[My Biggest Mistake] Not Adjusting to Customers’ New Reality

My dad came back from a conference in the early ’90s ready to try a bold new concept. He had met industry great Chuck Steinmetz at the event, and was impressed with the trailblazing once-a-year pest management program Chuck had in place at his company in Florida. Why couldn’t we sell a once-a-year program to our customers in Maryland, Delaware, New Jersey, Northern Virginia and southeastern Pennsylvania, he wondered.

He was so intrigued by the concept that he convinced my brother, Nam, and me that we should fly three people from our company to Florida to watch the service being performed on site by Chuck’s team. We adopted and then adapted the program, switching our quarterly program to the once-a-year format for our clients here in the Northeast.

The program, which we named “Guard All,” took off in a major way. Homeowners felt a sense of security in knowing their pest control needs were taken care of for the entire year, with follow-up visits and recalls covered by the annual fee. Pest management required fewer scheduled calls, too, due to the intensity of our initial treatment. (Our three- to four-hour visit went far beyond previous measures of spraying the home’s perimeter and doing spot treatments. It would include measures such as removing electrical wall plates, injecting wall voids, sealing and caulking, and using longer-lasting materials like boric acid and diatomaceous earth. We followed this visit up with a six-month outdoor treatment.)

By the end of year one, we had not only grown this new segment but also educated consumers to the point that they were asking our competitors if they carried a “Guard All” program. Customer acceptance was reflected in our revenues. In the spring, when our services were in high demand, we doubled revenues over previous years, in part because we were collecting up front and in part because we were charging more for this premium service. Our revenues and profits grew steadily until 2006. That’s when the program that had been our cash cow for more than a decade suddenly became a cash drain.

Selling program renewals became increasingly difficult. Our retention rate dropped to 50 percent, and our cash flow was dwindling. We didn’t know why. Instead of looking to external forces — i.e., the economic downturn and resultant household budget tightening — we assumed it was a quality issue. We doubled down on our quality, paying attention to every detail from service to follow-up communication with customers. Still, no uptick in business.

It took us until 2008 to identify the root cause of our problem: Our once-a-year program was out of step with economic conditions. Faced with decisions like: Are you going to pay your mortgage or your exterminator?, homeowners simply weren’t willing, or in many cases able, to make the annual up-front payment. We were offering premium quality, but it came at a premium price; given the new financial environment, our customers weren’t thinking “premium” anything anymore. They wanted — needed — more flexible terms, and they were finding them with pest management companies who were offering special deals and discounts. We couldn’t even think of approaching a customer with our $750 annual price tag when they could use another company’s Groupon and get a treatment for $75.

We had a strategic planning session and realized we needed to focus on generating recurring revenues. We decided to switch to bi-monthly frequency and strengthen our sales effort on the commercial side. It took us two years to change our business model. I liken it to any company that has moved from termite baiting to liquid: When you’ve been doing things a certain way for decades, it’s tough to shift on a dime. For years we had been telling customers that once a year was best; suddenly we needed to change our message and assure them that every other month was ideal.

Still, we succeeded in transitioning to the new business model. We’ve doubled in size since 2006, and shifted from a 90/10 residential-to-commercial split to 65/35. Our past three years have been very strong; in fact, we plan to add five new routes in 2014 and open a new branch in southern Pennsylvania. We’re happy with our growth, but we know that it could have been much greater if we had been better tuned in to the economic environment back in 2006. It’s not a mistake we’ll make again! Today we closely monitor not only our customers’ needs but also their financial situation. And we are diligent in providing them with the level of service they need at the price they can afford.

As told to PCT contributing writer Donna DeFranco.

Share Your Story
Do you have a story about a mistake you or your company made, and how the lessons learned from that incident have ultimately helped you and your business? If you would like to share your story for a future “My Biggest Mistake” column, email PCT Editor Jodi Dorsch at jdorsch@giemedia.com.