Looking back over the past 25 years, several significant changes have gone full circle in the electronic security trade. Before the fast track of mass marketers, before the sizzle of acquisition dealer programs and before the thought of home security brand recognition, many of us were part of the traditional alarm business.

We can describe and fondly reflect on the traditional business as a time when alarms were “purchased” rather than “sold.” Most residential subscribers were from a more affluent lifestyle and could afford to procure a security system for $2,000 or more. When a call came in from a Yellow Pages advertisement or from a client referral you made an appointment to meet the family. The appointment was not intended “to pitch a sale,” it was to give an estimate on installing an alarm.

In most cases you received the go-ahead, so you ordered the hardware from your local distributor and installed the system. In addition to a very profitable installation, the alarm company usually earned the trust of their client to monitor the security system, which afforded the added benefit of recurring monthly revenue (RMR) and sometimes even a service contract.

When mass-marketed free systems were first introduced, security systems went from being purchased to being sold. Alarm companies stopped giving estimates and hired sales professionals to start conducting sales calls and canvassing neighborhoods. A new economic model of free systems allowed for some creative approaches to this segment of the market.

This approach immediately expanded the marketplace of people and households that would consider and purchase a system. Awareness and growth of new installations were at an all-time high.

The Trouble With Some Programs

In the midst of all the expansion, AT&T, one of the most recognizable brands in the world, decided to loan its name to a branded security system program. The program had many good attributes, along with several bad ones. Despite the negative aspects, the company’s strong brand name persevered and dealers were cropping up all over the United States selling more systems than they ever had before at far greater margins.

The profound effect the AT&T brand had on the entire cycle was amazing to all those involved. Dealers that were concerned about competing with these new free systems were now selling solutions for $3,000 to $5,000. Not only did their average sale increase, but the volume of sales increased significantly because of the great consumer brand recognition.

The AT&T program and others like it lasted for several years and probably would still be in existence if it wasn’t for the poor quality and performance of their equipment choices. Equally detrimental was the lack of quality control on the dealers they allowed to participate in the program, which eventually lead to a deteriorating reputation.

Since the early days of dealer programs, others have made attempts at emulating certain aspects, including some manufacturers that have leveraged various brands. Although some elements were well thought out it seemed that none of these programs had all the essential ingredients, especially a brand that sufficiently resonated with consumers. Other programs that produced scores of new subscribers were fundamentally account acquisition machines that forced dealers to sell all the accounts they created to the sponsor.

Although these programs sometimes carried a brand, the mainstay and most compelling factor was the multiple that was paid to the dealer for selling accounts. However, this type of plan really does not allow for longevity.

At the end of each month a dealer created and sold a portfolio of business to the program’s sponsor. Each and every month they would have to start all over again like it was their first day in business. If new accounts weren’t created on an ongoing basis, then new revenue was not generated. The dealers in programs such as these didn’t have the RMR to fall back on in lean times or the solid equity that retaining their accounts would otherwise offer.

Mass-Marketed Systems Lose Steam

As the industry experiences further evolution it appears with the exception of a select few players, the no-cost system market is not growing as it once did. Ironically, it also appears the middle and higher-end residential market segments continue to outpace the lower-end residential sector.

This is great news for traditional dealer and anyone else with the competencies to compete in the marketplace. Only a few manufacturers have recognized this and, thus, introduced programs that have achieved some degree of success. Dealers have taken these programs and increased their margins; others have simply leveraged these programs in their existing model to increase sales.

Because the industry landscape has changed during the past 20 years (partially due to greater consumer awareness in comparison to when traditional systems were the only choice) this segment of the market offers great opportunity thanks to better margins and a lack of brand equity.

A program that offers consumers an iconic brand name associated with security and safety, along with comprehensive support, training and a plan to increase revenue and equity would be a winner for all dealers. Entry into this industry needs to be well thought out and entails the selection of a respected organization that hails from a segment of the security industry supply chain. Although programs tend to have a variety of elements that differentiate themselves from each other, most of the longest-running programs are managed by a national monitoring company.

Look to Turnkey Solutions

A key motivator in licensing any strong brand is the reduction in cost to entry of market and ongoing marketing, while increasing your margins. A program with all the support elements without the offering to acquire your accounts speaks volumes. Demonstrating how an independent dealer can increase profits through comprehensive installations and monitoring, while maintaining the greatest asset of retaining ownership of the subscriber accounts is the key to any dealer’s success.

One can’t say enough on how important education and consistency can be to a dealer’s growth and longevity. Any program considered by a dealer should encompass this in a comprehensive manner. A program that focuses on quality equipment and installations, marketing and sales training, and building equity offers more stability than a structure that forces a dealer to continue to sell or leverage all or most of the monitoring revenue they create.

Dealers should look to participate in a program that provides a turnkey solution to success or enhancing their existing success. Consumers yearn to be educated and positioned to make a valid decision when purchasing something as important as a security system. When consumers are introduced to systems and monitoring that carry a recognized brand such as, for example, Smith & Wesson (see box), they already have made the decision that it is of the utmost quality even before they see the price.

Howard Avin is vice president of sales and marketing for Freeport, N.Y.-based NationWide Digital Monitoring. He can be contacted at (800) 221-0826 or [email protected].

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