Secret Site Map
Thursday, October 02, 2014

Home Magazine [Cover Story] Middle Class

[Cover Story] Middle Class

Features - Cover Story

Some residential customers need a helping hand as they are squeezed financially. How can your firm hang onto them in today’s challenging economy?

Kristen Hampshire | January 29, 2013

A few years ago, residential customers were calling Critter Control in Fort Lauderdale, Fla., to cut back or cancel services. These were middle-class customers — the “sweet spot” for PMPs and their businesses. But in addition to being the industry’s bread and butter for many years, they are also the squeezed, stressed and dwindling population that mainstream media has pushed on to the front page. They’re target customers for many pest control firms, and they’re feeling the burn.

A Pew Research Center study made headlines in 2012 when it showed a continuing decline of the population defined as middle class. That’s household incomes ranging from $39,000 to $118,000 and includes about 50 percent of adults in the United States. These are goods-and-services buying adults who have watched their discretionary income fade, and this emptying of the wallet has been going on for some time. Pew’s report is an update of a four-decade long study of the middle class’s share of income, says Rakesh Kochhar, a social economic researcher there.

Money’s tight. At least it was three years ago when Joe Felegi says his revenue stream began to choke. And the middle class is the target customer base for many pest control companies, Critter Control included. “They weren’t buying,” says Felegi, manager of the Fort Lauderdale location.

So Critter Control got creative and started financing services for customers — giving them payment terms so they could shell out the total bill over a six-month (and no longer) period rather than footing a hefty bill for a higher-dollar job all at once.

The plan worked. Customers didn’t want to forgo services, they just needed a hand. “We were noticing cash flow drop so fast that by offering payment terms, we were getting some type of revenue in vs. nothing,” Felegi says.

Some customers post-dated checks, others put a portion of the payment on a credit card. And now, those customers have bounced back and are buying without terms. Business is back to where it was four years ago, Felegi reports. He also believes his economy experienced the burst first and the recovery sooner.

Felegi’s experience underscores a few key points that hold true regardless of how middle-class families are faring: “If you’re not selling you’re dying,” he says, reciting the old business adage. And, no matter what’s going on in the economy, pest control services are often prioritized by homeowners — and, yes, that includes the “dwindling” middle class.

Indeed, there are fewer middle class customers out there today — and 85 percent of the middle class find it difficult to maintain their lifestyles, according to the Pew study. But the good news is, there is also a great deal of untapped potential in the pest control industry, points out Cindy Mannes, chief marketing and strategy officer at Arrow Exterminators, headquartered in Atlanta, Ga. Today, about 28 percent of people in the country currently use pest control services, she says. While there is a group of people — maybe as many as 40 percent — who never will buy the services, that still leaves a sizable unreached pot of potential customers.

“We have so much opportunity in terms of growth and really being able to get out there and help people,” Mannes says, emphasizing that pest control firms that emphasize value survived the recession and will thrive regardless of what studies say about the middle class. “We are selling protection,” she says simply.

And people are happy to pay for that.
 


A Slow Squeeze. Gene Chafe at Senske Pest Control, headquartered in Kennewick, Wash., says business from customers in the $60,000 to $70,000-plus income bracket, or upper-middle class, has been “tough” depending on the market. The company operates from Washington state to Las Vegas. “We get a good cross-section of the economy and the effect the recession has had on these populations,” says Chafe, general manager and CFO of the family-owned firm.

Some areas Senske serves have helped boost the company’s revenues, namely Washington’s Tri-Cities metroplex. “In the height of the recession when the housing market was crashing and unemployment rates were high, we were carrying on, business as usual,” Chafe says.

On the other hand, Las Vegas hit the bottom of the barrel and Senske Pest Control saw its business decline there. Having a presence in resilient and rough regions provides a healthy balance for the company. When middle-class customers in Vegas were decreasing or canceling services, those clients in the same income bracket in Washington were paying bills without flinching.

But for the most part, middle-class customers have held on to their pest control contracts, Chafe says. “It’s almost an essential service,” he relates, adding that Senske does tailor its programs to meet clients’ financial needs. “We have seen customers scale back to three or two services a year, but they still keep the service. Our focus has been on keeping the customer, so we’ll modify services to keep that person when times get tough, and then, well, they’re back to their former services.”

In contrast with what national headlines imply about the middle class being squeezed and spending less, Chafe says the pest control industry is fairly sheltered from this and other economic headwinds. “It’s like being an undertaker — you’ve always got business,” he remarks.

That said, Chafe acknowledges that everybody — class aside — is still watching their wallets. “I’m watching my money, and I’m sure you’re watching where you spend yours,” he says. Kochhar of Pew confirms this reality. “Everyone’s income has declined, not just the middle class,” he says.

“The Lost Decade of the Middle Class,” the study by the Pew Research Center, “takes a fresh look at the public attitudes through the prism of income tiers and self-defined economic class,” Kochhar says. It’s a how-are-we-doing measure. Or, to cue up a popular question of the 2012 election cycle: Are we better off today than we were four years ago?

“A lot of what we reported three to four years ago is still going on,” Kochhar says. “The principle effect of the last four years is a general decline,” Kocchar explains. In other words, the middle-class shrinkage occurring now is exacerbated by the fact that the economy has been in a big, nasty rut, the unemployment rate reached record highs, and real estate tanked in many markets. The “squeeze” on the middle class (and every class) is caused by multiple economic forces.

In fact, the hollowing out of the middle class has been taking place during the last four decades, Kocchar says. The Pew study updates research that began in the 1970s. “In each decade, there was a decline (of the middle class), and no single decade stood out as having driven this movement,” he says. “It has been a pretty steady process.”

What’s causing the movement of people out of the middle class to higher or lower income statuses? “The economy is creating higher rewards for those who are more skilled and more educated, and fewer rewards for those who are less skilled — who don’t have a college degree, for example,” Kochhar says. “The middle class is hollowing as a result of movement up, and movement down.”
 


 

But what service businesses want to know is this: Does this smaller middle-class population mean fewer people to buy services?

“If you have less income, you spend less, but that is an aggregate economic effect,” Kochhar says, not wanting to make a direct connection between the declining middle-class population and their spending power.

And perhaps there is no direct connection given that feedback from a number of pest control operators in different markets reflects a healthy industry and growing revenues. Plus, people will pay to get rid of bugs. Mannes says in the region where Arrow Exterminators operates, “It’s not a question of if you will have termites, it’s when you will have them.”

Plus, customers today are better educated about pests and pest control services, Mannes adds. Following NPMA PestWorld in 2012, “I didn’t talk to anyone who was having a really bad year,” she says.

However, there are a finite number of customers. That’s reality. “And if you are not selling value, you will not be able to sell your services to the middle class,” Mannes says. “We are talking to the middle class about the importance of pest control services to your life, your family, and protecting your home, which is your No. 1 investment.”

That’s why marketing has never been more important. Chafe says, “There is always some drop-off in customer base during any recession or blip in the economy, so our objective is to overcome that drop-off, provide outstanding services and work with current customers to maintain that customer base.”


Marketing out of a Rut. Critter Control’s customers who accepted payment plans or whittled down their service packages are more willing to sign up for pest control services now that “there is extra cash flowing into the household,” Felegi reports.

Felegi says Critter Control has “definitely pushed more in our marketing.” The company stepped up its email and Internet efforts and dedicated resources to sales training for technicians. “We worked to help them understand the customer point of view,” Felegi says. The overriding message Critter Control has pushed is this: “We provide all types of pest control services — we do more than just catch wildlife.”

Felegi adds that constant contact with customers keeps them close so they won’t stray. “We are focused on better service and better communication with our customers,” he says. “All of our technicians have tablets so they can communicate with customers on a daily basis through emails and pictures.”

Customer retention is business security. “Once you lose a customer, it’s very difficult to get them back,” Chafe says. “And we spend a lot of money in our marketing trying to attain customers, so it’s essential that we maintain relationships with them.”

Chafe says the company increased its marketing dollars during the past couple of years. “And it has paid off,” he reports. “Revenues are up. Sales are up. And we have overcome many of the cancellations we had.”

The squeezed middle class is spending more on pest control services today than a few years ago, according to the sources we talked to. So while America’s middle is reportedly getting smaller, their dollars are still going toward services they value, and that includes pest control.

“People of any class at this point are looking for value,” says June Van Klaveren, owner of Compelling Communications, St. Louis, Mo. “They are looking to get the most from their dollar.” Pest control operators can fulfill this demand by packaging their services in bronze, silver and gold-type levels to give customers more choice, she says. Or, by pairing services such as tree pest control with a termite contract. “It’s important to really educate consumers on the benefits of each package and what they get,” Van Klaveren says, relating that pest control companies should not assume a customer understands what’s included.

John Wilson, president of Orkin USA at Rollins, says the economy has not made an impact on sales to new customers in any demographic, middle class or otherwise. And, customers aren’t resistant to prices. “(We lose customers) when we don’t deliver the service the way we say we will or the way they feel they need to have it for that price,” he says.

“In our industry, services are needed and wanted by homeowners,” Wilson says. “Especially in tough times, they seem to stop spending on that trip to Europe and put money into their homes instead.”

Again, the key is to underscore the value customers realize when they buy pest control services. And there’s no better audience to focus on than the one that’s already paying the bills. “Mining your current customers takes more time than just shooting out an ad to the public because it means keeping in touch with them,” Van Klaveren says. Write hand-written thank-yous. Send out e-newsletters with relevant pest updates. Pick up the phone and ask customers, “Is there anything else we can be doing for you?” Nurture that relationship — no one wants to feel “stuck in the middle” of a stack of clients. “The goldmine is really within your own customer base,” she says.

Felegi says Critter Control continues to build its business by getting back in touch with customers who declined services in the past because of budget constraints. “We are calling them back now and they are buying our estimates from two years ago,” he says, adding that the company will give clients a 10 percent discount for doing so.

“We are definitely seeing people buy more today than they did three years ago,” Felegi continues. “This year, our pest control sales are increasing and the middle class customers who didn’t have jobs two years ago seem to have jobs now and want professional services. We are trending up.”
 



The author is a frequent contributor to PCT magazine. She can be reached at khampshire@giemedia.com.


More Data on Customers’ Payments
In December 2012 and January 2013, PCT conducted a survey of its readers via the third-party research firm Insight Express. The data for the chart on page 50 came from this research. To access more data from this survey, including exactly how fellow PMPs have adjusted customers’ payment terms, visit www.pctonline.com and click on “online extras.”

x