HVAC Residential Market / Furnaces / Air Conditioners

Opportunities Still Exist For High-End Equipment

June 18, 2012
Trans

Many in the industry are still lamenting the loss of the federal tax credits for higher efficiency HVAC systems; however, most manufacturers believe that customers remain willing to pay a premium for better equipment.

Carrier, for example, still sees an opportunity to sell higher-efficiency equipment for two basic reasons, said David Meyers, vice president, sales and distribution, Carrier Residential Systems.

“It reduces the impact on the consumer’s pocketbook and reduces energy consumption. Consumers are open to the idea of purchasing higher efficiency products that deliver improved comfort and long-term cost savings while reducing environmental impact, with or without the tax credits.”

That being said, the economy is still sluggish and the costs of HVAC equipment are rising, which is why it may take a little more work to educate customers about the benefits of purchasing a higher priced system.

Hope on the Horizon

The combination of a weak economy and the reduction in tax credits has impacted the sale of high-end HVAC equipment, said Steve Hoffins, senior brand manager, unitary products, Johnson Controls Inc. “When the $1,500 federal tax credit was available, the credit seemed large enough to actually drive consumer behavior. People were buying high-end equipment, because the incremental cost compared to lower-end equipment was so little. By taking advantage of tax credits, homeowners were able to get new equipment that resulted in significant utility cost savings, spending just a few hundred dollars more than if they had purchased a less efficient unit. We’re still seeing strong unit sales overall, but there is a shift in the kind of equipment and systems people are buying — from premium to standard-offering equipment at lower prices.”

That shift can be seen in the shipment data from the Air-Conditioning, Heating, and Refrigeration Institute (AHRI), which show that from 2010 to 2011, the industry experienced a 4.9 percent decline in 16 and 17 SEER systems, while mid-range 15 SEER systems dropped a little over 28 percent.

Today, the market moves single-stage 13 SEER products more than any other product, said Philip Windham, vice president of sales, Nordyne. “The bulk of any manufacturer’s sales will be in the standard efficiency range, but there will always be a customer for the higher-end system.”

Goodman Global Inc. can attest to that fact, as it has seen an increase in standard efficiency product sales, but that may be changing, stated Gary Clark, senior vice president, marketing. “As homeowners rethink the long term benefits of high-efficiency HVAC systems, the current trend will very likely begin to reverse. Many homeowners are concluding that they might be living in their current home longer than previously anticipated, so they will want to explore the benefits that high-efficiency products provide. Increasing energy costs, coupled with higher R-22 refrigerant costs, will create some enhanced demand for high-efficiency products, too.”

The HVAC products that are currently in demand are high-end furnaces, said Nitish Singh, director of marketing and product management, Rheem Heating and Cooling Division. “On the heating side, high-efficiency gas furnaces continue to be a healthy mix of that segment of the market. Gas furnaces are near the upper limits of efficiency — since units are already operating around 95 to 96 percent efficiency levels — however, energy costs are expected to continue rising, so we expect to see high-efficiency gas furnaces growing to be a major part of the market very soon.”

Jim Dee, sales director, North and West dealer sales office region, residential solutions, Ingersoll Rand, also sees a greater demand for high-efficiency heating products.

“The 95 percent AFUE furnaces are extremely popular, especially in the Midwest and Northern tier of states, as well as in many parts of Canada. On the cooling side, we are seeing more focus on entry-level products and have seen a good lift in sales when it comes to 13 and 14 SEER equipment. The utility rebates are still helping with sales, and we are also seeing a stronger reliance on financing, especially when it comes to high-efficiency products.”

Financing is often critical when selling high-end HVAC systems, but in this day and age, it is not as easy to acquire. National lenders tend to focus on credit scores of 730 and higher, while local banks may target above 640, said Windham. “Because credit scores below those numbers are riskier, loan amounts are either less available, or available at a much higher interest rate to the consumer. When a homeowner can finance, the difference between a standard system and a high-efficiency system can be a small amount per month. Offset that with the additional energy savings, and financing helps make the purchase of a high-end system a no-brainer.”

Promote Comfort, Not Price

While availability of financing definitely helps, comfort and energy savings seem to be the biggest reasons why homeowners decide to purchase a high-end system, according to several market studies conducted by Emerson Climate Technologies. “These studies have consistently indicated greater demand for energy savings and comfort solutions than is shown in actual sales of high-efficiency systems,” said Frank Landwehr, vice president of marketing and product planning, air conditioning business, Emerson Climate Technologies Inc. “This research indicates some demand for higher efficiency systems is being underserved by our industry.”

And while high-efficiency HVAC systems carry a larger price tag than their standard efficiency counterparts, the 2010 American Home Comfort Study by Decision Analyst reports that price ranks low in the homeowner’s purchase decision, noted Windham. “What the homeowner is looking for is value — and part of that value is long-term energy efficiency.”

For this reason, Nordyne encourages contractors to sell comfort as much as efficiency, said Windham. This usually involves showing the homeowner the estimated savings they’ll get on their energy bills to offset the greater purchase price, and then explaining the additional home comfort — better mix of air, quieter operation, less humidity — that will make the home more enjoyable. “If you go into the home to just sell an air conditioner, your only differentiator is price. If you go into the home selling comfort, you will create better options for the consumer and end up selling a higher-end system.”

Selling a complete matched system based on energy savings and comfort benefits, and not just focusing on the individual air conditioner or furnace, is key to any high-end equipment sale, said Singh. “When the economy is tight, it’s easy for contractors to worry about losing a replacement unit sale because they’ve come in discussing a system replacement. But, it’s important to offer options while explaining the benefits of the high-end system; then, allow the consumer to self-select the right option for their budget and home comfort needs.”

Contractors who demonstrate how a high-efficiency system will provide superior comfort, as well as save money over time, will most likely be successful in closing the sale, said Meyers. “Keep in mind that comfort is delivered by the technologies inherent in higher-end products. A variable-speed heat pump, for instance, offers enhanced dehumidification in the summer months coupled with customized air delivery throughout the home all year long. Contractors can help consumers understand the superior control and comfort delivered by a high-efficiency system.”

In addition to comfort, contractors need to stress life-cycle costs and utility costs when upselling customers to high-end systems, said Hoffins. A case in point: a system that costs $1,000 more upfront may actually cost $3,000 to $4,000 less over the life of the equipment, thanks to its efficient operation. Or, it could pay for itself in as short a time as one year, depending on the fuel source and the efficiency of the system it is replacing. “It’s not unusual to replace a 15-year-old system with a new one that immediately saves $50 to $60 per month in utility costs. It’s just a short-term versus long-term cost perspective.”

Although price may not be the biggest concern for homeowners, it will be a big part of the conversation, which is why a discussion of life-cycle costs is so important. “While the first cost may be a bit higher versus a standard efficiency product or system, the life-cycle cost of the higher efficiency system might be the better choice,” said Clark.

“Most homeowners that comprise the high-efficiency market segment are not specifically looking for the lowest price option when they are in the HVAC purchase cycle. They are focused on understanding that high-efficiency systems provide improved operating cost, temperature and humidity control, and in some cases, a better limited product warranty.”

The good news for contractors is that HVAC is one of the few home improvements that really shows a payback and has a great return on investment, said Dee, who added that according to the Appraisal Institute, for every dollar saved in annual utility costs, homeowners can expect to add $20 to their home’s market value. “Homeowners are always willing to pay or invest in HVAC products and systems that provide convenience at a good value. When you combine rebates, incentives, and financing, we are offering customers very manageable pricing and terms they can deal with as an investment in their home comfort, efficiency, and safety.”

Keep It Simple

While customers may be interested in learning about the comfort and energy savings they can obtain by purchasing a high-end unit, they may be turned off if their contractor throws around numerous industry terms they don’t understand (e.g., SEER, HSPF, AFUE, COP). Add in other available features — multiple stages, variable speed, high-tech thermostats, IAQ accessories — and homeowners may simply tune out the entire sales pitch.

As Landwehr noted, HVAC professionals have to be on their game in order to sell the efficiency and comfort benefits of premium systems — and to do this without confusing homeowners is no small task. To make the selling process simpler, he explained, Emerson Climate Technologies provides support tools for contractors and dealers to use with homeowners so they can more easily understand how moving to higher efficiency systems can save them money. “One example of this is the e-Saver™ mobile phone app, which calculates expected homeowner energy cost savings based on the efficiency levels of selected equipment. The e-Saver app can also be used to evaluate various quotes and different levels of efficiency to help in the buying process.”

Trane also has tools for its dealers to use when it comes to helping customers understand the nuts and bolts of heating and cooling, said Dee. The recently introduced Trane MAP (Mobile Application for the Professional) is an iPad-based, guided selling application for retail sales professionals that is designed to improve the customer experience and provide a consistent sales process. “Trane MAP also helps explain utility savings in terms homeowners can easily understand by clearly demonstrating payback from utility costs and savings estimates, and features embedded videos that help clarify the utility savings message. In addition, we will soon be launching an energy calculator that will include eco rebates as well.”

Carrier’s series of application-driven sales tools for dealers helps them explain the benefits, features, and energy savings associated with high-efficiency HVAC equipment, said Meyers. “For instance, the Carrier Operating Cost Calculator helps our dealers quickly and easily determine the long-term savings on higher-tier equipment so they can share that savings information with each customer during an in-home presentation. We also have the Carrier Knowledge Center website [www.residential.carrier.com/knowledge/index.shtml], which easily explains the technical terms associated with HVAC and how those terms translate into energy efficiency and/or cost savings for the consumer.”

Goodman provides various support materials to help dealers explain the benefits of any HVAC purchase, noted Clark, including a comparison grid on all product literature, which allows both the dealer and the homeowner to review the benefits of higher efficiency products and systems. “We also offer a web-based video series that explains the various terms, conditions, and benefits of high-efficiency systems to homeowners. An energy calculator on our branded websites allows homeowners to determine the savings options with higher efficiency products.”

In order to better serve homeowners, Nordyne recently overhauled its consumer websites, so that it is now possible to browse products by selecting features that meet personal needs in simple terms, such as “reduce hot and cold spots” instead of “two stage,” said Windham. “Additionally, we provide informative articles to help consumers before the purchase, and we’ve developed a web-based iPad app to help contractors present this information in the home. With the app, contractors can walk homeowners through the product selection process, show literature, and even apply for financing.”

Rheem contractors can utilize an online tool called DesignStar®, which enables them to quickly generate professional proposals that take into consideration the customer’s local utility rates and heating and cooling loads, said Singh. “DesignStar also takes into account the efficiency of the new system so that contractors can show their consumers this information in an easy-to-read format. This clean, straightforward report helps contractors easily navigate efficiency-specific conversations with customers.”

Contractors who sell the York brand of HVAC equipment can utilize the In Home Selling Tool, which is a stand-alone interactive questionnaire that is designed to inform and educate homeowners about all aspects of their home comfort systems and the benefits provided by proper, professional system specification and installation. It runs from a contractor’s laptop and includes short videos that provide information about the benefits of a specific home comfort topic. In addition, an energy savings calculator enables the contractor to provide the homeowner with an estimate of early energy savings based on area utility rates and the efficiency rating and size of a particular air conditioner, furnace or heat pump.

During this tough economy, contractors should take advantage of any and all training and materials that manufacturers offer in order to make the selling of high-end equipment simpler and more attractive to customers. But at the end of the day, noted Hoffins, it’s really about the homeowner trusting the contractor and, by extension, the contractor brand.

Publication date: 6/18/2012

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