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Readers Comments
"I found your Industry Observations very interesting and I think you have done a great service to the industry by putting together this presentation"
Larry Drake, Executive Director, Radiant Panel Association
"Keep up the great work! You are doing a great job for the industry."
Ralph Suppa, President and General Manager, CIPH

"...your article concerning trends is spot-on."
Paul Pollets, Founder of Advanced Radiant Technology, L.L.C.

"Good stuff. This business of constantly re-inventing the wheel and this fast paced introduction of new products is driving us backwards. Only the very small number of us that can function on the cutting edge benefit."
Tim Doran, President of Radiant Heat Warm Floors
"Great article - very interesting."
Jason Bourque
Program Manager
Canadian Institute of Plumbing and Heating

Consumer Spending on HVAC Relative to Other Industries

Click above image to enlarge.
Conclusions:
Adding more innovative products like high technology controls, boilers, circulators, valves and actuators has had essentially zero effect on growing the hydronics business relative to other forms of heating.
See U.S. Census Stats.

North Americans have been spending more money on their outdoor living than on improving their indoor living conditions during a time of unprecedented new product launches and innovations in HVAC equipment.
Results: it has created a swapping out of the old for the new without increasing the consumer demand for the product and services of the industry.
The long term effect of this activity is a continuous accumulation of different and changing parts inside residential homes.
At the current trend of adding more with less skilled labor, there is a major challenge brewing for consumers who own these systems and the shrinking supply of service technicians in the future who must fix them.
More manufacturers in a limited market aggressively increases the competitive nature which dilutes the established manufactures share of the market share forcing greater pressures on profit margins and staff turnovers.
This becomes very challenging when building permits are trending down and supply of skilled labor is low. When building is booming it invites more manufacturers and creates more start ups without increasing the consumer demand for the product and services of the industry.
More associations dilute volunteer hours and financial contributions making each less effective at representing the same base of members. As Peter Drucker emphasized in his last book before he died, the future will lay with those who can collaborate. We are seeing collaboration examples amongst ASHRAE, AIA, USGBC, BOMA et al.

See: Example 1, Example 2, Example 3

The follies of divide & conquer strategies in a modern world.
Divide and conquer does not and will not work when industry sales dollars are a fixed ratio dependant on the number of building permits. Show below is an illustration of the ratio of hydronic /steam system to all heating systems in single family homes for the year shown. Our message is; when building permits are up, so goes sales, so never never confuse sales growth with growth in market share because; when building permits drop without an increase in mark share so goes the sales of hydronic systems.

Divide and conquer does not work when the underlying long term strategy by government is towards net zero energy...i.e. no need for heating equipment.
Divide and conquer definitely doesn't work when forecast for housing starts is a continuing decline. See Image. See also CMHC housing forecast.

See what we consider to be the correct strategy for the HVAC industry.
Message to industry executives, and business leaders.
Our full day workshop takes your team of decision makers, public relations, marketing and sales associates through a process of examining the content we discuss on this page, plus the Tower of Babble, Human Factor Design and How Much Does it Cost?
It's a lot of fun and we guarantee you will show up the next day at your offices with an objective to reevaluate your business and the industry you are in.
You'll have a number of new strategies to help grow the industry in a collaborative environment.
Simple email us your contact info with the subject line:
RB, tell me more.

Robert's Industry Observations, Part I:
Copyright (c) 2007 Robert Bean, All Rights Reserved
Reprint this article, permission@healthyheating.com

It helps to stand back and ask, "Is what the hydronics industry doing - working and appropriate given the decline in skilled labor and shifting demographics and economics?" For over 10 years Robert and his colleagues have addressed these issues and summarizes them for you below.

People who read this page also visited:
Robert's Industry Observations, Part II
Robert's Industry Observations, Part III
Tower of Babble, Human Factor Design
How Much Does it Cost?

Industry Trends: Linearized

Consideration for Data Errors. Since there is always a margin of error in statistics, one has to ask, even if the error in any measurable element is a generous 20% over a 45 year period does it change the message?

We say no.

What is the message in a very general, macro, nominalized observation?

Our first message is despite the introductions of new products, new companies and new associations (targeted to a shrinking membership base), the long term trend in market share for hydronic systems has remained flat since 1973. See image below.

Our second message is very sobering...industry must conclude that strategies executed during unprecedented rising tides failed to increase market share...using the same strategies in falling tides will essentially deliver similar perhaps worse results. See image below. Data Source: NAHB

Our third message states the general population up to this point, evidently doesn't value innovative components and systems regardless of their features and benefits. If product launches and innovations mattered to the consumer, there would have been some growth in market share over the past 30 years BUT statistically the market for hydronic heating is shrinking not growing. See image below. Data Source U.S. Census

Our fourth message offers a glimmer of hope - when owner/builders become educated in the features and benefits of hydronic systems (not the components) the percentage of hydronic systems rises significantly. See Image below. Data Source U.S. Census

Other Messages:

The growing number of product SKU's from a growing number of manufacturers has created an inventory management challenge of the grandest scale, particularly for those employed in the heating departments at the distribution level.
Consolidating or restricting suppliers increase the competitive nature often resulting in a decision by those on the outside to lower their prices and thus the industry benchmark.
In the world of PEX pipe for example, one would think it should sell for the same or more than copper due to its features and benefits. Even selling it for marginally less than copper could be understood, but it is selling in some regions for 85% less than copper, the next choice.
Presuming those manufacturers are profitable at such low levels (why else would they be in business) then how profitable would they be selling for more? So instead of being a mediocre businesses they could be a stellar business. Hard to be a leader when you're direction is to the bottom.
The huge margin between PEX and copper is lost profit - can never be recovered, returned to shareholders and reinvested back into the industry through better salaries and marketing initiatives to drive demand.
Increasing margins during declines in demands is extremely tough to do especially when there have been a number of recent capital expenditures in manufacturing which must be paid for through profits. Cash flow decisions will force some extended manufacturers to lower prices to move inventory. This will put further pressures on market pricing.
Rather than redefining who the competitors are and looking at how to grow the over all market for existing goods and services, some competitors will aggressively launch more products including line extensions to sway business from immediate 'traditional' competitors.
More products means more training which means training in of itself has become a product and thus a competitive element in industry.
More training during a decline in skilled labor results in numerous stresses throughout the industry including pressure on financial resources, business productivity and profitability.
Training is a good thing and vital to the industry, however, it must be understood that unless the available skilled labor trend is reversed (highly unlikely) industry is training less and less people to be better at servicing essentially a non-growth industry.
One would think more competence would help create more demands but in the case of hydronics, training has not influenced the trend in market share. This means it is a defensive strategy to prevent poor installations (an absolute necessity) as opposed to being an offensive strategy to grow market share. See plotted Canadian and US Census Data below.

Other defensive strategies include price cutting, incentives or anything that has a win-lose metric.
An industry operating collectively in a defensive mode, protecting the denominator can't grow unless it focuses on the numerator. This is never more true than in a downturn. See Trend in Housing Starts Image.

Diluting support for existing manufacturers to accommodate new manufacturers and distributors in a limited market makes it less profitable resulting in a weaker and unstable industry - "too many dogs chasing too few bones."
Distributors in general have used pricing pressure to keep out new entities or to contain customer erosion. This is true for those businesses who sell hydronics as a peripheral part of their operations. This practice has edged the pricing benchmark downward for many hydronic components including those requiring a high level of technical support.
The increase in every thing but collaborative efforts to grow the demand is evident in the statistics which reveal; more products, manufacturers and associations has not improved the demand for an industries offering. In fact, over the long term it may have a detrimental effect. See image below.

There are several combinations of solutions to reverse the trends. One of the key components is making hydronics simpler and more affordable to the masses through standardization. This is not the same approach of being competitive by lowering prices of labor and materials used in onsite fabricated systems.
Educate manufacturers and importers considering entering the North American market that R.O.I.'s won't match returns availed through other means.
Trying to take share from well established players in a non growth cyclical industry will become a financially draining endeavor and does nothing to grow the market. It's like fishing for profits in restricted waters without putting the catch back. We call it a drive by or hit and run - very destructive business behavior.

There is one way to fund the changes. Industry is already committed to spend its public relations, marketing and sales budgets with or without changes in strategies - as it has since 1973 knowing that there has been no change in mark share. So money is not the issue. It will be spent.
What are some of the other key issues?
Consumer perception and spending priorties.
Does this image and text below from Volkswagen trigger any ideas? Volkswagen named one of Women's Wear Daily's Top 12 Most Respected Generation Y brands"

Key words: Clean, Simple, Affordable Image copyright (c) 2007, Volkswagen of America Inc.

Here's an excerpt from the JUne 07, New York Times in an article titled, "To Appeal to Women, Too, Gadgets Go Beyond ‘Cute’ and ‘Pink’...."Her basic feelings about consumer technology did not change. What changed was the design of the products. They were easy to use and that appealed to her." HVAC is most definitely a consumer product - message for industry - it has to be EASY TO USE.
What we see is excessive navel gazing through constant experimentation with site assembled products and systems instead of executing global collaborative public relations, marketing and sales strategies around easy to understand and easy to use standardized products.
Labels for Industry Personnel. Framers and cribbers aren't called cabinet makers but they are in the carpentry category. Why do we call those technicians who take responsibility for indoor environmental quality plumbers or sheet metal fabricators? Wrong terms with incorrect consumer perceptions. See teca website. When industry creates and markets a new category, respect for the skills allows for differentiation.
Labels for the system - Parents and kids can tell you what "Phonics" is, but "Hydronics"....what the heck is that?
Consumer trust in general with construction trades and developers. Out of habit the industry relies on those professions consumers distrust the most to deliver its messages. See Readers Digest Poll and AIA Survey.

Does this image below from the Minnesota Medical Association trigger any ideas? Have you ever asked a doctor to recommend a heating system? Why not get a healthcare professional to define it. People trust what they have to say. An industry based on the skills to assemble parts is valued completely differently than one which is valued on how it influences human physiology and psychology. Yet HVAC is all about conditioning the body as ASHRAE et al recognize. Outside of the world of academia we teach how to assemble parts but we don't teach why.

Here's what we teach in the field...notice it's all about the "how". We need to start teaching the reasons for our existence if we want to change consumers perception of the industry and its personnel.

It is time industry evaluated price, value, benefits, and consumer priorities. See Volkswagen above...less than $17,000 for a mobile HVAC system with a 4 year warranty / 5 years on the power train...compare that to a customized onsite fabricated HVAC system which consumers describe as a science experiment gone bad.
Shifting demographics - see below, what we consider to be the opportunity of a lifetime:

Ask, "is industry willing to collectively direct investment at strategies developed and executed for broad sweeping changes?"
Ask, "is industry willing to form a collective vision with tolerance for risk by effective industry leadership?"

see Robert's Industry Observations, Part II

Ask, "why does the very consumer/client who would benefit greatly from the industry offering, ignore it for other solutions of lesser quality and less effectiveness or on other items like moving, pet care, anti aging creams and lotions or outdoor living?

Our strategic planning business has solutions to these challenges.

Contact us for details on full day workshops.

403.255.0121

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