Attacking manufacturers may not be the most effective response
On many contractor forums and message boards, there seems to be a lot of talk and anger being generated over Jim Abrams and Terry Nicholson’s new endeavor in the HVAC industry. If you’re not familiar with Jim Abrams, in the past, he has been responsible for the creation of CSG*, Service Experts, AirTime 500, One Hour Air, and Ben Franklin Plumbing in our industry. His newest endeavor is called ‘Praxis’, which revolves around an online consumer-direct sales component called ‘Price Fixer’. Much of what I’ve read has been centered around ‘Price Fixer’ and anger at manufacturers like Goodman because it is their equipment being offered through their online sales platform. Many contractors believe that Goodman should shut down the project and are threatening to boycott their products because of the online sales Praxis is doing.
From the comments and posts I’m reading, most of the people still are unclear about how Praxis and PriceFixer.com work. As far as the companies that are signing up for it go, other than a few of the old loyal CSG/AT-500 guys, many of the contractors I looked at in their directory are working out of their homes. From appearances, the program was meant for the guys who want to say they own their own business—but basically do it for a paycheck. These are the guys who start their own business without knowing that it involves getting customers, and once in business, end up believing price is the only way to do it.
Contrary to what some are suggesting, the problem with telling Goodman to shut down the model is that it is the very same distribution model that we all buy under. Unlike what some have been implying here, there is no national sales agreement between Goodman and PriceFixer helping them or giving them an advantage to sell their equipment online.
For most of their sales, PriceFixer uses the common wholesale distribution model where they only sell markets served by the contractors, who purchase the product locally and deliver it locally while at the same time trying to quote the purchaser installation as an add-on to the equipment.
Everyone seems to be up-in-arms about putting equipment pricing online, but how does this differ from the typical “3-Ton Air Conditioner Installed for $2,999” headline ads we all see in the newspaper every summer? These same ads get put online at the company’s website so what makes putting them on PriceFixer that different? Why is there greater concern about PriceFixer being any more successful or profitable using that type of marketing?
To the best of my knowledge, here’s a quick breakdown of the program everyone seems so excited about, why going after the manufacturer is not the solution, and why the PriceFixer part of the business model is extremely weak, if not downright shortsighted. If anyone sees something I’m not aware of, please feel free to correct me.
- Praxis was set up as a subscription-based training group where the contractors pay somewhere around $10K to join and a monthly subscription to remain a part of. This training is delivered online, so you be the judge of how effective it is. Because they have a fee-based training aspect as part of the program, it allows them to approach manufacturers like Goodman to qualify for dealer rebates no different than other training groups like SRT, NCI, or Nexstar. If you really want Goodman to do away with these types of programs, all these training groups would lose the benefit as well. Finally, as part of the sales hook to join the Praxis training organization, the members were told they would benefit from their new ‘Price Fixer’ component.
- In the areas Price Fixer has a contractor present, PriceFixer.com is nothing more than a price-sensitive localized lead generator, not much different than Home Advisor, Angie’s list, or the guy advertising an installed price in the newspaper. There is no national buying account through Goodman or anyone else to give participants better pricing in their marketplace—other than the preferred vendor rebates they get by belonging to the Praxis training group—just like the members of other training groups do. In Price Fixer, the pricing for the market being serviced is based on what the local company buys the product at, what they get for their share of the sale, and the commission Price Fixer makes off them for handling the sale—again, not much different than Amazon or Home Advisor does.
- In the areas where they do not have a contractor, Price Fixer will sell it and ship it to the homeowner using the same wholesale distribution model to which every contractor has access. Unfortunately, Price Fixer, as well as the 100 or so other contractors out there who have created equipment selling websites over the past few years, are using the wholesale distribution model to sell equipment from every manufacturer (not just Goodman) to anyone without any concern as to how it is installed. Please note that this problem is caused by contractors—not by the equipment manufacturers—and the contractor part is where the focus should be. I’ll touch on that later.
Hopefully, you can see from above that PriceFixer is not Goodman’s “master plan” to end contracting as we know it. It is simply a business model working within the existing distribution rules to make money from small contractors who are looking for a silver bullet to make them big contractors. However, here’s where I see the intrinsic faults of this type of business model…
- Everyone knows how difficult and expensive it can be to become a local brand, and becoming a national one is even more costly. Anyone familiar with the One-Hour/Ben Franklin saga knows that for all that was promised, most of the owners who bought in never felt that the national advertising required to become a brand ever materialized. Instead, the advertising fell back on the local guy who signed up, who was already giving a big chunk of his profit to the franchise. Others may have a different perspective, but there really isn’t a good track-record for anyone turning a service concept into a nationally known, top-of-mind, “customers ask for it by name” national brand in this industry.
- The problem I see in their plan is that if it proves to be successful, Praxis and Price Fixer would be their own first causality due to economics and incoming competition. The problem is that selling product online is not patentable, and it is too easy to write a system that any contractor could implement in their website to compete and sell equipment online in their marketplace should they prove it to be a viable lead source. Not that I have any intention now of doing so, but it would only take our company about 4-months to write and deploy a system that a contractor could use in their own market to do what Price-Fixer is doing—and at a fraction of what they are charging to become part of their Price Fixer network. Good local SEO by a contractor who already has trust with Google would easily beat national SEO in a local search. The point being that if we can do it, there are others who can do it as well. So, if they do prove that is a viable way to get good leads (the operative word being good), why would there be room for an expensive middleman like Praxis when their “Unique Local Selling Proposition” can be undercut so easily in every market they’re in by any software company coming in with a lower-priced subscription model?
My opinion of their business model aside, I personally do not believe in supporting any system that wants to commoditize contractors—be it Praxis, Google, Amazon, or Home Advisor. Supporting any of these models is a race to the bottom in price. Early adopters may make money at first but, unfortunately, by being one, you only validate the model which will then attract lower priced competition. Since the platform says, “It’s safe to deal with everyone in our system”, customers will all gravitate to other companies within the platform with lower prices—thus eventually cutting you out.
As for all the passionate responses about ‘taking a stand’ or ‘drawing the line’ against manufacturers whose equipment is being sold online, if going after the manufacturer is your battle cry, you might as well be trying to convince people that the Clinton Foundation was a worthwhile charity. Manufacturers are not the problem. The real villains here are not the manufacturers, but 100 or so contractors out there selling online and shipping it anywhere they can make a sale. What makes them villains is that the equipment they’re selling can be very dangerous if installed incorrectly by the homeowner. At least in the Price Fixer model, they are trying to get a contractor involved to install it correctly. If you want to fight anything regarding equipment sold online, its the contractors selling HVAC equipment without any care about its installation who we should be pointing our pitchforks and torches at.
The good news is that it also is potentially easy to solve if we can get our state associations and, through them your state legislature, behind it.
You see, most states are frustrated with the lost sales tax they forfeit with Interstate Internet sales and are powerless to do anything about it since it’s a federal issue. However, putting a simple law into effect regarding sales of HVAC equipment direct to consumers within their state is something that would not be a hard sale to get legislators to get on board with. The law would simply be that, “All consumer-direct equipment-only sales must be reported to local municipalities with code enforcement authority over the address to which the equipment is sold.”
States shouldn’t have a problem getting on board with this for the following reasons.
- HVAC equipment, once installed, is required to be inspected by law. This would just facilitate enforcement of existing law.
- There is a real potential for safety issues and potential mechanical code violations when a knowledgeable licensed contractor does not install the HVAC equipment.
- Permit fees are a local revenue-generating fee that can be controlled at the local level and policed easily with the seller required to supply the information as to whom and to where the equipment was shipped.
What legislator would balk at passing a bill that makes it mandatory that all consumer-direct sales of HVAC equipment within the state report the name and address of the purchaser of the equipment to the municipality responsible for local mechanical code enforcement? Punitive fines could be leveled against sellers for non-compliance. The local municipality receiving the information would then be able to make sure permits are pulled and safety is checked. It’s both a safety and revenue win for the state. Any state passing this type of law would not only protect the consumer by making sure that equipment installed by homeowners is inspected, it would discourage installations by ‘do-it-yourself’ homeowners, knowing that additional permit fees and inspection would be required.
However, the true beauty of such a law is that with all the local code-enforcing municipalities, it would make direct sales of HVAC equipment to consumers a complete bureaucratic nightmare. Compliance would be extremely burdensome for anyone wanting to legally sell equipment online into the states requiring such reporting. Although I’m not one to typically encourage additional regulation, I make an exception in this case because it would have no real effect on local contractors serving their local market, however, it does severely hamper contractors wanting to dump equipment in other contractors’ marketplaces.
Policing our own instead of going after Goodman or other manufacturers with torches and pitchforks would put a huge ‘hurt’ on the real villains who treat HVAC equipment as a commodity and sell it anywhere they can ship it without a care if it is being installed safely.
Just my thoughts on this topic. —dave
*In the interest of full disclosure, I was one of the early members of CSG and learned a lot from Jim Abrams back then.