Quality and customer service are cornerstones in the residential replacement/add-on business. The top two sluggers inThe News’list of Residential Replacement/Add-On All-Stars abide by these concepts faithfully.

KeySpan Home Energy Services (KHES) of College Point, N.Y., and American Home Maintenance Inc. of Tempe, Ariz., put a heavy emphasis on quality and customer service. Neither company tries to be a low-price leader in their respective market areas. Both sell based on the long-term value provided to the consumer.

One-Stop Shopping

Joe Marazzo is president and chief operating officer of KeySpan Home Energy Services, which will be moving its headquarters to Pine Brook, N.J., in October of this year. Total sales in 2002 were $130 million, of which 77 percent, or over $100 million, was residential. Approximately 60 percent of its residential sales was in the replacement/add-on market.

KHES has been in business more than five years and has a total of approximately 800 employees. Its territory includes:

  • New York — New York City and Long Island;

  • New Jersey — From the Hudson River west to the Delaware River and from the New York state line south through Ocean County;

  • Massachusetts — Eastern Massachusetts from the New Hampshire state line south to the Connecticut state line, including Cape Cod; and

  • New Hampshire — Southern part of the state.

    “We decided to put an emphasis on a residential replacement/add-on business strategy as part of our initial business plan and built the infrastructure necessary to execute it,” stated John Harris, vice president/marketing.

    Management determined that it would “emphasize the HVAC replacement/add-on business so that we could operate a sustainable year-round business that delivers attractive gross margins. A significant part of the infrastructure required to effectively run our service business was also used to support the replacement/add-on business. From the homeowner’s perspective, it allowed us to provide a one-stop shopping solution for our customers and build long-term relationships with them.”

    The company’s primary HVAC equipment brands include Trane and Bryant. It offers boilers by Weil-McLain and Burnham. It installs Honeywell thermostats, along with Aprilaire and Honeywell humidifiers and air cleaners, plus Sanuvox air purifiers. Also supplied are water heaters by American Water Heater Company and hearth products by Majestic/Vermont Castings.

    A KeySpan tech performs some sheet metal work on a replacement system.

    Service Plans Aid Replacement Business

    The combination of advertising and direct marketing tactics that the company uses “varies by market area based upon the unique characteristics of each market and by product,” noted Harris.

    “To drive our service plan acquisition efforts, direct mail is our primary tool in all markets,” he said.

    “The service plan business is important to our replacement/add-on business because we have an opportunity

    to develop a relationship with these customers by demonstrating our expert capabilities on an ongoing basis. About 5 percent of these customers replace their heating and central air conditioning equipment each year and we are the preferred provider.

    “We communicate with our service plan customer base through a welcome kit that includes equipment brochures and discount coupons for plan members only, equipment stickers, as well as through a seasonal newsletter.”

    To go after new business, different approaches work best in different areas. “When we want to target non-customers promoting equipment replacement and add-ons, we have found that newspaper advertising has worked best in our New York and New Jersey markets, whereas direct mail performs best in Massachusetts.”

    Yellow Pages advertising is used in all markets. Television, radio, and outdoor advertising have been employed to build brand awareness.

    Top Quality, Top Brands

    As for the reasons behind KHES’s success in the replacement/add-on business, Harris remarked, “We install quality equipment from nationally known manufacturers and we pride ourselves on doing the job right the first time.” And he again stressed, “We offer a one-stop, reliable solution for the installation and service of indoor/outdoor heating and cooling as well as IAQ equipment.”

    He related, “We are not the low-cost provider in our market; our sales force stresses value instead of price. KHES is large enough to provide a wide array of solutions and still small enough to consistently provide customers with personalized service that results in high customer satisfaction ratings as measured on an ongoing basis through third-party research firms.”

    Another benefit offered is “affordable financing alternatives.” And to ensure top-notch customer service, Harris said, “Our call center representatives, sales force, and technicians are highly skilled due to continuous training.”

    More attention to higher efficiency and indoor air quality are two trends that Harris sees. “Each year, we are selling and installing more and more high-efficiency equipment. In addition, we have found that homeowners are also more interested in IAQ products such as programmable thermostats, humidifiers, air cleaners, and air purifiers.”

    He commented, “We think that the replacement/add-on market will continue to grow and that KHES is poised to take advantage of the opportunity.”

    Jordy Tessler (left), president, and Ron Schuman, vice president, of American Home Maintenance.

    Impressive Growth

    Heading American Home Maintenance Inc. are owners Jordy Tessler, president, and Ron Schuman, vice president. The company had total sales in 2002 of $15 million, of which 99 percent ($14.85 million) was residential. Of the $14.85 million of residential work, 85 percent was replacement/add-on business.

    “Over the past 10 years we have never grown less than 25 percent annually and are on pace for 50 percent growth — over $20 million — in 2003,” said Schuman.

    The company was started in 1993 in Mesa, Ariz. It expanded to Tucson, Ariz., in 1998, Dallas/Fort Worth in 2000, Las Vegas in 2003, and has just opened a Chicago office.

    “We currently employ approximately 325 people and expect to reach 500 by May 2004,” said Schuman.

    The firm’s territory includes Casa Grande, Phoenix, and Tucson, Ariz.; Arlington, Dallas, and Fort Worth, Texas; Las Vegas; and the Chicago suburbs. Expansion plans include moving into Florida as well as Atlanta, Milwaukee, and St. Louis.

    At American Home Maintenance, service contracts likewise help the firm’s replacement/add-on business. “Our replacement division has always been strong due primarily to our 60,000 maintenance program customers,” stated Schuman. “We offer these customers discounts on new systems and offer additional specials during our off-peak seasons.”

    Schuman credits his company’s switch to Trane systems for boosting replacement/add-on sales. “After years of installing middle-of-the-road systems, we realized we were not getting the customer satisfaction and referrals we were looking for. We truly wanted our customers to ‘feel the difference’ and this is why we started to offer Trane,” he said. “Trane may cost a little more, but after three years with Trane we have yet to find a customer who said they wished they invested in a cheaper unit.”

    Schuman also noted that over the past year the firm’s replacement division “has skyrocketed with our participation in the Trane/Home Depot program. Home Depot has enabled us to showcase our company and products to 30,000 patrons per week at each one of our Home Depot locations. The program makes it easier to enter new markets when everyone knows Home Depot guarantees satisfaction with all their products and services.”

    He said the program only accepts quality contractors.

    “Home Depot performs extensive background checks on all employees, requires mandatory training, ensures the contractor has proper insurance and workmen’s comp, and even conducts surveys to confirm the customer’s satisfaction,” said Schuman.

    To build the replacement/add-on business, he said, “We go overboard on the quality of our installation. We pay the highest hourly rates to find the best and most experienced installers. It only takes a small oversight to cause a 19 SEER system to run like a 12 SEER. Therefore, we have NATE-certified field supervisors inspect every one of our installations. We also include a maintenance program with every new installation, enabling us to monitor the efficiency of the new system in both heating and cooling mode over its first year of operation. All this may cost a little more, but it surely pays off in the long run.”

    With regard to marketing, Schuman commented that “Marketing is actually very inexpensive if you’re able to maintain a relationship with your customers. The average customer spends over $5,000 in a 10-year period on HVAC repairs and replacement. If it costs you $200 to find the customer and you received $5,000 over the next 10 years, you will make a nice living. If you only service this customer once or twice, you’re not going to be successful.”

    Specific methods that the company uses include “a referral rewards program that lets our customers accrue points redeemable for merchandise such as electronic air filters, programmable thermostats, and even new systems,” he said. “We use yard signs on our installations and network with contractors in other industries like plumbers, pool builders, alarm companies, and roofers. We use direct mail when it offers the most bang for the buck.”

    A KeySpan Home Energy Services installer hooks up a central air system.
    “Our techs’ and management team’s commitment to customer service is the key to our success,” stated Schuman. “They are truly dedicated to their profession and trained to take the time to educate our customers in laymen’s terms about their air conditioning and heating systems. Customers make bad decisions because our industry does a bad job of educating them. Education is the key, but before we can teach our customers, we must first educate ourselves.”

    His tips to fellow contractors trying to build their business include, “Be unique, don’t prejudge customers, improve training, share increased profits with employees, offer more value to consumers, improve quality, provide solutions not excuses, and treat your customers and employees like gold.”

    Looking to the future, Schuman believes the replacement/add-on market “is truly untapped and good contractors should capitalize on an industry full of contractors reluctant to change with the times. Our industry is lacking quality technicians with the ability to converse clearly with consumers. How do we improve on the quality of our technicians? Raise prices so you can afford to raise salaries,” he asserted. “Customers are willing to pay more for higher quality service.”

    Publication date: 09/08/2003