Case Study


In 1993 James Dyson set up the domestic appliance business manufacturing in the UK. The 56 year old designer shot to prominence through his invention of a new ‘high suction’ machine that revolutionized the world of vacuum cleaners by dispensing with the need for bags. The company gained favour with the British public, thanks to its image as being a home-grown newcomer taking on industry giants. Indeed, Dyson became one of Tony Blair’s favourite businessmen, participating in a small group reviewing innovation and productivity in the UK for the Department of Trade and Industry.
However, in 2001, to achieve production cost savings it became necessary to transfer manufacturing from the UK to Malaysia, which caused considerable adverse publicity among the British public. Iayn Clark, director of International Strategic Management, a London-based consultancy, commented that this sent out a ‘disastrous’ message both to the public and to the business world. ‘It put off many consumers from buying Dyson’s product and also said to businesses that outsourcing [to low-cost countries] can be a panacea’ (Marsh, 2003).
By 2003, while Dyson remained the UK market leader in vacuum cleaners with pre-tax profits of about £40m (US$70m), twice that of 2002, he faced challenges. Within the vacuum cleaner business worth £530m (US$951m) in the retail market, Dyson was losing market share related to the emergence of low-cost competitors, many selling look-alike versions of the Dyson machines. Dyson’s share of British vacuum cleaner sales fell to 15 per cent by volume in the year to October 2003, well below the 40 per cent the company claimed in the late 1990s. His premium pricing meant that the market by volume, equivalent to 38 per cent by value, was down from 44 per cent in 2002.
Dyson was affected by the backlash against its decision to cut 600 manufacturing jobs in Britain and move to a cheaper location as a way to cut its production costs by a quarter. Furthermore, sales of the company’s upmarket washing machine, launched in 2000, considered to be among the most innovative technology advances in washing in 100 years, were disappointing. They accounted for only about 0.5 per cent by volume of the British market, worth nearly £800m at retail prices. In 2003 Dyson sales were about£275m (US$493m), with about 35 per cent coming from outside Britain. More than 90 per cent of the company’s revenues came from vacuum cleaners, with washing machines accounting for the remainder. Electrolux of Sweden and Glen Dimplex of Ireland (owner of the Morphy Richards brand) led the assault on Dyson’s dominance of the British vacuum cleaner market together with lowprice rivals such as LG and Samsung of South Korea. Frequently, such competing products sold for less than £100 (US$179), compared with £200 (US$358) or so for a Dyson. According to the marketing research agency GfK, research showed that only 35 per cent of owners of a Dyson vacuum cleaner would repeat-buy from the company, as against more than 50 per cent five years earlier. Replacement levels were low.
Nevertheless, Dyson justified the high-price strategy as relating to the innovative features of the products. For the vacuum cleaners, these include the original ‘dual cyclone’ system that pushes air through the machine and maintains an unusually high suction power, enabling the product to be bagless. He considered it arrogant to assume the expense would deter buyers. The machines competed at the high end of the premium market with competitors such as BSH (jointly owned by Bosch and Siemens) and Miele, both of Germany. However, despite Dyson’s insistence that it was not reviewing its pricing strategy, new strategies leading to price cuts for some models were introduced. Premium pricing can be difficult to justify in the face of severe competition from lower-cost producers, especially if the prestige of the premium product cannot be maintained. Premium products have to be fully supported by targeting and positioning all the marketing mix elements, especially product quality and promotion, to ensure the desirable image. By changing the manufacturing location, Dyson lost much of the kudos associated with the vacuum cleaner product range, obliging a discreet change in pricing strategy to be introduced.

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