Selling The Middle Ground

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The middle class — the income bracket pest control companies generally consider their “sweet spot” — is shrinking. How important is the middle class when it comes to pest control sales? PCT investigates.

March 8, 2016
Kristen Hampshire

The middle class is gradually evaporating. The population of families with the two kids, two cars and two jobs is changing — there’s less money to spend. At least that’s what Pew Research tells us in reports like its 2015 study that states, “The American middle class is losing ground.” After four decades of being the country’s economic majority, the middle class is now outnumbered by those in income brackets above and below the “middle.”

This is good and bad news, depending on how you cut it. That means that more households are gaining financial footing. And it also means that more families are focused on buying the basics because there’s less to go around.

In 2015, 120.8 million adults were middle-income. There were 121.3 million lower- and upper-income households combined. Pew reports that middle-income Americans have fallen behind financially in the new century, with a median income in 2014 that was 4 percent less than in 2000. The housing market crash and recession didn’t help this group.

But does that mean that the typical sweet spot pest control customer — that $75,000-plus household — is backing off on pest control services? Are pest control companies feeling a lag that aligns with national statistics showing that their target audience is declining?

Not exactly.

The target pest control customer is not necessarily defined by class. “We think a person’s psychographic profile is driving who is the sweet spot, specifically a person’s tolerance to pests in the home,” says Cam Glover, managing director of marketing for Rollins.

At Terminix, the profile of a prospect is an “active” customer who wants bugs to be gone — a do-it-for-me homeowner and someone who values professional service (and can afford it). “We are looking at the changing demographic of our consumers as more of an opportunity than a threat,” says Chip Colonna, vice president, product management.

So the typical pest control customer is still there — a 35- to 55-year old consumer who owns a home. But there is an influx of new adults hitting the market. They’re called Millennials, they’re 94 million strong and they possess all of the ideal qualities pest control companies target. (The catch is the way they must be marketed to — and that’s where the adaptation for pest control companies comes in, points out Cindy Mannes, executive director, Professional Pe

st Management Alliance.) The middle class statistics are real. Pew paints a rather partly cloudy picture of this once dominant population. But what will continue to impact the pest control customer base is not really about where a household falls on the national income ladder. It is all about geography, pest tolerance, perceived value of the service and the ability to communicate in an instant. (“Thanks to the advent of technology, for most consumers the cell phone is the remote control for their lives,” Colonna points out.)

Considering Pew and other research analysts’ reports about the middle class, PCT magazine wanted to know: What does it all really matter?

Here’s what we learned about what middle class means, who pest control companies’ target customers are today, and what opportunities businesses can find if they evolve and market smartly.

WHO IS THE MIDDLE CLASS? So what does middle class mean exactly? That depends on whom you ask, and whether you’re talking about household income or lifestyle. Some experts limit middle class to those in the middle-fifth of the nation’s income span. Others define middle class by chopping off the upper and lower 20 percent of that income ladder and calling everything in between middle class.

Pew Research Center defines middle class as two-thirds to two times the national median income based on household size. So, that number can range from $46,960 to $140,900 in household income, depending on how many people make up a family unit.

Beyond household income is the way people spend: consumption. The thought is that if you’re spending more, that’s a reflection of your financial health. So tally up the annual total spent on food, transportation, entertainment, housing and miscellaneous items. That middle-fifth shells out $38,200 to $49,900 annually for cost of living, according to Notre Dame professor James X. Sullivan.

There’s a middle-class lifestyle that some will say defines who is and who isn’t. For instance, those aspiring to live in a nice home, drive a car and take a family vacation might consider themselves middle class. This is an “aspirational” way of looking at the middle class, Pew reports. For example, when President Obama took office he created a task force to raise the standards of living and this task force had to define what middle class means. They looked at these life goals as benchmarks of what constitutes the middle class.

Hill says, “I’m an economist, so at the end of the day it’s about what you can afford.”

A 2015 Nielson Study looked at the fact that middle class isn’t necessarily about income, it’s a state of mind. “What is interesting is that the 58 percent that reported ‘living comfortably’ and 10 percent ‘free spenders’ were across all classes,” Glover points out. (The remaining 32 percent in this research said they could only afford the basics.)

So middle class is possibly not just about income. It’s how you feel about the money, and your cost of living — where the money’s going. That’s where geography comes into play. How much does it cost to “do the basics” in your community?

“That definition of middle class, I guess it’s a placeholder,” Colonna says. “But there are other things (impacting our pest control sales) that are much more important than how much money a consumer makes.”

Geography makes all the difference, Mannes says.

“There are statistics that support a declining middle class and I’m sure there are more poor people than wealthy people — but middle class in Cincinnati, Ohio, looks different than in San Francisco, Calif.,” Mannes says.

“What is critical these days is really knowing where you live and paying attention to the demographics in your community,” she adds.

Economist Ned Hill, professor of public affairs at The Ohio State University, agrees that the cost of living in different areas of the country will impact the number of middle class families there. “I believe the middle income market is stronger in places where housing costs have not escalated as much, and also in places that are a little less dense,” he says.

“The real issue is just what fraction of your disposable income is taken up by housing costs,” Hill continues. “So if you are in business, you have to make certain that you don’t pay attention to national numbers — you have to figure out what those numbers mean in your market.”

Pest control trends analyses by PPMA identify $75,000-plus as the average income level of pest control customers in a nationwide sample. But in some regions such as the Southeast, the average pest control customer might be a $50,000 household with lots of pest pressure. That same community also might have a lower cost of living than another region like the Northeast. “Pest control is ‘affordable’ based on where you live,” Mannes says.

The numbers showing a shrinking middle class are indisputable, Mannes says. But the numbers don’t tell the whole story.

“The approach for (selling) pest control might be slightly different in looking at the demographics of who is in your area and targeting those demographics — and recognizing that those might be changing,” Mannes says.

“We are looking at the changing demographic of our consumers as more of an opportunity than a threat.” — Chip Colonna, Terminix, vice president, product management.

Mannes is talking about the growing population of 70-plus year olds who are choosing (if possible) to stay in their homes longer. And, there’s the 94 million Millennials who will represent a real opportunity for pest control companies as they purchase their own homes, continue climbing in their careers and spend differently than their parents did. (“They are the do-it-for-me’s” that value services, Colonna points out.)

So what pest control firms need to focus on is not the fact that reports reveal a shrinking middle class. But rather, there will be a growing opportunity to sell pest control services to customers who will buy no matter their income. For example, if you’ve got bugs, you’ll fork over some spending money to take care of the problem rather than take those dollars to the local retailer.

“No matter what class you are in, any time you make a purchase of a product or service, you are making a trade off and there’s something you don’t buy as a result of that (decision),” Glover says. Pest control purchases “depend on tolerance.”

From a grand consumer spending perspective, Hill points out that spending is happening on the budget end (left) and the concierge end (right). He points to grocers as an example.

“There is growth in low-end, big-box, generic commodity food stores,” Hill says. “At the other end you have another type of food industry that is a mixture of convenience, entertainment and style. I call it food-tainment. The traditional mass-market firm in the middle has gotten hammered.”

Market protection for businesses in the middle will come from establishing internal cost controls, and focusing on quality. “Folks are out there on Yelp and Angie’s List…what is important (for businesses) is addressing how they get rated for promptness, courtesy and quality,” Hill says.

CONTROL AT ANY COST. Geography influences the definition of middle class. It plays a significant role in whether pest pressure is so great that the service is a priority. And location also dictates the cost of pest control services — which circles back to the issue of middle class and whether they’re still buying. The industry professionals PCT talked to said, absolutely.

“We find that what pest control companies charge in the Southeast is actually less than what they would charge in the Midwest,” said Gary Curl, president of Specialty Consultants. Route density is, perhaps, one reason. “A pest control company could service every third house in a community in the Southeast, which means they have less windshield time.”

So, those high-volume, tightly route pest control firms can be more price competitive in the residential market, Curl relates. On the commercial end, it’s different. He notices based on his firm’s research that the average cost of commercial pest control in the Southeast is more than in areas of the country with less pest pressure. “We believe that’s because when you get into a commercial account in the South, you have a lot more work to do there,” Curl says.

With any product or service, consumers make choices. Those buying decisions are impacted by variables: How much does housing cost in your region? What’s the price at the pump? Are there lots of pests around? “What is critical is knowing where you live,” Mannes says.

The middle class statistics reported by Pew and others are not evident in sales or retention at Hoban Pest Control in Avon Lake, Ohio, which services the Cleveland suburbs. President Dave Hoban’s customer base hasn’t changed at all over the years in spite of the economy or the “diminishing” middle class. What his residential customers have in common is this: They mostly live in suburban neighborhoods, are considered “upper middle class” and they’re loyal. Oh, and they don’t want pests around either.

“We are not seeing an influx of cancellations or any change with recurring services,” Hoban reports, noting that his business is actually growing from referrals and he has cut his company’s advertising spend.

“There are no changes to be honest,” Hoban confirms.

Of course, Pew is reporting on middle-class income — not how these households feel about pests moving in. And pest pressure/tolerance is a big factor in the buying decision and why homeowners perhaps will sacrifice another service (lawn mowing) to keep their pest control service online, according to the professionals PCT spoke to for this story.

“We are looking for the customer who is proactive — who values their home and their families and is willing to invest in some type of protection,” Colonna says.

While the middle class may be shrinking, the prospect pool for pest control companies could actually be growing. That’s especially true for companies that are stretching their service boundaries. For example, Terminix introduced an exclusion service to manage wildlife in consumers’ attics. It also provides mosquito control for the outdoors.

“When people are trying to protect their homes against outside threats, that goes beyond the boundaries of the foundation of a house and includes everything from the driveway to the back fence,” Colonna says. “So, that has caused us to take a look at what we can do to help eliminate specific pest control threats to the consumer.”

The market for pest control could be getting bigger if you’re a business that’s looking beyond traditional services. Evolving as an operation will be critical for capturing those proactive customers.

This speaks to helping consumers protect their greatest asset: their homes. We buy car insurance that’s a larger percentage of the overall value of a vehicle compared to what termite services cost relative to the total cost of a home, Colonna points out. “If a customer recognizes that termites are a threat against the largest investment they’ve ever made, they are more willing to take a part of their incomes to protect their homes against that threat,” he says.

NEW OPPORTUNITY. The middle class decline has been a gradual one, though the recession in 2007 to 2009 did trigger a faster deflation among households qualifying as middle-income, mostly because this population’s greatest asset is generally real estate.

Incomes have been stagnant. According to a New York Times editorial addressing “Why Americans still Think the Economy Is Terrible,” the 2014 census numbers on U.S. incomes is “not statistically different.”

In a way, pest control growth has the same flavor. This has never been a boom industry with steep growth spurts on record — the kind of skyrocketing market ascent that IT businesses might experience.

And, “the who” concerning target pest control customer just hasn’t changed that much over the years. They’re still homeowners, still usually in that 35 to 55 age group, still making about $75,000 per year per family. “The new model (to succeed) is similar to the old model: continue to offer value that is equal to or greater than the price the customer is paying for the service,” Rollins’ Glover says.

But there’s a lot different about the potential customer universe for pest control services now, Mannes points out.

It’s all about opportunity.

“This is the first time in history we are dealing with four generations (of customers),” Mannes points out.

There are The Matures (70-plus years old), The Baby Boomers, Gen-Xers and Millennials. “This is a huge opportunity for us, but their buying habits are very different so it’s also a challenge,” Mannes says, relating that pest control companies that are slow to adopt to the digital age could miss out on this population’s business. For pest control companies, the fact that the middle class is not getting larger paychecks and statistically has less money to spend might not have anything to do with whether they sign on for service. Because if a home has a pest control problem, there’s always going to be a population of buyers in all classes that want the issue solved.

“If you are a homeowner, the chances are you are a pretty good target for (our business),” Colonna says, adding, “We are not looking at just household income.”

Again, it’s those other attributes (perceived value, home protection) that add up to sale. Income is just a slice of that, and not enough to take a bite out of pest control companies’ revenues from what we’re finding. Glover comments: “I don’t think how we have had to adapt has been as dramatic as the news and research would show.”

Glover is speaking about retaining business in a tough economy — “I would argue that pest control is a unique category,” he says.

Turning on a fresh marketing switch to appeal to progressive customers in the digital age is a different story. And, the way we consume information has nothing to do with class and everything to do with wanting results in an instant. That, more than anything, will impact the way pest control companies do business today — and tomorrow. Colonna says, “The Millennials having that attribute of wanting someone to ‘do it for me’ is a benefit.”

The author is a frequent contributor to PCT magazine. Email her at khampshire@gie.net.