Ideas from the HVAC Market

My last article comparing the lighting and supply representation models produced discussions that continue. It was then requested we consider other channels to see what manufacturers and distributors could learn. I decided to look at the HVAC channel with given that a number of electrical manufacturers, distributors and representatives now are selling to both segments … and we see many contractors who are both electrical and HVAC contractors.

Having been on the Board of Governors for the Electrical Association of Philadelphia for over 30 years, including a term of President, I attended many meetings that included HVAC contractors and suppliers. Since the mid 70’s the EAP, along with the local utility, PECO, have worked together with the contractors and manufacturers in providing rebates for more efficient use of products including heat pumps. Today, HVAC contractors, distributors and manufacturers are members of EAP. Candidly it is a major compliment to those forward-thinking HVAC members for joining the Association.  With the help of the EAP’s Executive Director Sarah Hagey, I was able to contact various heating contractors and a major distributor for that market

HVAC Distributor

I contacted Peirce-Phelps, a distributor I knew from my previous rep agency. Their history mirrors many electrical distributors. Founded in 1926 to support the newest electronic product—the radio, Peirce-Phelps remained a family run business until a few years ago when it was purchased by WATSCO, the largest distributor of air conditioning, heating, refrigeration equipment and supplies in the US. Peirce-Phelps is now a joint venture between Watsco and Carrier Enterprises. When it was owned by the family, Peirce-Phelps was a member of Affiliated Distributors.

I spoke with Peirce-Phelps’ Residential HVAC Director and their Director of Commercial HVAC markets.

Residentially, Peirce-Phelps has multiple suppliers for their HVAC equipment including Carrier. For an HVAC distributor this is equivalent to their distribution equipment line.

To increase their value to suppliers and contractors, they limit the number of contractors in specific geographies that are “authorized,” or certified or “approved” to purchase the HVAC equipment brand to assure quality work and loyalty by market size. They will authorize different contractors with different manufacturers, thus being able to support each supplier’s need for coverage / growth while covering a significant percentage of the contractors in the marketplace. Authorization includes various measurable criteria. The residential market is “plug & play” with local stock and by specific products and manufacturers.

Commercially, Peirce-Phelps is a Carrier distributor for their HVAC equipment. The commercial business of air handling, water, boilers, etc. is not brand specific. Most products are made to order with the necessary requirements sent to Peirce-Phelps for design to their contractors along with their bid package. So, a quote, or project, driven market.

Manufacturers, including Carrier and their competitors, have sales engineers to get their products specified or approved. Management tracks jobs and the customers they should be quoting and doing take-offs for. Distributor and manufacturer sales management frequently discuss customer close rates to determine which contractors to continue to provide free take-off services as well as quotes. Essentially, they are asking “are we earning our fair share of business or being a take-off / quotation engine.” Periodically they jointly decide whom not to continue quoting.

Peirce-Phelps, along with its key suppliers, maintain both personal and virtual training on new products, installation techniques and other HVAC related subjects, however, they also provide their customers other business, marketing and operational focus to enable their contractors to be better businesspeople and more profitable companies. I noticed that a number of HVAC distributors have programs to help contractors be better businesspeople as well as offer marketing programs that help their contractors generate business, especially service-oriented business for the contractor’s technicians.

HVAC Contractors

Those I spoke to cited rebates as instrumental to their success. Most were able to include the knowledge of specific money back opportunities to upgrade their sales pitches to satisfied customers anxious to purchase more efficient units. These rebates could be utility, government or supplier rebate programs and the financial benefits can be significant. They could monitor their business as rebates were ended or decreased to negative effects on their businesses.

Contractors also said they were now purchasing more electrical products through the electrical distribution channel. Those products included wire, breakers, terminals, fastening and other supplies. They all commented, however, that only a limited number of electrical distributors pursued their business. They felt their business “wasn’t wanted” and that they could easily switch business or, if convenient, purchase from a big box retailer.

Another nuance was discussed with a larger, industrially-oriented, NECA contractor. The owner told me he had various industrial contracts and he believes his strength has been their ability to provide all electrical needs from low to high voltage as well as communications, security and now HVAC services. He said his customers prefer one source for their needs, and although he now sees more of his competitors offering the same, his head start, and relationships is keeping their business stronger. This correlates to what David Long, CEO of NECA, shared at NEMRA this year … more electrical contractors are offering a multitude of trades (mechanical, electrical and/or plumbing (also known as MEP)).

A very wise man, Hank Bergson a former NEMRA Executive Director, told me you can grow horizontally (geographically) or vertically (by industry), and I am sure he is looking at today’s model of doing both at the same time with great interest.

Possible Take-A-Ways

 In thinking about my conversations, and recognizing that it was only dipping my toe into another industry, here’s some thoughts:

• Seminar marketing can drive distributor preference. HVAC distributors see value in educating their customers to be better businesspeople. Perhaps electrical distributors could try this and go beyond product training. Considering inviting customers and “others” who buy the product (even other trades). It surprised me that contractors interviewed only mentioned one electrical distributor they purchased from stated the distributor sponsored various events in their industry. I also remember many distributors doing seminars both promoting new products and business opportunities. One larger contractor told me they often went to this distributor over others because they seemed far more knowledgeable on new products given their seminars. Contractors now in many states also need CEUs annually to maintain their licenses. It would appear to be a worthwhile endeavor if they are not being arranged  As an example, read the article on an event my friend Ken Cain is coordinating for a client.
• For distributors and manufacturers, the concept of contractor authorization is intriguing, especially for some product categories. This facilitates training and fellowship making for better, more loyal, and more dependent contractors. It is also proven to raise margins for all. There are also marketing benefits as well as securing replacement part sales. The realization that the distributor, along with the local sales force, would work together to qualify and determine which contractors are more deserving and by maintaining their alliances would seem to be worthwhile.
• Think of how this could work for gear companies, especially as they seek single line alliances with distributors nowadays anyways. Could it work for other product categories such as wiring devices? Lighting controls? EV chargers? Solar panels? etc.
• The concept of manufacturers owning all, or a part of, their distribution channel is not new. Manufacturers selling their production capabilities is the real objective and a key reason why many utilize the DIY Channel. I know a larger worldwide wire manufacturer attempted in the US to duplicate their European model where they are very successful in this manner. The more successful that distributor was selling wire, the more the manufacturer was as it significantly reduced the manufacturer’s costs as well as having more consistent scheduling. However, as we know the electrical distribution in the US has many more outlets and diversity than that of Europe, at this time.
• Think this is a strange idea?  Remember when General Electric owned GE Supply?  When Westinghouse Electric, the precursor for Eaton, owned WESCO?  Could a group of electrical manufacturers collaborate with a PE firm to develop a fund to finance distributor acquisitions?  Or maybe they don’t need a PE firm and would fund and operate it themselves? Or run a marketplace? And as many know, switchgear manufacturers have helped distributors “finance” branch openings.

The key question, however, is “what can you learn from models from other industries and then adapt for yourself”?