Hot Seat: Unlocking New Revenues With Electronic Locks
As home automation and interactive services continue on an upward trajectory, electronic locks are becoming a part of the sales conversation alongside lighting controls, remote thermostats and other connected devices. Keith Brandon, director of residential access solutions for Kwikset, joins the conversation to discuss the fledgling market for these “smart” locks in the home.
How do electronic locks change the business proposition for security dealers?
In the past, the business proposition has been core security. I can use theft, break-ins, burglar rates and scare tactics to drive a security offering to get interest from consumers. Now I flip my business proposition to be more of a lifestyle benefit, more interactivity with security and other devices — locking, lighting, thermostat, convenience on mobile devices.
As dealers embrace the opportunity to create a different selling proposition, they’re going to grow their conversion rates with the consumer. They’re going to keep out competitive threats of others that are entering in and trying to take their markets. And the last thing is they’re going to be able to sell higher-end ticket items above their base monthly revenue that they may not have been able to get with just core security alone.
Do electronic locks add a lifestyle benefit to the homeowner?
Overall, number one about an electronic lock is it certainly is an adjacent device to delivering security and peace of mind. Delivering electronic locks within [a home automation] solution makes a lot of sense. Consumers understand they can control and monitor the status of their door locks, whether they’re 1,000 miles away or sitting in their home. That, in and of itself, adds value to the solution that the security dealers are selling.
Then when you start to build upon that and expand to other devices, it really starts to inherently transition to more of the lifestyle benefit-selling solution of “when I use my lock as I come into my house I can disarm my security system.” There is a convenience aspect to that. When I enter my house, my thermostat adjusts to a home mode, opposed to an away mode as I locked my door. I can control lighting from the interaction of the door lock as well.
Are the devices geared mainly at upper-scale residences?
They are not just upper-scale, but to be honest it really comes down to how the security dealers are delivering the proposition. Some dealers are on the high side of “pay for all the equipment and your monthly is a little lower,” while others are on the low side of “we’ll subsidize the total package of equipment and monthlies are higher.” On the latter, where you have more subsidized approaches of the devices, you get down into some of the bottom end of that midprice point, more so than if someone has to pay for the entire equipment cost of everything.
It’s not a whole lot different than the maturity cycle of the broader residential security space as it’s evolved over time. For entry-level security there’s lower-cost devices and lower monthly RMR generation because you’re selling the low end of that solution. I would say it’s definitely above that. We’re not seeing these connected solutions coming in at that price point, but I wouldn’t say it’s a high price point offering either. There is still opportunity where dealers can find the right mix in their markets that get them to span low-, high- and mid-price offerings.
Do you see some dealers hesitant to adopt electronic locks, similar to their reticence over interactive services?
Yes, the challenge I think is just a lot of the dealers get into routines of “this is what works.” They have operational-minded approaches for all the right reasons; making sure their margins are where they need to be and really having a fine-tuned machine. That starts with the selling proposition, all the way down to an installation, and then a support process of the products going in, and ultimately managing that efficiently within the structures they have.
The first barrier they run into is new devices coming into their solutions that they’re selling, which drives variability, which is ultimately risk in their margin and profitability. And then the other thing is just “how can I deliver it in a selling proposition?” There is a different selling method when you start to get to lifestyle benefits and selling convenience versus selling a pure security solution alone. That takes time to change.
What role can the industry play in helping dealers make the transition?
As device manufacturers, we need to continue educating the market, getting out to dealers to help them understand the opportunities that exist as they both adopt and accept some of the new products coming in that can add value to the solutions they’re providing today. We have to demystify some of the concerns they may have in terms of why they wouldn’t be able to bring it in and take risk of devices they may not be familiar with. And then ultimately helping them understand the selling proposition of expanding your current offering beyond security — whether it’s interactive services or door locks or thermostats or lighting control. When those things come together you’re actually able to make your business more profitable in terms of lifting your RMR and getting more for the solutions you’re selling.
It’s also about helping them drive that message throughout their organization and rallying their sales teams and installation teams, helping to grow their business and making it more profitable for them.
Do you also express a cautionary tale to those dealers who are not proactively offering interactive devices and services?
If dealers don’t embrace expansion of services, including interactive services and additional devices onto their security platforms, they will be losing out on future business. As the market continues to change and quickly morph into something different than [traditional] security, more and more competitive threats are entering the markets that have different propositions of value beyond just core security. That is the biggest thing that dealers need to recognize. They’ve got to continue to evolve and adapt their business propositions to include expanded services. Everyone around them continues to do that and change their business propositions. If they don’t, then ultimately they can’t continue to grow and really sustain the business models they have today.
They may have carved out a market of delivering really core value on a local relationship basis, but now these large national players are coming in and going after those same customers with a different value proposition that’s beyond just security. They’re going to win those jump balls if that local security guy can’t offer something competitive as well. You need to understand what’s happening around you or your business will shrink or even go away in terms of your ability to compete.
What are the technical skillsets that some of the traditional-minded dealers may need to bring in-house in order to install electronic locks?
It’s about training. I don’t think that you have to bring specific skillsets and be an RF engineer or technician to make the products work. But there is a base level of training and understanding as you move to Zigbee or Z-Wave. In deploying and installing the equipment, maybe a panel with a Z-Wave radio is too far from some of the devices and you need to actually locate some devices, whether it’s a lamp module or some type of lighting control within the home, to ensure that communication is strengthened.
It’s the training that can help the technic
ians get to a point where they’re comfortable walking out of a home knowing the system is robust. It’s not a lick ‘em and stick ‘em approach where you just place it anywhere and walk away. It is something that you want to make sure your installation teams are aware of and helping to make sure the system they install is robust when they walk out of the door.
Where are we with biometric functionality in the residential market?
I’ll speak for Kwikset, we had a biometric deadbolt on the market about four-and-a-half years ago. It was well received although it was a little expensive to deliver the technology. It was also maybe a little touchy in terms of reliability, meaning you had to exactly touch the product the same every time. So we learned some lessons there.
There is some interest out there for biometrics. But I also think that there’s other applications that continue to emerge, that continue to move away from biometric as a fingerprint or something else that’s out there where you might be able to deliver some things differently.
It’s still a function of cost and what it costs to deliver it down into a residential product at that level. It’s not quite there yet and I’m not sure if there might not be other options that bypass it having to be on the lock directly, to be fair. For example, you might see some emerging trends for smartphones delivering biometric capabilities on the phone that might bypass that technology of having to get onto a price point of the lock.
What’s on the product horizon that excites you?
We continue to look at all things in terms of how you utilize identification of the homeowner into the residential markets of the lock. One of the things that we’ve currently got on our map of products is utilizing Bluetooth low-energy in smartphones to be able to talk to a lock. That’s an interesting way we see taking the identification where somebody has to type in a keypad code or some other means or Near-Field Communications or whatever it might be … put it onto a smartphone that you can keep in your pocket and just interact with the lock via touch.
That’s just an example. There may be other technologies that move past and deliver some additional benefits versus the traditional fingerprint scanner or something that we’ve had experience with in the past.
So we might see Near-Field Communications come into play at some point on a residential level?
We haven’t fast-tracked Near-Field. We’ve evaluated a couple of different technologies including near-field, Wi-Fi and Bluetooth. We felt like each of those could deliver a level of authentication and identification with each of them having pros and cons.
You see Near-Field used in some of the commercial markets today. We believe there’s some value there. However, some of the disconnect there is the proximity that you have to be close to the lock. It forces you to have to pull out a phone, up next to the lock.
While we like some of those things, there’s also some barriers to getting Near-Field to market today and who actually gets their cut of the backend of all that. Speed to market wasn’t necessarily favorable as we started down this path a year and a half ago. We looked at Bluetooth and WiFi because they are already on phones and potentially give you the ability to get communication to the lock without having to bring your phone out of the pocket.
What is the preference for leveraging Bluetooth technology?
We landed on Bluetooth Low Energy [LE] partly because we have battery-operated locks in the residential space and power consumption is important. We saw the WiFi low-energy technology taking a bit longer to get us there. That’s why we’ve landed on a product called Kevo that’s coming to market and really is a standalone keyless entry product, initially. Long-term we see Kevo porting over into our connected products and our security offering of our own connected products.
Initially it will come out as more of a pointed one-to-one solution, where you can use your phone with your lock, and keeping your phone in your pocket. It authenticates with your phone via Bluetooth LE on a supporting smartphone platform. Today it’s only Apple iOS but Android is now opening up support for that, so we’ll be on boarding Android as well in the future.
The latest housing numbers indicate a rebounding market. What are you seeing in the new construction market?
Kwikset really has market leadership in new construction with direct relationships with builders, north of 50% market share there. With that we’re very close to new construction in terms of performance. Overall, we continue to get a strong read and see new construction coming back. We’re seeing anywhere from high 20% year-over-year comps in certain markets and us being able to pull that through and convert that on lock sales. I think all in all we still feel very bullish on where new construction is going.
If you look at the heights of where it sits today, versus four or five years ago, it’s still not quite to that level, which is not a bad thing in terms of being so hyper-inflated that you don’t want to fly that close to the sun. But, end of last year and into this year, we’re seeing high double-digit growth, whether it’s high teens or low 20s and continuing. We’ll take that.
How does an improving housing market affect Kwikset’s business strategy?
We believe new construction is going to continue to be strong for the rest of the year and ultimately we’re looking to embrace that in terms of how we deliver technology in those opportunities. Twelve to 18 months ago, it was really just renovation focused of applying connected locks into the residential security channels and I think there’s continuing opportunity with builders who are looking for technology providers to deliver something for them.
It’s hard to bring the disparate devices into a builder community of new construction. The low-voltage residential security guy is very well positioned to be able to deliver that. They’re already in the market. They already may or may not have relationships with new construction builders. Ultimately you’ve got the builders who are interested in somebody who’s delivering technology from multiple points and bringing it together, and offering it from an installation and service model. That’s really what these residential security guys do today. As they expand their offering and go out and support interactive services and connected devices, they’re ultimately adding value they can bring to new construction channels and builders directly, that there’s a need for today.
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