Phrases like "owning the customer" and "a customer for life" can conjure up a lot of emotions for business owners. Contractors want to find and keep customers, as do distributors and manufacturers. All are reaching out to find and keep that elusive and finicky customer, who can cost hundreds of dollars to retain.

One method of locking in the customer is getting a long-term commitment to service and replace heating and cooling equipment, including add-ons. Long-term commitments come in the form of extended service agreements and extended equipment warranties.

Now is a great time for contractors to get into extended warranties, according to one industry expert. John Castronovo, president and co-founder of Equiguard Inc., Willowbrook, Ill., listed some good reasons.

Castronovo said that OEMs jumped on the warranty bandwagon years ago because of the competitive nature of the business; one manufacturer offered it, and the others followed suit.

"Manufacturers now see the need to offer extended service agreements as their contractors and end users are requiring additional warranty options," he said. "We are becoming more involved at the OEM level as they are discovering the issues involved with administration, tying up money in reserves, and most importantly, the ever-changing and complex regulatory issues."

"The OEMs focus on selling boxes," said Jeff Liter, Equiguard's national sales manager. "If they have an extended warranty program in place, the primary goal is to use the warranty to increase equipment sales."

Liter said contractors should consider extended warranties in another market - refrigeration.

"Refrigeration extended warranties are untapped and probably have as much potential as the HVAC market," he said. "It's huge and we are just getting into it now."

Guiding Equiguard through a period of aggressive growth are (left to right) Sharon Gruenberg, marketing manager; John Catronovo, president; and Jeff Liter, national sales manager.

Market Forces

Castronovo believes that the HVACR trade had been at least 30 years behind the other industries that sell and service home appliances, like refrigerators and stoves.

"These manufacturers have been selling extended warranties forever and ever," he said.

He said that in the past, HVACR contractors were so eager to get extended warranty programs that they never bothered to check the credentials of the companies offering the programs, and some companies left contractors high and dry.

"As a result, those that were burned have been slow to get behind extended service agreements," he said.

Liter said, "When I started back in 1995, I'd walk into businesses and people would tell me that they couldn't believe I was getting into the extended warranty business. The scars of these failed companies ran deep. The industry needed a player that was honest, with a system in place and had the checks and balances, and that's what we offer," he said.

Castronovo and Liter agree that the market for extended warranties - especially the commercial market - is barely tapped because building owners simply don't think about a service program.

"Once the program is explained properly, there is no resistance to it," said Castronovo. "Most commercial guys have a P&M program from somebody. Maybe they are getting a reduction in the parts markup or reduced labor rate.

"But a good program includes proper installation with regular service and immediate replacement, if necessary. The customer is happy, the contractor is happy, and the contractor has a customer forever."

Warranties, Agreements Go Together

In order to enforce warranties, the equipment must be in good working order. Liter said it is imperative that contractors understand this and explain it to their customers.

"We actually put the wording in our agreements that the equipment must be maintained according to manufacturer's recommendations," he said. "You have to maintain the equipment or the warranty will be voided."

Liter said it is important for contractors to see the benefit of having a warranty and an agreement. "Customers think they don't need an extended service agreement because they have an extended warranty," he said. "But this is a way for customers to protect their investment."

Castronovo said that the biggest path of resistance to extended warranties and agreements comes from people who don't own the buildings or properties. He said that companies that lease office or building space are not looking at it as an investment and don't have long-term plans.

"That's too bad because a lack of proper service causes premature failure of equipment and escalated energy costs," he said.

The Bottom Line

Having an extended warranty program backed by a service agreement program provides benefits for the customer and for the contractor, said Castronovo. The benefits to the customer are obvious - well-maintained equipment and peace of mind. For the contractor, it means much more.

"If you have an extended service agreement that includes preventive maintenance, the customer is going to call you for five or 10 years - if you sell it that way. The contractor is there for the upgrades, for the change-outs, for when the kids get married and buy their own homes, etc. And you don't just own the homeowner, you own the home because the program can be transferred.

"It's a lock."

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Sidebar: Equiguard Looks To Extend Its Markets

John Castronovo and Craig Funke had a vision 14 years ago. They wanted to breathe life into an industry that had been under a dark cloud and that few people really understood: the extended warranty business. They had a plan - a plan that has pushed Equiguard onto the fast track of growth.

"We've grown 100 percent since January 2003," said Castronovo. The company describes itself as "North America's leading provider of risk management programs to the HVACR and plumbing industry," citing a client base of more than 21,000 contractors and 600 distributors, with more than 750,000 agreements in force.

"Our business has grown now to where we have a 24/7 cradle-to-grave program for many national accounts," Castronovo said. "OEMs wanted to offer customers something more - something ‘value added.' For example, for one OEM and its national account, we oversee the installation of the equipment. This prevents installation by less-experienced contractors who don't service the equipment."

National Sales Manager Jeff Liter said that Equiguard has been moving into the Canadian market. "That business has really taken off," he said. "Two years ago we hired Stew Rutherford as sales manager for that region. There is so much going on. We recently hired David Schulte as U.S. sales manager to help train some of our reps in the field. They will be working with the 100-plus sales reps we have in the field."

Equiguard has been designing programs to tap into the commercial market. According to Liter, the market opportunity for commercial HVACR extended service agreements is $1.1 billion annually. "Currently, only 3 percent of the North American commercial market is being served by extended service agreements," he said.

But in order to sell its programs, Equiguard has positioned its people to go into the field and provide training before contractors present the agreements to the end users.

"One of the things that is real important is getting the people trained before they start. The technicians and salespeople will not have the excuse of saying, ‘I didn't know the part was covered,'" stated Liter.

"If they don't explain the warranty properly to the homeowner, the homeowner will be mad at them and the contractor will be mad at us."

The Contractor Comes First
"We are a contractor's partner in the industry," said Castronovo. "Our focus is the contractor. Everything about our program is for the benefit of the contractors, and that makes it a win-win for our OEM and distributor clients," said Liter. "We give them a program for every piece of equipment they sell."

But Liter is quick to add that Equiguard does not sell directly to contractors. "We always go through distribution," he said. "We have branded programs that we sell to contractor groups, to OEMs, and to end users [i.e., national accounts]. The programs are all tailored toward contractors, no matter who they are sold through.

"Our claims department people have HVACR backgrounds. I think that is important when a customer calls about a claim because we can usually give them an answer right away from an experienced HVACR person."

Equiguard is also a strong supporter of flat-rate pricing systems, and the company can help contractors establish guidelines for repair pricing. The company also offers electronic ordering and claims processing.

"We encourage flat-rate pricing, telling the contractors that it is the only way to go," added Castronovo. "But if contractors would rather use T&M, that's fine, too."

Setting High Standards
"The secret to our business is to never touch the money," said Castronovo. "All payments made to our company go to a bank lock box. The money is split out to the insurance company to pay its premium and reserve, and Equiguard gets its portion through a transfer to run the business. We never touch the money. And we are fully insured by the two largest carriers in the world."

Speaking of money, Castronovo is proud of the fact that his customers get paid on time. "The most important department we have here is our claims department," said Castronovo. "I'd like to say that people come to us because of our marketing and ideas to help grow their business. But let's be honest. They need us because they need to get a claim paid, and our average claim pay is 14 days."

"We can cover any mechanical equipment from one year up to 12 years on new equipment. We stop at five years on existing equipment. Many of our agreements are even customized to match up with varying OEM warranties and contractor marketing," said Liter. "These programs have to be beneficial to the contractor, or we don't have a customer."

- John R. Hall

Publication date: 12/22/2003