A lot has happened since our last blog post, so here’s an update for HARDI members.
Site-Seeker has kicked off the year-long marketing alliance and research initiative we mentioned in the last post. We have been busy meeting with HARDI members and conducting industry research to understand your needs and tailor our efforts for maximum effect in the HVACR industry.
To that end, I wanted to focus on two of the most illuminating sources of expertise we’ve encountered so far: J. Michael Marks and Steve Deists’ Myths and Misperceptions: How Markets Are Really Made in HVACR and a phone interview with Lauren Roberts, vice president for cfm Distributors, Inc., and Chair of the HARDI Marketing Committee.
Let’s start with the book.
Mike Marks and Steve Deist promise their book will cause you to “think differently about how you align your company with the best market opportunities for growth.” Even though we’ve been involved in the industry since giving our first talk to HARDI members in Laguna Beach back in 2013, closely reading Myths and Misperceptions taught us a lot. From my standpoint, Myths and Misperceptions provides a great framework from which we’ll be able to delve into the development of an effective approach to marketing for HARDI member distributors. If you’ve not read Myths and Misperceptions I highly recommend it.
A lot of marketing, especially digital marketing, focuses on how to enter new industries in novel ways, disrupting selling or buying habits, and creating a new model of success for yourself or your client. According to Marks and Deist, disruption is specifically a losing strategy. For all the customer segments they outline — owner-operators, professional dealers, new construction, refrigeration services, mechanical contractors, and commercial/institutional/industrial — the vast, vast majority of “demand creation” (i.e. revenue) comes in from what he calls “protection”.
They define protection as, basically, anything that ensures customers receive excellent service. This observation seems like common sense, but his comprehensive coverage of the subject backs up its importance. Depicting the HVACR industry supply-demand relationships as two sides of the same coin — distributor resources expended and market characteristics — Marks and Deist say from about 80% to 90% of all business comes from protection. Another way to put that is as little as 10% of all business in play in the HVACR industry comes from other sources. These sources are the above-mentioned disruption and “interception,” or responding quickly to favorable conditions to take over someone else’s customer.
To me, this was the defining takeaway of the whole book: the majority if your revenue comes from protection. Thus, Myths and Misperceptions is decidedly not a marketing manual. It explicitly focuses on how customers spend money. There are pros and cons to this approach. Within the industry of HVACR, this is of course life or death information. But it also almost wholly ignores the power of marketing. The word “marketing” appears just a handful of times in the whole book, usually in the context of sellers potentially allocating too many resources to it versus offering excellent service.
This is not to say Marks and Deist are wrong in any way, but there are a few different observations one could make based off reading the book that still speak to the importance of a great marketing plan.
First, Marks and Deist have distributors putting in upwards of 20% of their operating expenses toward capturing about 10% of the market demand, which is inefficient. But that doesn’t mean that disruption and interception are inherently inefficient; the methods used by distributors could be the problem, or some mix of the two.
Second, Marks and Deists’ research is based largely on interviews with buyers in the HVACR industry and their perception of what creates demand. In every case, “service excellence” is the most important thing. Customers want inventory in stock, correct instructions, great support, fair credit terms. In short, customers want what everyone expects from a business transaction. Above, I said this seemed like common sense, and it still seems this way. There should be a baseline of service that already is excellent, those are table stakes for being a successful business. Failures to provide good service will obviously stick out as reasons for changing distributors. Conversely, no one would ever say they prefer bad service. For these reasons, the actual effect of service excellence on growing your revenue is unclear. Marks and Deist advise maintaining your customer base and growing revenue along with their growth or the growth of the market, but that may not meet the expectations of most growth focused distributors.
Finally, even if upwards of 90% of your operating costs go toward service and therefore revenue protection, there’s immense value in utilizing the other 10% the best way possible.
Speaking with Lauren Roberts helped shade in the picture of HVACR created by Marks and Deist in their book. She validated much of what Marks and Deist said about the shape of the market. Owner-operators and professional dealers are her most common customers. Owner-operators typically have small staffs. Resources are tight. The biggest needs for her customer base are the same ones Marks and Deist outline: good credit terms, dependable inventory. Professional dealers tend to have larger staffs and a larger amount of resources which allows them to take advantage of stocking discount programs and extended terms, as well as being able to risk trying new universal products.
Some of the things that set cfm apart from others is their extensive training, rebate or co-op programs, and (naturally) service excellence — the same points of emphasis Marks and Deist make in their book.
Things like pay-per-click online search advertising are still somewhat novel. They use it, along with television advertising, in larger markets. But the majority of marketing efforts center on direct mail and keeping contact through maintenance agreements and tune-ups. Sales and marketing for larger customers, like professional dealers, requires a lot of time and energy. There’s usually a person solely dedicated to such customers, and they require a lot of face time.
However, there are shifts underway. While many of her customers aren’t necessarily on the leading edge of technology, they all do have smartphones. And many of the businesses she deals with are multi-generational. Older customers begin to age out, and their children or younger contractors take up the reins.
Some of the more innovative digital efforts cfm offers are free template-based websites for their customers. They also offer help with pay-per-click advertising, direct mail, social media ads, and some digital content as a value added service. One of the best ways to obtain contractors continues to be in-person relationship building through regular customer visits and phone conversations.
Other developments Lauren has seen within the industry include mobile apps for rewards and in-store beaconing that facilitate sending messages to customers. Auto reminders, digital rewards programs, and QR codes have played into marketing in a big way. Initially, the idea was to get more store traffic, which was not as effective as originally planned due to contractors wanting to keep their techs out of supply houses as much as possible. However, these tools do work for upselling and offering more value to customers.
We gathered a lot more great information — both from Myths and Misperceptions and our ongoing interviews with HARDI members like Lauren — but these were some of the most immediate and relevant insights. And let me say right now, Myths and Misperceptions is a great book, and if you have not read it then you should do so immediately. There are myriad of topics that I didn’t cover here, all of which have specific insight into the nuances of the HVACR industry, from all sides and angles.
All in all, there seem to be immense opportunities for marketing in HVACR. Site-Seeker is eager to continue our work in gathering market intelligence from the HARDI community. If you’d like to contribute to the project, email me at firstname.lastname@example.org and we can schedule an interview or just have a quick chat. Any insights or observations you have could be helpful. Look forward to more updates from us in this space and we’ll see you at the Annual Conference.