The U.S. residential HVAC replacement market is massive, estimated to be over $30 billion per year. However, the industry today faces a number of difficult challenges.
Post covid inventory shortages, rising equipment costs, political and economic uncertainties, and manpower shortages are impacting contractor’s businesses significantly. But perhaps the biggest challenge contractors face today is, the manufacturer’s desire to go direct to consumer by cutting them out of the consumer sales process all together. Disintermediation.
Disintermediation is the process of removing the middleman or intermediary from future transactions. Instead of going through traditional channels such as a dealer or contractor, manufacturers serve consumers directly.
Contractors have historically benefited by providing manufacturing partners with fulfillment services and the ability to reach a large set of customers through their capital-intensive development of their own customer base . Now, contractors are being actively disintermediated by the manufacturers they have represented for years.
Given the sophistication of today’s buyers, serving customers across all geographies is a very expensive proposition for manufacturers. As such, many apply data-driven information provided by the largest SaaS companies based on size, growth potential, and cost to serve priority buyers.
Through such advanced data driven techniques, manufacturers can partially disintermediate contractors by taking a new and more direct approach to sales and installation.
Manufacturers are focused on determining which customers and products to serve direct, and which to deliver through other distribution channels, such as their dealer networks.
This partial disintermediation allows manufacturers to select those products and value-added activities that are most profitable based on their growth strategy and deliver them in a direct to consumer model.
Direct to consumer models on certain products not only help the manufacturer achieve their sales goals on initiative products, but they are also able to increase their own margins by as much as 30%, leaving lower margined, less desirable products available to the legacy sales model.
Given the current competitive and technology advantages of manufacturers, here are three ways that residential contracting companies can continue to strategically drive growth.
- Prioritize digital transformation. Consumers expect omnichannel experiences (website, mobile), easy access to product information, and online ordering. Contractors investing in digital strategies are accelerating sales growth, expanding customer reach, and improving customer retention.
- Focus on Operational Cost reduction. Lower margins while increasing earnings. This is not an option, it is essential.
- Act Now. Align with solution providers to begin the digital transformation of the company.