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Pricing, Value and Discounting   Recently updated !

This is the pricing model for too much of the HVAC industry, High-Value/Low Price

To discount or not to discount, that is the question.  When should you do it?  How often should you do it?  Who should be in charge of it?  What are the price of your products set by?  Are they set by what the market will bear?  (Bad idea) Are they set by a cost + model?  (Better, but not ideal by any means)   Do you even know?  How should they be set? The answers to these questions are critical to the success and profitability of your business.

Product pricing is one of the most strategic elements of the marketing mix in your entire business arsenal.  You can’t afford to get it wrong.  In simplified terms, you need to first decide what kind of value proposition you want your business to model.  Do you want to run a high-volume, low-margin model?  Do you want to employ a high-value, high margin model?  Most businesses in our industry are somewhere in between, if they have even thought about it.  So there you are – think about it!

If you wish your company to be seen as a professional organization that operates above the run-of-the-mill contractor, with knowledgeable service and installation people, professional looking vehicles etc., then you must price for it.  First, you must know your costs.  Then, once you have a firm idea in mind of what you want your business to look like in the eyes of the consumer, determine what level of profitability matches that look.  What about local market prices for your products and services, where do they come in?  It is important to know what your competitors charge in the local market, but that should only be a measure of where they stand versus the value your organization brings to the consumer.  The problems come when your prices are either too high for the value you offer – or too low.  Anyone in your organization who comes into contact with a consumer simply must know and buy into your organization’s value proposition.  They must be convinced that what they are asking the consumer to pay is worth it.  If they have a problem asking the consumer for a fair price relative to value received, you have the wrong employee.

What about discounting, when is it appropriate?  Do you know what percentage of your company’s sales are discounted?  If not, that is a good place to start.  Excessive discounting can be like a disease that slowly but insidiously eats away at the value of your company from within.  Your sales and service people need to have clearly identified guidelines as to when they can and cannot discount.  If they are paid a commission, it should be lessened if they close the sale by discounting it.  It is important that they personally understand the connection between discounting and profitability, both personal or organizational profitability.  Excessive discounting, either in the level of discount offered or the frequency of how often it is done will leave your customer confused and worse.  The worse part potentially manifests itself in consumer mistrust of your organization.  That makes it harder the next time you try to convince the consumer of the value you are providing with your organization, product and service.  In addition, by discounting you’re training the consumer to ask for a discount again next time.  Think Sirius Satellite Radio.

What is a better path of showing value?  Consider the following.

  • Take the time to understand your customers needs and desires
  • Clearly present a solution that you believe satisfies these needs and desires
  • Make sure to link the benefits of your product and service to your customers needs and desires

If you must discount, make sure you commensurately reduce the value of the product or service offering.  (offer a lower SEER rated air conditioner for example) By doing that, you are maintaining the integrity of the value proposition and not confusing the customer.


Criticism

Criticism Is Just Another Form of Feedback – Channel It To Drive Your Organization Forward

If you have ever been in a leadership position, whether at work or elsewhere, being criticized comes with the territory.  If you are trying to move your organization forward, you will be criticized by those who don’t embraced the change.  Conversely, if you are not doing anything, you will be criticized by those who feel you should be.  How you handle this criticism will be key to how effective your leadership will be.  What are some of the keys to managing criticism?  Consider the following.

  • First, recognize that with leadership comes criticism.  If you do not want to be criticized, do not aspire to leadership.
  • Do not take criticism personally.  This is perhaps the most difficult thing to do because your emotions want to intervene.  Don’t let them.
  • Be appreciative of the criticism.  Without it, you cannot learn what course corrections may be needed.  Encouraged genuine, constructive criticism.
  • Ferret out genuine criticism from the whining and complaining.  Genuine criticism represents another’s opinion, which is designed to offer an opposing viewpoint meant to improve the situation.  Whining and complaining is just that, it is not offered as a means to improve the situation.  If you’re not sure if the criticism is genuine, drill down and ask questions designed to reveal the motive of the one who is criticizing.  You will usually be able to find out pretty quickly if the criticism is sincere or not.
  • If you continue to hear the same or similar criticisms about a policy or situation, dig deeper.  This typically represents real opportunity for improvement.  Whatever you do, don’t ignore it.
  • Develop a network of go-to people.  You need to have some people whom you trust, whose judgment you value, and who will give you the unvarnished truth.  Don’t be afraid to seek their opinion, and be open to their feedback even if it does not agree with your opinion.
  • Don’t beat yourself up.  If you have done your very best to field the complaint without emotion, evaluate for merit, then institute corrective action, that is all you can do.  Keep your eyes focused on the goal and keep moving, because just like the news cycle, there will be new complaints coming your way that you must be attentive to.

Criticism can either be crippling or can serve as a catapult for positive change.  How you view it may in large part define your success as a leader.


The Case for Disability Insurance

How Prepared Are You?

A major disability is something that happens to someone else… until it doesn’t!  The sad fact is most Americans are better prepared to die than they are to deal with disabilities.  If you are in your twenties, the chances are you rarely think about this.  But you should.  Just over one in 4 of today’s 20-year-oldswill become disabled before they retire.In fact, over 37 million Americans or about 12% of the total population are classified as disabledMore than 50% of those disabled Americans are between the ages of18-64.  At the end of 2012, 8.8 million wage earners representing more than 5% of the entire workforce were receiving Social Security disability insurance, (SSDI) 2.5 million of these were in their twenties, thirties or forties.  But I’m careful, I eat healthy and work out you say. As it turns out, accidents are NOT usually the culprit.  Statistically, about 90% of disabilities are caused by illness.  Cancer, heart disease and other illnesses cause the majority of long-term absences.  Consider the following statistic for a35-year-old male. 

Anon-smoking male, 5’10”, 170 pounds, who works an office job with some outdoor physical responsibilities and who leads a healthy lifestyle has the following risks:

  • A 21% chance of becoming disabled for 3 months or longer during his working career
    • Of these, 38% run the chance that the disability will last 5 years or longer
    • the average disability length for this person is 82 months

Similarly, a35-year-old female weighing 125 pounds has a 24% chance of becoming disabled for 3 months or more during her working career. As you can see, the chances are simply too great to ignore for the average working person.  Furthermore,most people think that Workers Comp or Social Security Disability insurance will cover their needs if they become disabled. According to the Council for Disability Awareness, less than 5% of disabling accidents and illnesses are work-related.  The other 95% are not, meaning Workers Compensation does not cover them.  In addition, according to the Social Security Administration, 65% of initial SSDI claim applications were denied in 2012. The average SSDI monthly benefit payment for males was $1256 and for females was $993, with 93% of all recipients receiving less than $2000 per month.

Given these numbers, how well prepared are American workers for disability?  Not very. Forty-eight percent of US families do not save any of their annual income, and one third of working families have no retirement savings.  Consider the following chilling statistics.

  • 68% of adult Americans have no savings ear marked for emergencies
  • 65% of working Americans say they could not cover normal living expenses even for one year if their employment income was lost.
  • 38% could not pay their bills for more than 3months.

 So what does the average family do when confronted with a disability?  They begin running up expenses on their credit cards, get a 2nd mortgage, cash in their 401(k) or take out a home equity line of credit and ask family and friends for assistance through sites like go fund me.  As you might guess from the above numbers however, these solutions are inadequate.  According to a Harvard study, 62% of all personal bankruptcies and over 50% of mortgage foreclosures are a consequence of disability, and many end up on Medicaid for insurance.  Keep in mind that while Medicaid rules vary from state to state, the general requirements for income are less than $931 per month and countable assets of $2000 per person, not including your primary residence (with limitations based on your home equity), personal property and household belongings and up to one motor vehicle.  ($3000 per couple living in the same household)

What is the answer then?  Disability insurance!  How common is it?  Consider:

  • 65-70 % of workers in the private sector have no long-term disability insurance
  • That equates to about 75-80 million private-sector workers who are without long-term disability income insurance
  • Worse yet, only 46% of workers have even discussed disability planning
These costs are immediate, expensive and often not covered by insurance!

Sources

disabilitycan happen.org

AmericanJournal of Medicine

US SocialSecurity Administration

Counsel forDisability Awareness

US FederalReserve Board

AmericanPayroll Association

Get Sick, Get out: The Medical Causes of Home Mortgage Foreclosures


What’s Going on with the Brand You Represent

What's Going on with the Brand You Represent

Notice the wording of this question and how it might be different from “What Is Going on with Your Brand?”  The two are related but more on that later.

Have you read the latest Consumer Reports?  What about your customers, have they?  The May 24, 2013 issue had an article entitled “Comfort Creating Air Conditioners” where they gave consumers buying tips along with the results of the latest reliability survey.  Brands rated included American Standard, Bryant, Rheem, Trane, Carrier, Lennox, Goodman, Ruud, York and Amana.  There reliability study was based on data from responses from over 40,000 readers who brought central air conditioners or heat pumps from 2005 through mid-2011.  The tagline underneath the headline “Central Air-Conditioning Reliability” was the tagline, “Our latest survey found three brands that you should think twice about.”  How will you react if you go into a consumer’s home and they start asking you questions based on the fact that you represent one of these three brands?

Broadly speaking, it might be one of two reactions.  The first would be to downplay or even denigrate the article, which would be a big mistake for two reasons.  The first is that there probably is something to the results of a 40,000 person strong survey conducted by someone as reputable as Consumer Reports.  The second and more important one is that by running down the article you are running down your consumer.  There is a better way.

Even if you haven’t read the report, acknowledge your customers legitimacy by thanking them for the information and letting them know that you have not yet seen the article.  If you have read it let them know and ask them what they thought of it.  This way you get an opportunity to see their perspective before delivering on yours.

After your discussion about the product, you have a great opportunity to remind them that the most important brand of all is the contractor they choose for installation and service.  “After all,” you can remind them, “even the best product poorly installed will not perform up to its capabilities or expectations.”  At that point you are perfectly positioned to lead the discussion about solutions to their specific needs.


Performance Contracting, Where Does Your Business Fit?

Performance Contracting, ACCA, Energy Saving HVAC

We have all heard the expression “the whole is greater than the sum of its parts.”  For HVAC contractors, that means approaching a building as a coordinated system rather than a structure that contains mechanical equipment.  In October, the Air Conditioning Contractors of America (ACCA) explored this topic in detail when they held their inaugural building performance forum in Austin, Texas.  Taking this approach offers your customers big opportunities for saving energy and increasing comfort while providing enhanced profit opportunities for your company.  One of the speakers at the forum, Michelle Knaszak said “It’s very important that you do your research before jumping in with both feet.  You have to learn to crawl before you run a marathon.”  Michele is director of training and operations for Green Homes America.  What are some of the elements of performance contracting?

According to Knaszak, the logical first step is to examine attic insulation and air sealing.  “It’s unbelievable how much more comfortable and energy-efficient a structure can be when you combine shell work with mechanical work” she said.  Once you have addressed attic insulation and leakages in the air distribution system, you are ready to move on to doors and windows.  Temperature controls, lighting and zoning also present potential, particularly in older structures.

Performance contracting represents a completely different thought process from selling heating and air-conditioning units, so it’s critically important that you educate your organization and do your research before jumping in to this growing area.  Once you have done your homework however and are ready to take the plunge, performance contracting offers virtually unlimited opportunities to significantly increase your labor efficiency and average ticket along with your profit margin.  It is also a way to differentiate your firm from those companies who are simply looking to change out a condensing unit or furnace.  Ellis Diels, chairman of ACCA’s building performance Council perhaps said it best.  “The time is now for the HVAC industry to realize its full potential.  Only we have the expertise, skills, customer relationships, and marketing savvy to term building performance into a true market driven business and not some government funded boondoggle.”

Something to ponder as you turn the page to 2013 in your business.


Presenting the Price in a Flat Rate World: Part 2

Presenting the Diagnosis to the Consumer Using Flat Rate Pricing.

 “Okay, Mrs. Smith,” you start out.  “I have done my evaluation of your system and let me point out what I did, what I found and how we’re going to get you fixed up”.  “I found that in fact your bearings were the reason you heard the noise coming from your furnace.  During my evaluation I also found that the blower itself is dirty, which needs to be cleaned when I’m changing the motor.  Your blower is a “squirrel cage type”, here’s a picture of what it looks like.  I also found that the burner in the furnace needs to be cleaned and while it’s still summer, I can give you a discount on the repair if I do it while I’m here.  Finally, your humidifier pad also needs changing and I am recommending a system check out of your humidifier.”

You should point to the line item on the work order, and using the exploded views of the equipment in the Technician’s Flat Rate Manual, point out the Customer narratives for them to read.  Don’t forget to have the Tear offs ready to use and leave behind with the work order.  For each recommended repair, you will insert a price taken from the Flat Rate Manual. Let the customer see the manual and that the prices are published, based upon a national standard.  This will alleviate price concerns.

Show the customer that the additional repairs are discounted and that they would receive the discounted price had they owned a service plan from your company.  Be prepared to offer them a completed service plan at this time and be prepared to offer them the repair prices from the service agreement column.

Ask the customer to approve the suggestions.  If they tell you that they really didn’t plan on spending that kind of money today, the first thing you let them know is the discounts they would receive if they had a service plan.  If they don’t want that, inform them that they could perhaps wait a month or so to do the burner cleaning or the humidifier service, but that you MUST replace the motor and clean the blower.  Have them initial (not check mark) the boxes for the repairs that they approve and the boxes for the repairs that they decline..  They might just tell you to do everything, especially when you tell them that your company accepts MasterCard, Visa and American Express.

Because you presented options, consequences and a way to pay, chances are the customer will tell you to do all of the recommended tasks. But even if they don’t, you now have a paper trail of the things that will eventually have to be done anyway.  Guess who gets to do those?  Your company, of course and if the humidifier malfunctions or the burner won’t light, you can now say that it was recommended during the service call. You look better in the homeowner’s eyes because you have made your professional evaluation and recommendations.

You are now being judged by the quality of the service you provide, NOT on your hourly rate.