Kodak and Blockbuster had dominant market positions but failed to adapt, innovate, and most importantly, embrace disruptive forces that would impact their target markets. The result was bankruptcy for both companies.
In Kodak’s case, the company’s biggest mistake was not understanding that its legacy core business of selling film (so consumers could print photos) would transition to a new business of consumers sharing photos online.
How does this relate to the residential HVAC industry?
Residential HVAC Contractors Aren’t in the Business of Selling Equipment
We have asked hundreds of residential HVAC contractors the following question: What business are you in? The most common response is selling equipment. Kodak believed it was in the business of selling film. Instead, the film and the printed photos were just a means to an end. The end being capturing and sharing memories of family and friends.
Most residential HVAC contractors aren’t in the business of selling equipment. Instead, the equipment is just a means to an end. Contractors are in the business of providing reliable home comfort via clean, properly conditioned, hot and cold air on demand. Most customers don’t care about the equipment, don’t know what equipment they currently have, and don’t think about their HVAC equipment until it breaks.
Consumer Behavior is Changing Your Residential HVAC Contracting Business
In recent decades, consumer purchasing behavior has shifted dramatically towards subscription services. From media content (think Netflix/Hulu) to mobile communications (think cell phones) to transportation (think UBER/Lyft, automobile leasing) to clothing (think Rent the Runway, Le Tote), consumers today are seeking ways to acquire use of, and access to, products without the traditional responsibilities and burdens of ownership. Given the high cost of HVAC replacements and the need for regular maintenance and upkeep, this shift in purchasing behavior arguably will be faster and more pronounced in the HVAC industry than in other industries.
Disruptive Forces Can Turn Your Strengths Into An Achilles Heel
Many residential HVAC contractors that we speak with are experts not only in the trades they provide, but also in terms of financial acumen, operational excellence, marketing strategy, sales strategy, and most importantly, customer service. These incumbents are uniquely positioned to seize disruptive opportunities.
Unfortunately, historical success and strong market positions often create blinders that cause leading companies to overlook disruptive opportunities. Kodak was an iconic company with a dominant market position and extensive financial and technological resources, yet it failed to capitalize on the disruptive opportunities that presented themselves. Why?
“Companies often see the disruptive forces affecting their industry. They frequently divert sufficient resources to participate in emerging markets. Their failure is usually an inability to truly embrace the new business models the disruptive change opens up. Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business.”*
Residential HVAC’s New Business Model: HVAC-as-a-Service
When replacing an existing residential HVAC system, many customers today would prefer a comprehensive, worry-free service that includes the following benefits, all for a low monthly price with no money upfront:
- Annual heating and cooling maintenance,
- Covered repairs, including parts and labor,
- Air filters and UV bulb replacements,
- No diagnostic fees, trip charges, or overtime charges,
- 24/7 priority scheduling,
- The latest, most advanced heating and cooling systems, and
- Complete worry-free peace of mind
Residential HVAC contractors should consider this new business model if they want to avoid being left behind. The disruption is occurring in markets across the country and is gaining momentum. Moreover, industry players, including leading OEMs, distributors, field software providers, and home improvement financing companies, are engaged in active dialogue to understand and respond to this new business model.
Fortunately, HVAC-as-a-Service presents several opportunities for forward-thinking contractors, including building stronger and more enduring customer relationships, profitably growing their businesses, keeping and motivating employees, and differentiating their businesses from the competition. Contractors that embrace how HVAC-As-A-Service can help their businesses and then commit to deploying the new business model throughout their organizations will achieve a significant advantage over those that remain focused on selling equipment, just as Kodak remained focused on printing pictures.
*Scott D. Anthony, July 15, 2016, “Kodak’s Downfall Wasn’t About Technology”