The Dyson Report

[pic] CASE STUDY: DYSON VACUUM CLEANER Shifting from domestic to international marketing with the famous bagless vacuum cleaner Submitted to Professor Barbara Knup Submitted by Erick N. Shirimpumu (std no.

28365) Dechen Peldon (std no. 27042) Doris Dzomu (std no. 30298) Kamal Masoud (std no. 26605) Rachal Utuga (std no. 29963) Kleves Alimerko (std no. 29623) Table of contents Executive Summary3 I.

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Introduction4 II. Questions and Answers5 Question 15 Question 28 Question 310 III. Opportunity and Competitiveness of Dyson Airblade10IV. Conclusions and recommendations13 References:14 Executive Summary Dyson is a pioneer company which invented the bagless vacuum cleaner. It is one of the world’s leading companies in vacuum cleaner industry. The company has diversified its business into other areas as washing machine and hand dryers.

This report analyses the new markets Dyson Company should enter and expand by allocating more resources in order to develop them into future growth markets. It also highlights Dyson’s long term strategy for high price products and evaluates the distribution strategy in the U.S market. It also includes the new Dyson Airblade hand-dryer and future success in the market. Dyson should increase their presence in the current and new market due to the fact that Europe is still a potential market and Dyson should expand in Western Europe and move to Eastern Europe because they both provide a favorable environment for doing business. Changing their marketing strategy and promote their product through mass media would have more impact in increasing their customers and creating more awareness of the brand.

Reduce the price of air blade product since customers are not willing to pay more for the brand when the value of this product is almost the same as that of their competitors. The strength of the company is in upstream activities and in order to be successful Dyson should merge with other companies which have core competencies in downstream activities for promotion and distribution of their product. Introduction Traditional vacuum cleaners are used for cleaning dirt and dust, using suction force by drawing air through the bag of vacuum cleaner.As the competition in the vacuum cleaner industry grew, the features, overall quality and performance of vacuum has improved and become more affordable. People have more choices now than ever before, and they have their own preferences on various brands and types. Today, in developed countries we find domestic vacuum cleaners, mostly in homes with carpet floors.

This is a result of many engineering advances in vacuum cleaner technology over the years. Dyson is the pioneer company who invented the bagless vacuum cleaner.It is one of the world’s leading companies in vacuum cleaner industry with its strength in technology and innovation. James Dyson, the creator of Dyson Company, introduced innovative vacuum cleaner which replaced the suction technology with cyclonic system and eliminated the need for the both bag and filter. However, as big vacuum cleaner manufactures refused his technology, Dyson decided to develop his own manufacturing company (including R & D) by the earned money from a Japanese company, which was interested in his innovation.

The rest of the money was spent on patent protection.Dyson was able to continue developing the new models and ideas in his vacuum cleaner plant and got steady increase of market share worldwide. In recent years, Dyson has expended into the air blade hand-dryer and the washing machine industry. In this report we shall analyze Dyson Company’s internationalization of Vacuum cleaner, which markets should they enter and the expectations of their future growth. It will also highlight Dyson’s long term strategy for high price products and whether they can continue to use their present strategy in the future.

Dyson’s distribution strategy in the U. S market is another topic.Issues on the new Dyson Airblade hand-dryer will also be considered especially with regard to whether or not James Dyson can repeat the international vacuum cleaner success with the hand-dryer. Questions and Answers Question 1 Until now Dyson has concentrated its efforts in the United Kingdom, the United States, Japan and Australia. Which new markets should be allocated more marketing resources in order to develop them into future Dyson growth markets? The representation of Dyson Vacuum cleaner market share in each Western Europe and US (2008); Western Europe [pic] US Market Share for Vacuum cleaners [pic]When deciding to expand your international market PEST analysis must be considered.

This would give an overview of the different macroeconomic factors the company has to take into consideration. The PEST approach looks at political, economic, social and technological factors. The political factor looks at how a government interferes in the economy in areas such as trade restrictions, tax policy, and tariffs. Economics factors have great influence in how business operates and makes decisions about how it needs to grow or expand its business. Social factors look at the cultural behavior such as attitudes and values and demography of a country.

These social factors affect the demand of a company’s product. Technological factors determine barrier to entry, production level and influence outsourcing decisions. Using this approach we selected the following regions for Dyson expansion strategy. 2. 1 Eastern Asia Countries: Indonesia, Brunei, Thailand, Malaysia, Singapore & Philippines Dyson having moved most of its production operations to Malaysia, it is easier for it to move into these new East Asian markets.

These ASEAN nations, the largest five of the ten nations include; Brunei, Singapore, Malaysia, Thailand and Indonesia.This countries display the following characteristics: a) These countries have low taxes and favorable government regulations which makes it easier for the companies to make their entry in these regions. b) Well-developed infrastructure c) These nations are emerging markets with growing purchasing power offering growth potential. Brunei and Singapore have higher GDP than some EU nations and there are more opportunities to further trade with countries within the huge ASEAN integrated trading block with a population of up to 600 million people. 2.

2. Eastern Europe; the Baltic region: Russia and TurkeyEastern European is emerging markets with fast developing economies, offering high growth potential. Houses in these regions are predominantly carpeted and the needs for vacuum cleaners in these areas are high. It is common to carpet walls in these regions hence there is an additional demand for vacuum cleaners as a result. A huge market like Russia offers great opportunities for FDI and the rising of middle class despite the tycoon made it very attractable. 2.

3. Western Europe (Belgium, Finland): Belgium and Finland in the European Union are completely not represented in the Dyson market and these are potential growth areas. ) Tax benefits: As Dyson is a UK Company and United Kingdom being a member of EU, regional barriers to trade like both tariffs and non-tariff barriers are reduced or eliminated among participating states. Tax benefits play a major role since they allow firms to offer products at lower cost in foreign markets which leads to higher profits. This is in line with profit maximization.

b) Proximity to international customers: Both the psychological and physical closeness to international markets play an important role in export activities of a firm. For example firms in the U. K. ay not even perceive their market activities to close neighbors as global market. Most Europeans will also easily become international marketers simply because their neighbors are close. c) Economy: Economic development is a critical variable for international market segmentation.

The market for products like vacuum cleaners, electric dish washers etc. may require a high level of economic development. In Western Europe however these products are becoming a basic necessity. d) Over production /excess capacity: If a firm’s domestic sales are below expectation and resulting in excess inventory, this could trigger export sales.These marketing activities can be halted as soon as the domestic market and inventories return to normal. Despite Dyson being presence in Europe: Italy (1%), Sweden (2%), France (1%), Spain (1%), and the Netherlands (2%) we strongly feel that Dyson should allocate more marketing resources in these countries in order to help them gain more market share.

Question 2 In the US market Dyson achieved its market share by moving into the retails channels, like electricity and Best Buy. Some Industry specialists are critical of this long-term strategy for Dyson’s high price product.Evaluate the Dyson’s distribution strategy in the US market. Distribution channels are links between producers and final customers. It looks like what you have to manage is supply chain, but in order to be successful you must go beyond that.

When a company decides about its distribution strategy, it must consider internal and external factors in order to transmit the perceived value of the product and have the immediate feedback. External factors like customer characteristics, nature of product & demand, competition, legal and local business practices are part of the analysis.Dyson chose indirect channels in the US market and the recent data show that it posses 4% of the total market share, however, in the case of high-price segment their market share is 21 %. Considering that there exist two extra premium brands like Kirb and Miele (top brands) the actual position of Dyson appears satisfying.

In order to make a proper judgment, analyzing channels of length is essential. Huge retail chains like Best Buy and Electric City dominate the market of vacuum cleaners in US and Dyson chose to cooperate with those retails. Customers are used to these huge shopping centers as they offer products of daily need.Therefore, these centers provide an advantage that in one area you can shop, save time and money. The distribution strategy, Dyson chose is selective distribution.

This means that they found retailers to which provide selective coverage for the Dyson products. In addition, there are a growing number of outlets such as Sears Bed, Bath & Beyond, Target & Wal-Mart which demonstrates the growing trend of these chains. For premium brand products it is not necessary that distribution channels will cover a wide area of customers. The high price and lack of discounts which Dyson applies is to maintain the desired brand prestige.The chosen strategy can shorten and narrow distribution channels and focus in high income consumers.

It is not sure that this will lead in sure success and some industrial specialists are critical of the long term strategy for Dyson’s high-priced product. Trying to make the benefit & cost analysis from the indirect channels distribution will allow evaluating critics pretending. The main profits are related with costs, coverage and customer characteristics. Dyson does not need to invest (start up costs) for these retail representatives and the cost is reduced more as other competitor products are offered in the same place.Huge retail chains dominate the distribution of vacuum cleaners in US as they managed to understand shopping habits, outlet preferences and other consumer characteristics. Lastly the selective coverage strategy covers almost all the market even if it is limited in retail chains.

On the other side there exist costs which must be taken into consideration from the indirect channels. The most important one is that, Dyson looses contact with customer by choosing these intermediaries. Many products are offered in these retail centres and the customer is price sensitive so everything depends on direct promotion or previous advertising.Both direct promotion and advertising are not offered to the customer in these retail chains as there are many products or brands and a few sellers. If they try to target the high income customer it means that the quality of service must differentiate from others. A single seller cannot promote at the same way different brands and products.

Furthermore, the personal contact and feedback from the customer will be lost. An establishment of own shop and customer service centers is more than immediate. Question 3Do you think that James Dyson can repeat the international vacuum cleaner success with the hand dryer market with its Dyson Airblade? Why? Why not? Airblade hand dryer is a new type of hand dryer developed by Dyson Company. It was introduced to the market in 2008 and is stated to use modern technology and have nice design. The motivation of Dyson to develop Airblade was driven by its success with vacuum cleaner in cleaning industry in early 2000 and afterwards. Contrary to the cleaning industry, the industry of hand dryer is highly competitive full of homogenous products.

However, Dyson Company still believes to grab the market, especially in US market. The next, section analyses the strength of Airblade hand dryer in international market. Opportunity and Competitiveness of Dyson Airblade As provided in the case study, the hand dryer industry still offers potential to invest in. In United States; Hotels, restaurants, airport and other big institutions, counts approximately 20 millions of toilets excluding private home excluded. The use of paper towel is estimated US $ 2 billion per year whereas the hand dryer is estimated at US $54 million.This is really an impressive market, and it is just an indicator of the size of the market since the estimations above are for US only.

However the competition is also high such that it is not easy for a company to position itself in the market. Despite the possible potentialities indicated above, Dyson hand dryer does not maintain any competitive advantage over its competitors. Starting from its home country, United Kingdom, Dyson Airblade faces a competition from Excel dryer who has already captured the British market. The excel dryer is said to be 98 percent cheaper than paper towels, and is stated to be more friendly.This represents a big challenge to Dyson in local market where it was supposed to have a strong base before going for international markets.

On international markets, Dyson Airblade does not have a strong position because it does not carry added value from the competitor products. The design and technology of Dyson Airblade are similar to the ones of Mitsubishi Jet towel used in bathrooms in Japan since 1997. This is actually a threat Dyson Airblade because probably Mitsubishi jet may release a new hand dryer with more functionalities to replace the current one. If such case happens, the value of Day Airblade will automatically decline.Moreover, though the price of Mitsubishi Jet is not mentioned in the case study, it is likely to be cheaper than Dyson Airblade because of economies of scale realized over ten years of its existence in the market. Mitsubishi has reduced its fixed costs such that it can easily decrease the price to protect its market if need be.

In America, the dryer company has developed very cheap hand dryer machine compared to Dyson Airblade. The eXtremeAir, American dryer, is four times cheaper than Dyson dryer and does not require extra cost for operation. Though it consumes 3% more energy than Dyson Airblade, the difference is not much significant.The American market is really big such that Dyson would undoubtedly manage to snatch a part of it. However, the high price of its product which is not associated to any superiority in quality over other products is strong barrier for successful penetration of the market.

At least if Dyson Airblade hand dryer had quality advantage over eXtremeAir, it would be segmented to customers with high purchasing power. But since the Airblade is not much different in quality from other hand dryers, it would be difficult for any rational consumer to spend extra money on a product whose substitutes are cheap and available.Normally, consumers do not buy products rather buy the benefits or satisfaction offered by the products (Svend Hollensen 2011:461). The strategy of a company in a market with a high purchasing power would be to play on quality and technology in order to differentiate itself from other competitors, and gain the hearts of quality seekers. Hokwang Industries is another great competitor on Asian continent.

The Taiwan based company is specialized in production of hand dryer machines. The multifunctional Hokwang hand dryer is enhanced with a high technology which makes it competitive than other hand dryers.In addition to the high speed, the Hokwang hand dryer provides entertainment to the user. It has an integrated sensor with blue and yellow light which allows user to see the sensing range. Such added functions and features constitute competitive advantages of Taiwan hand dryer over Dyson Airblade because any additional value of a product attracts clients.

Similary, Ecodrier, Airforce and Airmax are also hand dryer brands that have built their position in hand dryer market. To penetrate their markets, the competitor needs to provide additional value or advantage to the consumers.Basing on the analysis of the strength of Dyson Airblade over its competitors, it is difficult for Dyson Company to succeed internationally with its Airblade dryer as it did with vacuum cleaner. Following are some of the reasons: a) First of all, Dyson as a company is not well known. The Dyson products are not very popular because of lack of advertisement and promotion. Use of word of mouth as a marketing strategy is no longer effective in the current dynamic business environment.

b) Secondly, the Airblade hand dryer is expensive compared to the similar products of its competitors.Therefore, no one will buy an expensive product where there is a cheap one which serves the same purpose. c) One of the problems observed in the Dyson Airblade case is entering the market at wrong time. The Company has launched a product which was produced by Mitsubihi Jet ten years back. Therefore, it is very hard for them to compete with these companies which have already become stable in the market. d) Airblade hand dryer is under threat because, its competitors may produce a more powerful hand dryer type, and then the Airblade becomes obsolete at its early age.

The way forward for Dyson with its Airblade hand dryer would be to go into a venture or merging with another company in hand dryer industry so that they can get stronger and increase their market share. Otherwise going internationally alone, will increase its cost and worsen its situation. Alternatively would be to concentrate in its local market as a before going for international markets. Conclusions and recommendations Dyson was the pioneer company in inventing the bagless vacuum cleaner they cannot stick to that glory forever. There are many Companies who have now come up with same kind of product.

Therefore, Dyson need to change their marketing strategies and continue in improving their product through innovation. After analyzing the case the group has come up with the following recommendations: 1) Establish their own presence and focus on customer service Lack of customer service is damaging the image of Dyson vacuum cleaner. Considering the brand image as premium quality this service is obligatory in order to have market expansion. On the other side indirect channels do not lead to sure success and their own shops will make a direct advertising of the product. ) Merge and acquisitions is another solution As many competitors increased their market share or profits by merging or acquiring other companies, Dyson must follow their strategy too. Before they decide about the outside company an internal analysis is essential.

The strength of the company is in upstream activities and in order to be successful they must chose another company which is specialized in downstream activities. This symbiotic cooperation is more than needed in the dynamic and competitive market of nowadays. 3) Reduce the price of air blade productThe values of this product are almost the same as that of the competitors. The perceived value of the product is almost the same. When we compare the prices the difference is huge and the customer is not willing to pay more for the brand if there is no value added. To have comparative advantage the must increase the perceived value or reduce the price.

If price reduction allows the company to be profitable then they can still be present in the market. On the contrary they can cooperate with another company in order to take advantage of technology and reduce the price too. 4) Change the marketing strategyDyson product has high value and specifications that is superior to the other products, but it is in lacking in the appropriate marketing strategy. Their current marketing strategy through the word of mouth which was successful until the end of the last century but with the current changing and dynamic trends of the markets, another advertising strategy is needed to ensure success. Dyson should consider into incorporating in to their strategy the other promotion methods for example mass media that would have more impact in reaching their customers and create more awareness for their roducts, especially as Dyson are the innovator of this product.

5) Increase their presence in current and new markets Europe is still a potential market and Dyson must expand its presence in some western European countries like Belgium and Finland. Eastern European countries also provide opportunities since legislation and rules in Europe provide a favorable environment for doing business. There are no borders, customs and decreasing transportation fees make it easy to establish and run a business. References: Svend Hollensen, (2011): Global Marketing. A decision –Oriented Approach. 5th ed, Prentice Ha