Shifting Sands?

The desert of the American Southwest is a beautiful place to visit (and a tough one in which to live, given the heat).  But to me, it is home, and an inspiring home at that. It has a stark beauty, a testament to the harsh reality of the titanic struggle for survival that is played out every day (and night) in this stunning ecosystem.  On many a weekend camp out to the desert for astronomy time, I have marveled at how plants, insects, tarantulas, scorpions, and various snakes can survive in such harsh conditions.  (And I am glad that sleeping in the back of my SUV keeps them and me safely separated!)

I am also amazed at how much dust and sand the desert floor has accumulated over the millions of years.  The dust gets everywhere-and I mean EVERYWHERE-while the sand abrades and rubs away at rock and cars alike.  In some places in the American Desert (such as Great Sand Dunes National Park in Colorado) the sand has accumulated to several feet of depth and forms majestic and constantly-changing dunes.

With the recent assault on American’s financial system, we may be seeing some shifting in the American economic sands too, and this shift could impact air conditioning contractors (along with every other American business). I am referring to the traditional buying patterns of the American consumer.  Many surveys and studies over the last three decades paint a fairly consistent picture about how the buying population is distributed.  About 24% (plus or minus, it depends on whose report you read; a good source is here:  www.winninger.com) are cost-focused buyers.  They buy only on price.  If you are not the cheapest vendor of what they want, you won’t get their business.  Another 17% (again, plus or minus, depending on the source) are value-focused buyers.  They buy based on value, on what the product can do for them, not on its price.  (Of course, price is ALWAYS an issue, but with this group, it is not THE issue.)  The balance of the population-some 59%– can go either way.  Here is how that looks in a pie chart.

The research further shows that those in the “Either” slice will END UP IN THE SLICE THE SALES AGENT CAME FROM.  Did you catch the significance of that?  If the sales agent comes from a price-driven business (and in the HVAC trade, we know that a LOT of these business are price-driven, aren’t they?), he or she will make a presentation to the prospect  based on (what else?) PRICE.  “We won’t be undersold!”  “We have the best prices in town.”  “Bring us your best quote in writing from someone else and we’ll beat it.”  Yada, yada, yada, ad vomitorium.  If the prospect buys, what are they buying on?  Price.

The sales agent who comes from a value-driven business (and there are quite a few of them in the HVAC trade too) will present to the prospect a value-driven story.  If the prospect buys, it is because of the value they perceived the sales agent could deliver.

(For a script I developed when I was in retail sales to help me weed out the price shoppers up front, click here.)

Look for a moment at the two “committed” slices- PRICE and VALUE.  Which of these two slices is larger?  PRICE is, by a 24 to 17 ratio, or roughly 60:40.  In other words, contractors tend to shake out into these slices like the market at general does, so we would expect a significant majority to be price-driven.  (If you talk to some contractors, they swear that EVERY dealer in their market is in the PRICE slice!)  So to the average HVAC contractor, the market sure looks like it is PRICE driven, doesn’t it?

Yet to me, the market favors value by a ratio of 76% to 24%- the EITHER slice can go into the PRICE or VALUE slices depending on where I, as a sales agent, come from.  So to me (the eternal optimist), the glass is ¾ full- ¾ full of value-buyers, not price shoppers!

But that may all be changing right now.  I have seen gathering evidence (but as yet no formal studies) that suggest that in this uncertain time, more and more homeowners are playing it cautious when it comes to major expenditures, and that includes replacing, upgrading, or repairing their home comfort systems.  I work closely with three major manufacturers, all of which promote a strong value-driven line to their prospective customers.  All are reporting that they are seeing growth in their better model lines and attrition at their lower price lines (which, we assume, is going to the brands that are aggressively pursuing a price-driven strategy).  These three manufacturers find that their shares of market are staying strong, but changing in composition.  I don’t have any dealings with manufacturers who do not offer a strong value-added line, so I don’t know how they are faring in this market, but I would not be surprised to find them being hammered from both ends- losing their high-end sales to the high-end product leaders, and losing their low-end sales to the low-price leaders.

As a result of this caution among homeowners, we may be seeing growth in the “PRICE” slice of the chart-a trend that I certainly hope is a short-term phenomenon.

It may take some time (a year or longer) for the American economy to right itself in the tempestuous waves of its own making, but eventually things will settle down again.  History teaches us this.  But in the meantime, what is a value-driven contractor to do?

First, realize that more than ever, people are going to be reluctant to part with their money-cash that is in the bank today could evaporate if a job is lost, a company down-sized, a manufacturing plant moved overseas.

Second, realize that more than ever, those who esteem value are going to want more value than ever for their dollars.  Those who have the discretionary income to buy the best are still going to buy the best.  But they may be more discriminating in their selection process.

Third, realize that no matter what slice a prospect occupies when you make the sales call, they are going to want to get the best deal they can for their hard-earned money now more than ever.

So, here is my advice.

1.       Be willing to offer what the Cajuns call lagniappe. Lagniappe (pronounced lan’-yap) is like the “baker’s dozen”- giving your customer 13 donuts when they purchased 12.  It is going beyond what is expected and giving the customer something they did not ask for but would be pleased to get.  For the HVAC contractor, this may mean including extended warranties as part of the base price of a deluxe system (I would NEVER make an extended warranty part of the base price of a middle or low-tier system!)  It could mean including two inspections of a new deluxe system in its first year or two of operation (at no additional cost to the buyer).  It could mean including a setback thermostat in lieu of a standard thermostat in a deluxe system proposal (again, at no additional cost to the buyer).  Over the years, bakers have found that pitching in 8.3% worth of goodness as part of the customer’s transaction is good for repeat business and word of mouth.

2.       Learn how to better position the value you bring to the customer and how to do this in a way the customer can understand and get excited about.  This will probably mean a high-quality selling skills school (3 or 4 days minimum!).  Most of the leading manufacturers have such programs.  (One of the best was started by a friend of mine, Steve Howard.  Click here for more details:  www.nopressureselling.com.)

3.       Learn how to establish that usually the cheapest product you sell is the TOP of your line! In most cases, once you do the math on maintenance costs, operating costs and the other variables of system ownership, the best you sell (which should include extended warranties as part of the base price, not as an add-on) will be less to own over its lifetime than the cheaper lower-efficiency stuff that is available to the homeowner.  One contractor I know in Texas (Lawrence Richie of Platt Heating, http://www.grapelandchamber.com/members/default/ index.php?MID=33) takes just this philosophy, with the result that in a small farming community in east Texas, he enjoys selling the best product he has over 90% of the time!

An old proverb says, “May you live in interesting times.”  Well, we certainly do, Ollie!  How will YOU cope with the new market forces?