching data protection and privacy laws.  remember the new General Data Protection Regulations come into force next year.  They significantly increase individual members of the public’s rights as to what is done with their data and the level of fines included in the new regulations could cripple some businesses.

One of the problems with job advertisements like the one I have created above is that they assume that someone with qualifications in one of the above sectors will have equivalent skills in the associated roles.  I am a marketing strategist.  I help firms develop strategies to best fit their organisational vision and mission; but I know very little about the technical aspects of running and creating websites.  I know even less about, and do not have the artistic skill to carry out the duties of a graphic designer.

By undervaluing and misunderstanding the roles of marketing professionals in your business, you are not maximising your market position and this could lead to lower lead conversion rates, lower turnover, lower productivity and lower growth.  By not investing properly in the professional skills of professional SEOs, marketing strategists, copywriters, graphic designers and web designers; each a professional role in their own right; you are not maximising your earning potential.

Distribution Channels: The Place Element of the Marketing Mix

One definition of marketing is as the process of developing profitable customer relationships.  The process of marketing has a dual role; to attract new customers through promoting superior value; and to retain existing customers by delivering satisfaction.  Marketing is about delivering on your promises to create competitive advantage.

Good distribution channels (now more often described as marketing channels); the place element of the marketing mix; can be a strong contributory factor to the delivery of both competitive advantage and customer value.

We live in a world where it is highly unusual for manufacturers of goods and services to sell directly to their end consumers.

Even SMEs who sell over the internet have to deal with channel intermediaries.  You have to have a relationship with your internet service provider; you may sell through online portals such as Amazon or EBay; you may receive payment through services such as PayPal; and, of course you have to rely on logistics firms such as Yodel and Royal Mail to get your products delivered.

Successful manufacturing companies do not only need to build relationships with consumers; they need to build relationships with the members of your supply and distribution chain.  You need to build upstream relationships with your suppliers (supply chain relationships) as well as downstream relationships with distributors, wholesalers and retailers (your demand chain).

Many organisations have abandoned the terms supply chain and demand chain.  Instead they use the term Value Delivery Network.  This creates a sense that all parties within the network are working to a common goal and are all contributing to the delivery of customer value.

In making products and services readily available to consumers, members of marketing channels often perform key functions.  Without their contribution to the delivery of goods and services, transactions would never be completed.

Channel members provide:

  1. Information – about consumers, competitors and other stakeholders which allows manufacturers to plan and which aids exchange.
  2. Promotion – developing and spreading positive messages about your offer.
  3. Contact – finding and communicating with potential buyers
  4. Matching – shaping offers to meet buyer’s needs including activities such as assembly, packaging and grading.
  5. Negotiation  – reaching agreements with consumers on price and other terms so that ownership and possession of products can be transferred.

These functions are in addition services such as physical distribution and financing.  They also mean that aspects of risk can be spread across the channel.

A conventional marketing channel consists of one or more independent organisations such as suppliers, wholesalers and retailers each of which is a separate business seeking to maximise their profit margins.  Often, the desire of these organisations to maximise their profits overshadows the need for the chain as a whole to be profitable.

In the UK, dairy farmers have had a long dispute with supermarket chains over the price of milk. They argue that the supermarkets are maximising their profits by paying wholesale milk prices which are below the cost of production.  This, argue the farmers, is making dairy-farming unprofitable and is putting their businesses at risk.

Some producers have therefore chosen to set up vertical marketing systems.  A VMS is where Producers, Wholesalers and Retailers work together and act as a unified system. Often the channel is wholly owned by one organisation but a VMS can be contractual or imposed by the power of one participant who can force other channel members to participate.

An example of a vertical marketing system is the franchise opportunities operated by MacDonald’s and other fast food chains.  Many fast food restaurants are independently run businesses badged with the chains identity.  It is MacDonald’s who control virtually all the aspects of the business; from the restaurant layout to the food served. The franchisee takes a share of the profits but has to take much of the business risk.

An example of a wholly owned vertical marketing system is how milk used to be delivered in the UK. Companies such as Associated Dairies used to own the dairy farms, the creameries and controlled the milk floats which delivered the bottles of milk to the doorstep.  Associated Dairies became the supermarket chain Asda.

Macdonald’s franchises are an example of a contractual VMS.

An administered vertical marketing system is where cooperation is achieved through market power.  For example Kraft Foods have enough power in the market they can control where in the supermarket and how their products are displayed. Similarly, cosmetics firms closely control how their goods are displayed in department stores and often don’t allow retailers to restock displays; instead they send in their own staff to undertake that role.

Horizontal marketing systems are where two or more companies join together to follow a new marketing opportunity.  It is the creation of a marketing channel through partnership.

An example of a horizontal marketing system from America is the partnership deal between Wal-Mart and MacDonald’s.  Wal-Mart allowed Macdonald’s to set up express outlets in their supermarkets.  Macdonald’s get to take advantage of Wal-Mart’s high levels of customer foot fall and Wal-Mart get a food outlet to feed hungry shoppers.

Some businesses use multi-channel marketing.  This is where a combination of traditional, vertical and horizontal marketing channels are used in consort.

As we have seen, MacDonald’s are one such company, they own their own restaurants (direct marketing channel);  they offer franchises (a contractual vertical marketing system); and they have a partnership deal with Wal-Mart (a horizontal marketing system).

Many SMEs may be unwittingly using multi-level marketing.  I know of one jewellery designer who sells over the net, runs pop-up shops, attends craft fairs and has a deal with a local family jewellery shop to sell her wares.  She has direct marketing, vertical marketing and horizontal marketing system in place to distribute her goods.

When deciding how you are going to distribute your goods, it is worth planning your marketing channels in a way which maximises value and which offers the most in terms of competitive advantage to your business.






Why business planning is important

In recent weeks I have come across some startling survey results.  The first was a report from a survey of both UK and EU Chief Executive Officers which concluded that 67% of companies had yet to include Brexit in their strategic planning.

The second statistic came from a Microsoft webinar trying to persuade small businesses to buy Microsoft Project.  It was stated that a third of small businesses had no business plan.  It was also stated that of those SMEs who had a business plan, two thirds had a plan which looked no further forward than twelve months.

I find these survey results astounding given the importance of business planning to the successful growth and health of companies.  It seems many businesses are operating in a vacuum where change is something that happens to other people. It’s as if the marketplace is set in aspic.  Make no mistake, for a business to be productive; to be resilient; and to survive and grow; planning is a constant and critical corporate function.

In their book Management Theory and Practice, Cole and Kelly describe the functions of senior management in a business.  They see four main functions for a senior management team:

  1. Planning –  the process of formalising what is likely to happen in the future.  It is the formation of goals and objectives and arranging for resources to achieve those outcomes.
  2. Organising – the determination of activities and the allocation of planned resources for the achievement of plans.  It is the coordination of activities and responsibilities into a suitable and appropriate structure.
  3. Motivating – the activation of the driving force within individuals which they use to attempt to achieve organisational goals.
  4. Controlling – ensuring that plans are properly executed and the organisation is operating as planned.

Each of  these management roles is intrinsically linked to business planning.  You must question how firms with no business plan operate.

There are some common features to business planning whether it is human resources, finance, operations or marketing.

  1. There is an environmental analysis.  This is split into two parts; the macro-environment and the micro-environment within which a business operates.  The acronym PESTEL  covers the macro-environment.  It stands for Politics, Economy, Sociological change, Technological change, Environment and Legal.  This is where I find it astounding that CEOs of large companies have yet to include Brexit in their plans; at least to account for possible outcomes of the Brexit process;  after all Brexit affects the political climate, has an economic effect, massively affects the legal framework within which businesses operate and affects the balance of UK society.  The second part of an environmental analysis is an analysis of the environment which directly affects the business.  Often this takes account of the geographic area a business operates in.  For example, my brother’s business operates in East Lothian and Edinburgh.  The economy and environment in that area is different to other parts of the UK e.g. the West Midlands. A micro-environmental analysis will also take account of Porter’s five forces ie. the stakeholders who directly affect the business (suppliers, customers, competitors, shareholders, distributors).  The internal environment of an organisation will also be audited.
  2. Then there is objective setting based on the environmental analysis.  This is determining where you want the business to be and what you want to achieve.
  3. You then create distinctive competencies.  This is choosing your competitive weapons and choosing the tools with which you will negotiate with your environment.  In terms of marketing, this is the process of market segmentation and the creation of a marketing mix.
  4. Plans then define the power distribution within the organisation.  This is the delegation of tasks and the apportioning of responsibility within the organisation.  e.g. will regional managers have responsibility for the hiring of staff or is that process controlled centrally?  Resource allocation is the process of budgeting, staffing and use of other assets such as property and machinery.
  5. Monitoring and control of outcomes: how do you measure success.  What measures are to be used to assess achievement of goals? How do you ensure plans stay on track?  How are plans adapted to cope with environmental change during their allocated time span?

Planning is the development of corporate and management strategies.  It is the development of your competitive strategy and these strategies may alter over time as the environment changes.  Business plans are living documents which are continually adapted.

Strategic marketing is a critical function of management planning; the process of sequential analyses that increase the likelihood of developing successful competitive advantages.



Do you trust your data?

Over the last week, my attention was taken by three snippets of ‘news’.

The first was an interview with a GQ journalist who has written a biography of David Bowie.  Instead of the usual form of celebrity life story, the book is a series of interviews with people who interacted with Bowie over his life, some like Brian Eno who worked closely with the star and other, more casual acquaintances.

During the interview the journalist mentioned a conversation with his father about a critical Top of the Pops appearance by Bowie.  The tape of this appearance was lost by the BBC for many years but it has recently been rediscovered.  It is often considered as the point where glam rock exploded on the UK scene. In the clip, Bowie is seen to drape his arm around guitarist Mick Ronson during the closing chorus of Starman; for the early 1970s, a rather suggestive action.

The journalist described to his father what had impressed him about Bowie in the performance.  It wasn’t just the act of putting his arm around Ronson.  it was the colour of Bowie’s jumpsuit and his shock of carrot red hair; it was Ronson’s gold page-boy outfit; it was the colourful stage set and lighting.

Then the journalist’s father spoke, “you do realise son, at that time we had a black and white television?”

The second thing which caught my attention was the article by the foreign secretary, Boris Johnson in the Daily Telegraph on his vision of Britain post-Brexit.  In the article, Boris reiterated the claim that Britain will have £315 million a week to spend on services like the NHS.

Now, I do not believe that Boris Johnson believes that figure for one moment.  Boris is clearly on manoeuvres and preparing the ground for a leadership bid.  he knows that figure is inaccurate but he also knows that a large part of the constituency he is talking to have been taken in by it.

The £350 million a week claim was widely debunked during the EU referendum.  So much so, the Electoral Commission told the Leave camp to stop using it (a warning which was ignored).

The truth is that the £350m a week figure ignores the rebate on EU membership fees achieved by Margaret Thatcher.  it also ignores money sent back to the UK in the form of grants and subsidies.

The UK treasury publishes data on the UK’s EU membership fees.  We paid last year £230 million a week to the EU; £120 million less that the figure quoted by Johnson.  Net, once grants and subsidies are subtracted, we paid £153 million a week.

Now £153 million a week is still a lot of money.  To Brexit supporters it is an anathema.  However, if you consider that the single market is worth £450 billion a year in trade to the UK, our EU membership offers a Return on Investment of 5100%.  If you, as a business were offered such a return, you would grab it with both hands and not let go.

Boris also ignores the costs of leaving the EU.  Only today, the head of HMRC has said that to toughen border controls to the level wanted by many Brexiteers, the cost will be £800 million.  The Office for National Statistics has calculated that the cost of lost tax receipts from EU migrants post-Brexit and in replicating functions currently undertaken by EU institutions will be £315 million a week.

The implications of these figures are clear, on leaving the EU, all of the money reclaimed from our membership fees will be swallowed up replacing lost government income.  in fact, the government may have to find an additional £200 million a week through cuts to services or increased taxes.

The third thing which caught my attention were two internet surveys.  One was listing the best places in the UK to live.  the other was listing the most depressing places in the UK to live.  Edinburgh topped both polls.

Now how can Edinburgh be simultaneously the best and worst place to live?

The answer to nearly all of this is confirmation bias.

Confirmation bias is the tendency of human beings to search for; to favour; or to recall information in away which confirms pre-existing beliefs or hypotheses.  There are three basic forms of confirmation bias:

  1. Biased search for information
  2. Biased interpretation of information
  3. Biased memory

The GQ journalist is suffering from biased memory.  In his mind Bowie’s appearance is full of colour; no doubt based on recent showings of the Top of the Pops performance; when the truth is that he first saw it in black and white.

Many Brexit supporters are guilty of a biased search for information as they only read sources of information which match their political viewpoint e.g. The Daily Mail.  It has been rumoured that David Davis, the cabinet minister for exiting the EU, will only read civil service papers which match his existing point of view.

Biased interpretation of information is where both sides of a discussion have the same information but they interpret it differently based on their beliefs.

Confirmation bias used to be common in miscarriages of justice.  Take as an example the Birmingham Six.  In that case, the investigation of an IRA bombing in Birmingham, the West Midlands police were found to have bent the evidence to suit their case.  The crucial evidence was forensics tests on the hands of the accused.  To the police these were prime suspects, Ulster Catholics with some links, although peripheral to the IRA.  The forensic tests appeared to show that the accused had recently handled explosives.  The police thought they had an open and shut case.  They applied significant physical and psychological pressure to obtain confessions.  However, the police officers involved were so tied to their preconceptions they ignored evidence that put the forensic tests in doubt; the fact that the accused had been playing cards on the night of the bombing and that the coating of the playing cards gave the same results in the forensic test as if the accused had been handling explosives.  In that case, the investigators were clearly guilty of a biased search for information.

Following a number of such miscarriages of justice, new procedures were placed on investigators not just to investigate one potential course of events but all potential courses.  If an accused person gives an alibi, the investigation of that alibi must be treated in the same manner as all other potential evidence.

Then we come to the two internet surveys.  These are likely a case of biased interpretation.  Where two similar sets of information are interpreted in a different manner.

I is also highly probable that these two polls have been carried out in an unscientific manner where little or no care was taken to appropriately select respondents.

This is often an accusation placed at political psephologists, that they way they weight their opinion polls has such an effect as to skew the polls findings.

Professional market researchers take great care to minimise the effects of confirmation bias.  They use information from previous surveys; they carefully select the respondents to ensure that a wide range of demographics are included; they weight polls to take account of potential bias; they ensure the numbers of respondents are statistically significant; etc.

All too often, in small businesses, decisions are made on the views of individuals; often the views of the business owner.  Little or no regard is taken as to the potential for confirmation bias.  As a result there is a real danger that incorrect, costly or improper strategies are pursued.



Marketing Project Control and Henry the VIII

The word control has had a bad press.  It is often associated with terms such as limiting freedom, coercive action and keeping costs to an absolute minimum.

In project management the term control refers to a mechanism to protect strategic plans during their implementation.  Murphy’s Law states that if anything can go wrong, it will.  Therefore a control mechanism pre-empt such problems and thus is a valuable asset.  A control mechanism links actual behaviour to the intended overall strategic intent.

The basis of control systems is the ability to measure.  It is the process of comparing what should happen with what has actually happened or what is likely to happen.  Too many firms measure what is easy to measure; not what is important to measure.

Good project management control systems identify and rectify problems at an early stage.  Prevention is better than cure.  Be proactive not reactive.

It is better to break the process down into a series of simple steps.  Interim targets should be set and integrated into overall strategic planning.  Results should be compared with expected goals.

There are two sides to control – inputs and outputs.  If you only deal in outputs, you are inspecting the process; you are not controlling it.  Control processes must reflect both inputs and outputs.  This allows managers to optimise processes and to take a strategic view of plans.

Typically there are three typical categories of input:

  • Finance (investment, working capital and cash)
  • Operations (Capacity, usage, efficiency and the application of machinery and other assets)
  • People (numbers, skills and quality)

There are two forms of output:

  • Efficiency (How well do we use inputs? Are we at optimal capacity? Are we getting from our financial assets?)
  • Effectiveness (Are we doing the right things?  This means measuring everything from sales revenues to levels of customer satisfaction)

It is more important to measure effectiveness than efficiency.  For example, a firm may be highly efficient in producing its goods but, if it produces the wrong goods, or is ineffective at finding customers for them, those goods may sit gathering dust in warehouses.


On a totally unrelated matter, I must make a couple of comments on the UK government’s plans to control the legislative process as the UK leaves the EU.

This week there has been a lot of comment and debate on the proposed use of ‘Henry the Eighth powers’ by cabinet ministers.  These are powers given to government ministers and which allow them to amend legislation using statutory instruments.

Henry the Eighth powers are controversial as they are seen as a way of bypassing parliamentary debate.

In the UK there are two parliamentary processes for the creation of legislation.  These are referred to as primary and secondary legislation.

Primary legislation is where the government produces a bill and it is given full scrutiny by parliament It then becomes an act.  Bills receive three readings and a committee stage in both Houses of Parliament, the Commons and the Lords.

Secondary legislation is where the government creates regulations and orders.  Most EU law is transferred into UK law through secondary legislation; e.g. The Toy Safety Regulations; which are made under the European communities Act 1972.

However, over recent years successive governments have imposed red tape challenges to try to reduce the number of regulations.  This means that a lot of law which was formerly in secondary legislation has been included in primary acts.  For example The Consumer Rights Act amalgamates a lot of law which was formerly in secondary legislation.

This is where Henry the Eighth powers become contentious; where secondary legislation is used to amend or revoke primary legislation.  Many politicians are unhappy that instead of full parliamentary scrutiny of the act, change will be made by the signature of a government minister.

There are two routes to the introduction of secondary legislation; the positive route and the negative route.

The positive route is where the new statutory instrument is recognised as needing some parliamentary scrutiny.  In this route there is usually a short debate on the proposed changes and a committee of lords and MPs will sit to examine the changes.

The negative route, usually reserved for technical and uncontroversial changes is the negative route.  This route is where the draft statutory instrument is laid in the Commons and Lord’s libraries.  Only if sufficient members oppose the new statutory instrument and ‘call it in’ is it tabled for debate.

Theresa May, through the EU withdrawal bill is proposing that the negative route is used for all legislative change and amendment.  Government ministers will have wholesale powers to alter UK law, bypassing parliament and effectively dispensing with the UK’s constitutional democracy.

For example, a minister may decide that he does not like the two-year sunset clause on such powers in the EU withdrawal act.  He might decide to use a statutory instrument to remove the sunset clause and make the Henry the Eighth power permanent.

It is interesting to note that many of the prominent Brexit-supporting politicians who are avid supporters of Henry the Eighth clauses in relation to EU exit were not so keen seventeen years ago.

In 1999, the Blair government proposed to abolish imperial units of measurement.  This meant a minor change to the Weights and Measures act 1985.  Blair used a statutory instrument to revoke that part of the schedule to the Weights and Measures Act which stated that imperial measures were for use in trade.

When the metric martyrs took their case to the Supreme court for the retention of imperial measures, their primary argument was that the Blair government’s use of such powers was unconstitutional and therefore unlawful.  The martyrs lost that argument.

It is interesting to note that significant supporters of the Metric Martyr’s case were UKIP and many Eurosceptic MPs (odd since metrication was a wholly British policy and had nothing to do with the EU).

On Thursday, I sat and watched Sir Bill Cash in the second reading of the withdrawal Bill.

Sir Bill was a prominent supporter of the metric martyrs yet her he was supporting the government’s right to use Henry the Eighth clauses with gay abandon: precisely the opposite view he had in relation to metrication.

It has also emerged that Mrs May is trying to circumvent normal parliamentary conventions in relation to the committees that will sit in relation to Brexit.  Normally, parliamentary committees represent the balance of the parties in the House of Commons.  A majority government therefore will have a majority on these committees.

Theresa May, through the withdrawal bill is proposing that her government will retain a majority on scrutiny committees despite the fact that she no longer commands a majority government.

It is clear that Mrs May is attempting to use the clichéd view of project control, particularly in terms of limiting freedom and trying to coerce action.  Perhaps she should consider the project management definition instead?


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.