Running Head: Dyson Case Study

Dyson and the Bagless Vacuum Cleaner: A Case Study

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Question 1: What was the Dyson’s most serious problem he had to overcome?

Dyson faced many problems in his journey, but the lack of capital is the most serious problem he

faced. After getting licensing his invention which was another serious problem to get, he offered

the existing players a deal. They can have the license but he excluded the patents rights and Dyson

will receive the 5% royalty and companies will pay 40000 Euro up front (Goodman, 2012). It was

rejected by all the companies then he came to an agreement with Japanese company “Apex Inc.”

and start selling in Japan. With the small revenue he collected from Japan, Dyson started to

manufacture the Dyson bagless vacuum cleaner. He hired the 2 companies, one molding the

components and one for assembling. The problem with it was that the quality of components was

very low. So he decided it would be better if he himself manufacture and assemble the product.

He needed the capital to start his own factory and borrowing money for small business was very

difficult he tried many alternatives but failed. Finally, in Wiltshire he started his factory with

money he borrowed from the local bank (Goodman, 2012).

Question 2: Manufacturing the product has turned out to be hugely profitable,

yet this was not the original plan, why not?

In the beginning Dyson had different plans for his inventions he got the patent and license for

manufacturing. Dyson offered the manufacturing license, but he excluded the patent rights to the

existing companies and Dyson will receive the 5% royalty and companies will pay 40000 Euro up

front. Electrolux and Hoover’s along with the other companies they rejected the offer he came to

an agreement with Japanese company “Apex Inc. and start selling in Japan. Dyson secured the

patent to himself because of the experience he had with the ballbarrow. His experience led him to

think that other companies would definitely try to steal his invention and it doesn’t matter that he

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is protected or not. Later it was proved that the Dyson was right that why his original plan was

different.

Question 3: Explain the ration 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 the decision? What level of the loyalty would

have been reasonable for both parties, that is, Dyson and Hoover?

Electrolux and Hoover were the market leaders and had the large market share, they were already

making profit from their existing product. Beside this “bagless vacuum cleaner” was twice the cost

of existing cleaner, customers would have hesitated to buy the product at the double price and

knew nothing about the product. One more thing is that their own vacuum cleaner would have lost

its value and 5 to 10 year license was offered with a 5% royalty on the sales of the vacuum cleaner.

The Triple Vortex vacuum cleaner is the rational decision because Electrolux and Hoover are well

known brand and has 12.3% of sales volume which is 50% of the Dyson’s sales volume (Goodman,

2012). Their customer was also satisfied with them and they need something new or different in

order to compete with the Dyson. When the Dyson offered the license with a 5% royalty at that

time people had doubts about the new product and Electrolux and Hoover were the market leaders,

but now the time has changed, Dyson proved that his invention’s worth and has 33.5% of sales

volume.

Question 4: Why is negotiating a license for a new product is so difficult?

Firstly, we need to understand how the license works and for what purpose it is used for. When

one company buys a license of something it means that company can use its brand name and can

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sell it under license he bought. The company who bought the license can also produce the products.

The company who sells the license basically sell all the rights and buyer can get all the benefits

from it. Buying a license can be very costly it depends on the license you are trying to buy. The

brand like Microsoft and Apple are well-known and fully established and it is very easy for them

to sell the license. But in case of new brands, people are not aware of them, don’t fully understand

them and have lack of trust and it could be risky to buy a license (Coe, 2017).

For Dyson it was the lack of trust in the product and the royalty he was demanding was too much

for the companies. Companies didn’t see any future success in this product, that’s why it was very

difficult to sell the license.

Question 5: How can business try to ensure that their senior managers (both

buyer and new business development managers) do not dismiss existing

technology and with its potentiality profitable business?

There is not simple rule or procedure to it there are group of aspects and things which must

collaborate and need to be done. Managers need to have technically literate, it happens when the

business development and marketing managers don’t have technical knowledge about the product.

There must be effective and good collaboration between Business development and technical

department and new product should be examined cross functionally.

Question 6: What is role of patents? To what extent is it an effective system for

protecting intellectual property?

The patent is kind of ownership that can an inventor has over its invention granted by a country

and it also protects others from stealing it. Every patent has its life, it can vary depending on the

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type of innovation, during this life patent holder have many right like no one can produce, copy

and sell the invention. It is a very good system which protects the interests of investors and give

time them to earn profit from their invention (Coe, 2017). This system encourage the inventors to

invent more. Inventors can sue against the person how tries to steal or the copy their invention.

Question 7: Not all firms invest in R&D. What should be the level of

expenditures on R&D for a firm?

In the past few years the market has very much changed, it has become more developed and

organized and also the demand of the customers. Most people are attracted towards the change and

new things and their interests are shifting with each passing day. In order to cope up with the

demand and with competition in the market firms need to invest in Research and development. If

we talk about how much a firm should spend on R&D it depends on the business. Investment

should me effective and efficient and should produce some results. Dyson’s 17% of the revenue is

allocated for R&D which is 10 times more than in case of average companies in U.S and U.K.

This heavy spending on R&D produce successful results, now Dyson has more than dozen upright

or canister vacuum cleaners, better than the previous model.

Question 8: Explain the very difficult market entry strategy used for US?

Dyson entered into the US market without any patent protection on its product, he depended on

the brand name he built in the past 10 years and also heavily depended on the ad campaign. In UK

Dyson spent money on product research to strengthen his product and development rather than

spending on the advertising. He spent 30 million Euro on the ad campaign and in the result Dyson

was the brand leader in the US.

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References
Coe, E. (2017). Do's And Don'ts For Negotiating Patent Licenses. Retrieved from
https://www.law360.com/articles/784766/do-s-and-don-ts-for-negotiating-patent-licenses

Goodman, N. (2012, November 5). James Dyson on Using Failure to Drive Success. Retrieved from
https://www.entrepreneur.com/article/224855