Warranties, Rebates, Incentives, Oh My!
Enticements offer mixed results on high-end sales
Manufacturers often offer longer warranties and hefty rebates as a way to entice homeowners to purchase more expensive HVAC systems. Rebates and tax credits are also sometimes offered by federal, state, and local governments and utilities as a way to encourage consumers to reduce their energy use by purchasing newer, more efficient equipment.
Whether it’s a manufacturer or a utility, these incentives are typically reserved for high-efficiency systems, which are substantially more expensive than minimum-efficiency units. So, do longer warranties and higher rebates encourage homeowners to purchase more expensive, highly efficient equipment? The surprising answer is sometimes, but not always.
NOT A DRIVER
“I never talk about rebates or warranties with customers,” said Brad Schneider, owner, 72 Degrees Heating and Cooling, Fredericksburg, Texas. “During the sales process, I ask homeowners six questions, and I have a ratings system that assigns a score for each of their answers. I relate that score to the different types of system bundles that we offer, and, as a result, people often end up buying the most efficient systems.”
In fact, approximately 54 percent of Schneider’s sales last year consisted of 21-plus-SEER cooling units, which is rather remarkable given that his company services a sparsely populated area. He is quick to point out that he never chooses a system for his customers, instead he just asks the right questions that lead them to the equipment package that is right for them.
One of those questions concerns safety as Schneider asks every homeowner, “On a scale of one to 10, how important is safety to your home, your family, and your system?” Most homeowners (particularly females) answer that safety is very important, so he offers a bundle that includes high-efficiency equipment along with dual surge protection and IAQ accessories.
“How many safety features do you think are in our 14-SEER package? Not a lot. When customers see the difference in the safety features offered between the good and better systems, they often choose the better system.”
About 30 percent of John Eanes’ customers choose the best system he offers, which is a high-SEER, inverter-driven air conditioner or heat pump. Eanes, the president of Eanes Heating and Air in High Point, North Carolina, insists rebates are not big drivers for his customers. Many homeowners just want the best equipment available. “We focus on their problems, needs, and how we will address them. That may include explaining the differences between our high-end and basic systems, or we might look at their utility bills and figure out how much money they’ll save with each system. Basically, we try to match their needs with a product or solution.”
Local utilities do offer rebates, but Eanes does not think they are big drivers for customers.
“Obviously, people do love the rebates, but I don’t think that’s what makes them call us in the first place. In fact, we usually have to let homeowners know they’re eligible for a rebate. For most customers, I think it still has to make sense to them that these high-efficiency systems are going to save money on their bills and make them more comfortable, not whether they’re going to get money back.”
Longer warranties do not seem to affect sales either, noted Eanes, who offers 10-year labor warranties but has found there is usually no demand for them.
“We don’t have to use that to sell high-end systems, because we’re a trusted company, and we have good products,” Eanes said. “I don’t feel like we need a really long warranty to convince customers to go with us.”
Incentives and rebates absolutely do help high-end sales, said Andy Schlotterer, owner, Bayside Comfort Inc., Port Clinton, Ohio, and nowhere is that more evident than in the geothermal market, which has taken a hit since the federal tax credits expired last year.
“In the last 10 years, we had grown our geothermal footprint drastically simply by offering it in applications where we felt it would work best. A quote with the 30 percent tax credit made it fairly comparable in price to standard high-end systems, which made for an easy upgrade in efficiency when someone was deciding between the two systems.”
That all changed after the tax credit expired, noted Schlotterer.
“We still offer geothermal in applications that would be a good fit, but without the tax credit, our geothermal system sales just about came to a halt in the first quarter,” he said. “However, incentives are important for any type of high-end equipment because they can help close the sale. Our customers are loyal and would probably choose us for their comfort needs anyway but offering an incentive or rebate helps reassure them we are doing everything we can to save them money.”
Incentives and rebates can also help homeowners buy better systems sooner rather than later.
“Everyone has a furnace and/or air conditioner that is going to break and need to be replaced one day,” said Schlotterer. “Incentives help them make the decision to replace an older system rather than continue repairing it. And for customers who have saved to replace a system, incentives often help them choose a higher efficiency piece of equip ment rather than going with the government-mandated, minimum efficiency unit.”
While not a big fan of rebates, utility incentives definitely make sense to Schneider, who thinks they can encourage customers to conserve energy.
“We have a community-owned cooperative utility in our area, and it will not offer incentives because it doesn’t think it’s fair for some members to pay for other members’ rebates,” he said. “But if the cooperative doesn’t encourage homeowners to purchase energy-efficient equipment, then the utility will keep having to build bigger power lines and substations, which we all have to pay for. That’s not fair to members either.”
Even though customers do like rebates and incentives, Eanes remains on the fence about how effective they are in practice. “I have often wondered if they’re necessary. If manufacturers spent all that money from the rebate programs on national advertising or better training for dealers, I wonder if they would get more bang for the buck. And really, they’re a hassle on our end because we have to do all the rebate paperwork for our customers, which takes up a lot of time.”
Perhaps this time is better spent on educating customers about the benefits of high-efficiency systems.
Publication date: 6/26/2017