Dyson and the bagless vacuum cleaner

Against all Odds "I wanted to give up almost every day. But one of the things I did when I was young was long distance running, from a mile up to ten miles. They wouldn't let me run more than ten miles at school - in those days they thought you'd drop down dead or something. And I was quite good at it, not because I was physically good, but because I had more determination. I learned determination from it." "A lot of people give up when the world seems to be against them, but that's the point when you should push a little harder. I use the analogy of running a race. It seems as though you can’t carry on, but if you just get through the pain barrier, you'll see the end and be okay. Often, just around the corner is where the solution will happen."

Summary Patent issues with previous employer Bagless vacuum cleaner – idea conception 1978 In search of a manufacturer Break-through in Japan

Summary Entering the UK market In search for retailers Competition response Hoover’s ‘counter-strike’ Penetrating the US market

Relevant theories Patents and licensing Pearson’s uncertainty map WACC Marketing strategy

Patent: a set of exclusive rights granted by a state (national government) to an inventor or their assignee for a limited period of time in exchange for a public disclosure of an invention. Monopoly for 20 years Annual Fees To be legally protected by a patent

Licensing : Licensing is the act of granting another business permission to use your intellectual property Licensing involves technology owner receiving a license fee in return for access to technology (patented invention) Arise when competitor wants to be free of any patent infringement Other reasons for licensing

Pearson’s uncertainty map High 3 Application engineering 1 Exploratory research Uncertainty about output 4 Combining market opportunities with technical capabilities 2 Development engineering Low High Low Uncertainty about process

WACC Broadly speaking, a company’s assets are financed by either debt or equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances. A firm's WACC is the overall required return on the firm as a whole and, as such, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. It is the appropriate discount rate to use for cash flows with risk that is similar to that of the overall firm

How to develop a product market strategy and Plan for Marketing Product Introductions Mission Statement Customers Market Segmentation Competitors Product Position If Possible, Do Market Testing Make Strategy Decisions Write an Action Plan Implement Your Plan

New Product Development: The cornerstone of successful strategic marketing The Secrets to Success: Keeping the original product development objective in mind. Admitting to and welcoming unexpected results. Applying unexpected results to the original development objective. The Unexpected The Proper Attitude Create a Working Plan Show your plan to others Research existing work. Carefully describe the problem to be solved by your product What is the Objective?

Questions for Discussion What was Dyson’s most serious problem he had to overcome? Manufacturing the product has turned out to be hugely profitable, yet this was not the original plan; why not? Explain the rationale behind Electrolux and Hoover’s decision not to purchase the license from Dyson. Given Hoover’s recent development of the Triple Vortex how do you assess this decision? What level of royalty would have been reasonable for both parties, that is, Dyson and Hoover? Why is negotiating a licence for a new product so difficult?

Questions for Discussion What was Dyson’s most serious problem he had to overcome? - not enough capital for production - people did not believe in the invention’s worth - licensing the invention

Questions for Discussion What was Dyson’s most serious problem he had to overcome? Manufacturing the product has turned out to be hugely profitable, yet this was not the original plan; why not? Explain the rationale behind Electrolux and Hoover’s decision not to purchase the license from Dyson. Given Hoover’s recent development of the Triple Vortex how do you assess this decision? What level of royalty would have been reasonable for both parties, that is, Dyson and Hoover? Why is negotiating a licence for a new product so difficult?

Questions for Discussion Manufacturing the product has turned out to be hugely profitable, yet this was not the original plan; why not? - again – capital issues - the “small level of income also provided the encouragement he needed to start planning the establishment of manufacturing facilities in the UK” - trust issues

Questions for Discussion What was Dyson’s most serious problem he had to overcome? Manufacturing the product has turned out to be hugely profitable, yet this was not the original plan; why not? Explain the rationale behind Electrolux and Hoover’s decision not to purchase the license from Dyson. Given Hoover’s recent development of the Triple Vortex how do you assess this decision? What level of royalty would have been reasonable for both parties, that is, Dyson and Hoover? Why is negotiating a licence for a new product so difficult?

Questions for Discussion Explain the rationale behind Electrolux and Hoover’s decision not to purchase the license from Dyson. Given Hoover’s recent development of the Triple Vortex how do you assess this decision? What level of royalty would have been reasonable for both parties, that is, Dyson and Hoover? - already have a considerable market share - one of the products they actually rely on wouldn’t matter anymore, if they choose to sell a „bagless‟ vacuum cleaner - people might not want to pay such a high price for something that is unknown - royalties - % of the product’s sales revenue

Questions for Discussion What was Dyson’s most serious problem he had to overcome? Manufacturing the product has turned out to be hugely profitable, yet this was not the original plan; why not? Explain the rationale behind Electrolux and Hoover’s decision not to purchase the license from Dyson. Given Hoover’s recent development of the Triple Vortex how do you assess this decision? What level of royalty would have been reasonable for both parties, that is, Dyson and Hoover? Why is negotiating a license for a new product so difficult?

Questions for Discussion Why is negotiating a license for a new product so difficult? - Buying license for something is basically franchising. A franchisee receives the right to use a given brand name, to produce, promote and sell the products under that brand name, pretty much gain all the advantages of the given brand name. But this has to be paid, of course. It is easy to convince people to pay for a well established brand, which is known and secure on the market; but when it comes to a new product, which people know nothing about, then it is risky and even frightening to pay for it’s license. One never knows if the investment is going to pay back.

5. How can businesses try to ensure that their senior managers (both buyers and new business development managers) do not dismiss exciting technology and with it potentially profitable business? Innovation = Theoretical conception + Technical invention + Exploration (Commercial exploitation )

Innovation Management as Managerial Process

7. Not all firms invest in R&D 7. Not all firms invest in R&D. What should be the level of expenditure on R&D for a firm? Businesses should use risk-adjusted cash flows in conjunction with their WACC as a discount rate to determine the net present value (NPV) of each of their R&D projects Statistic “Nearly 17% of revenues regularly goes to supporting the company's R&D efforts, a figure some 10 times greater than the average in the UK”

Market research Product Life Cyscle Ratio analysis : ROI 6. What is the role of patents? To what extent is it an effective system for protecting intellectual property? Market research Product Life Cyscle Ratio analysis : ROI Dyson`s experience with the patent system- the relative cost of taking patent in five countries is between £50 000 and £60 000 (surce: Tortt, 2008)

8. Explain the very dif`ferent market entry strategy used for the US? $30 million ad campaign Technology- intensive product