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Entering the Appliance Repair BusinessGordon Canning

Fortnightly Magazine - February 1 1995

customer retention. Utilities with repair-only plans have noted a high dropout rate among customers who have not required service for two or three years. On the other hand, repair service is more profitable since repair is required for only a portion of customers. It operates like an insurance product providing an underwriting profit.

Other types of equipment are ripe for inclusion repair service. Central air conditioning-a major homeowner concern-is a natural. It offers summer business to balance winter space heating repairs. Any other equipment in the home-electric or gas-can certainly be included.

Price sensitivity is also important. The typical utility plan that sells heating and water heating coverage for $50 to $60 per year appeals to a large market; on the other hand, a program priced at over $100, which might include a preseason preventive maintenance call, will prove more difficult to sell but offers higher profit potential. Price sensitivity varies by segment. Senior citizens with modest incomes will value a repair service that eliminates worry. They represent the most productive market segment for the $50 to $60 program, but may be less willing to buy a higher-priced contract.Marketing

When all is said and done, marketing and associated costs will play the most critical role in the appliance service business. The product is complex and requires a direct appeal to thousands of potential buyers. Accordingly, marketing costs can run as high as $70 during the first few years and even $20 to $30 in a mature program. For a product priced at $50 or even $100, such marketing costs are substantial.

Direct mail, bill inserts, newspaper inserts, and telemarketing offer the most productive marketing options. But while they might appear straightforward, in reality they require skill and experience to use well. Small differences in wording, timing, and selection of the target group can translate into large differences in response rates and cost per sale. Further, an effective marketing program may include several supporting media and an inbound phone response capability. All of this must be managed for best response and lowest cost.Operations

Managing the business operations can be complex. Each repair represents a distinct, unique transaction. Each completed repair can differ in many categories: cause of failure, age, type, manufacturer, model of equipment, and so on. As a result, discharging the repair obligation in an effective and efficient manner requires a versatile and skilled workforce, full inventory of parts and equipment, close accountability, and a strong quality assurance.

Appliance service is also seasonal. The workload peaks after the first cold snap in October, while April and May are quiet. Using permanent staff to meet the peak is not feasible; operations management must have complementary work or a supplemental workforce to balance workload. Appliance service employees often use utility maintenance work to balance peaks. Subcontracting to specialists in heating, ventilation, and air conditioning (HVAC) systems can help avoid staffing problems.Partnership Arrangements

By partnering with private contractors utilities can maximize intangible benefits from entering the appliance business. First, such ventures can speed entry into the business by leveraging an inplace skilled workforce at low