What was the last major change that rocked our industry? Many will say it was consolidation; an event that disrupted the HVAC world more than 20 years ago. Is it time for another industry shakeup? Let’s take a look at some potential threats and opportunities you may encounter due to rapidly increasing online equipment sales.
There’s No Stopping It
I’ve spoken to leaders from several segments of our industry who confirm they are engaged in planning for this impending change. Each was certain that online equipment sales are already a force to be reckoned with and will continue to increase at an alarming rate.
How you choose to respond to this change may determine your success or failure in the next five years. If your planning doesn’t provide for your business to adapt to the realities of online equipment sales, you could be left behind. Ask any taxi driver how well they responded when Uber and Lyft invaded their industry.
Try it and See
To test drive how powerful online equipment sales are today, go to your favorite web browser and type in “buy a new furnace.” Add your manufacturer’s name if you dare. Choose a furnace you’re familiar with. Check out the price, including free shipping and delivery. How’s the delivered price your customers can get compare to what you’re paying now?
Your customers can do the same thing in less than a minute.
Ready for more? Click the “Need Installation?” icon. See the installation price? Add the cost of the furnace and installation together. Sounds cheap, right? Compare their price to your flat rate price for the same installed piece of equipment. How much higher is your installed price?
Your customers can do the same thing in about five minutes.
Ready for one more step? Call the number on the screen and ask some questions. Although you can shoot holes in what they tell you, your customers cannot. Be honest with yourself as you listen through the ears of your customers. As you talk with your new competitor, how do you plan to compete against them?
After a half dozen conversations with industry leaders, my 15 minutes online made me look right down the throat of the beast our industry is facing. Please give it a try and experience it for yourself.
Thinking through scenarios helps us experience potential futures before we’re smack dab in the middle of them. I’ll present the scenario; you complete it with what you might feel and do in each case. They may release a flood of ideas and emotions that I hope will encourage you to plan for this change that could be coming soon to your market.
- You search on your phone looking for specifications for equipment you’re servicing. An online ad pops up offering the replacement model to anyone at a price 50% below your marked-up equipment price…
- You receive a call from one of your long-time customers asking you for a price to install new replacement equipment they just purchased online. It’s sitting in their garage...
- Your installation manager leaves and opens an installation only company. He offers dirt-cheap prices to install all brands of online purchased HVAC equipment or parts. He knows many of your customers quite well…
- An HVAC installation broker opens a shop in your town advertising equipment replacement services to install equipment purchased online. This labor broker capitalizes on what many contractors don’t do well; market and sell…
Each of these scenarios exist today throughout the country. It’s only a matter of time until you face them in your own neighborhood. Will you be threatened, or use it as an opportunity?
Who May Be Threatened?
HVAC contractors - Those using marketing terms like cheap, lowest price, and discount may soon face extinction. Unless a company has built a reputation of reliability, problem solving, and relationships, they will have little to fall back on when they’ve lost the low-price advantage. If you’re one of these companies and tried the online experiment above, you already felt the pressure of this changing market.
Manufacturers - Some may go down straddling two competing distribution channels struggling to keep or gain market share. Can lost contractor loyalty offset the financial gains of online sales? Can a man serve two masters? Manufacturers already face escalating warranty costs for online equipment sales. Few, if any, have the manpower or ability to complete their own warranties.
Distributors – Faced with the inability to remain relevant to their customers, some will fail quickly. Will this link in the supply chain still be needed? Can they survive on the sale of parts only when equipment sales shift to online sources?
Customers – Low-price buyers of HVAC equipment are sitting ducks for online equipment sellers. If low price is all they can see, that’s what they’ll get, and they’ll be stuck with the consequences. One thing is for sure, many contractor sales will be lost to online sales before homeowners figure out what they missed by not buying through a full-service contractor.
Who May Find Opportunity?
HVAC contractors – Strong companies have survived changes before. They know how to adapt and operate to maintain needed margins by showing and delivering value. Wise companies will quote an installed price for the system and perhaps break out the equipment price to match online prices. They will build value by focusing on 30% more installed system efficiency, which online sellers are unable to provide and assure.
Manufacturers – To effectively serve both distribution channels, the best manufacturers will partner with the best contractors. Together they will deliver an operating system that can’t be compared to online equipment. As contracting companies perish trying to survive in a low-priced market, a new generation of partnership may emerge between manufacturer’s and top-notch service companies.
Distributors – With low-price online products already cutting into their margins, better distributors will return to qualified counter experts ready to lead and guide contractors to success. Training at the counter, in the classroom, and in the field will maintain existing business and draw in new loyal customers.
Customers – An aging population has created experienced consumers. Their ability to see beyond low price and look to long-term solutions will move them to engage with better contractors. They understand the value of installed system efficiency and opportunities for greater comfort.
Other Industries Thrive Despite Similar Changes
Rodney Koop, founder of The New Flat Rate, compared changes we’re facing to changes the auto industry successfully maneuvered. Dealers selling a car only take $800 profit on the typical new car sale. This low initial profit is now offset by the average car repair cost of nearly $1000.
Will the industry finally realize the added value we bring to service, maintenance, system upgrades, increased efficiency, and comfort? The average HVAC service repair is about 25% of an average auto repair. Some will, some will not. Plan for the coming changes being caused by online equipment sales and discover strategies to meet the new opportunities it presents.
Rob “Doc” Falke serves the industry as president of National Comfort Institute, Inc., an HVAC-based training company and membership organization. To discuss your ideas about online HVAC equipment sales, contact Doc at [email protected] or call him at 800-633-7058. Go to NCI’s website at nationalcomfortinstitute.com for free information, articles, and downloads.