Steady Stream of RMR

Changing times require dealers to reexamine business plan

• By Barbara Holliday
• Jan 04, 2016

The “free alarm system” has been around so long that many professionals can’t remember a time when it wasn’t the starting point for just about any company looking to hang a keypad in a customer’s home.

The equation has always been relatively simple: A basic security system for zero down and $24.99 a month equals a steady stream of RMR. There have been variations on the theme over the years, and new players have joined the game, but the underlying concept has stayed the same.

But changing times are requiring us to re-examine our thinking. Today’s dealers need to begin questioning the true value of a free security system. It’s time to consider a strategy that will help your business, and our industry, grow in the long term.

NOT ONLY FOR THE WEALTHY

Electronic alarm systems started out as big-ticket items purchased by the affluent to protect expensive items and property. These consumers valued electronic security as a way of protecting their investment. They were willing to pay thousands of dollars for equipment, along with an ongoing fee for professional monitoring.

As alarm systems and devices became more widely available at a lower cost, and as communication methods became faster and more sophisticated, security became a growth industry poised for integration into the lives of mainstream consumers. Eventually, several companies defined a business model that introduced the “zero-down” market. It worked for them because they had resources that allowed them to absorb the upfront costs.

Independent dealers also could afford to mass-market alarm systems by joining dealer programs that would fill the role of financing or reimbursing those upfront costs. Monitronics’ dealer program excels in that approach, providing upfront capital that allows dealers to stock the latest inventory, hire talented employees, market their brands and grow their businesses.

As the market grew, the message stayed the same: alarms are free.

SECURITY IS STILL THE CENTERPIECE

But now there’s a problem with the “free security system” narrative. We are cycling out of this period in our industry into a new, dynamic marketplace with a growing range of high-tech offerings. Market penetration remains low, and too many alarm dealers focus on simply recycling consumers who already have home security. We can grow the market with new consumers who are not just interested in home security, but also in home automation that enhances their security and lifestyle.

That’s not to say that home security isn’t important; it saves lives and protects property. In fact, research shows that up to 90 percent of consumers believe that home security is one of the most important reasons to purchase home automation.

There are hundreds of thousands of homes that are still in need of protection, and we have the opportunity to move things in the right direction. We can start by no longer giving away equipment.

BEYOND THE BASICS

Sophisticated home security has gone far beyond the basic system, becoming even stronger with the addition of video cameras and remotely controlled devices like locks and lights that are proven burglary deterrents. Instead of simply re-signing customers or giving away alarms, we need to promote the value of technology and develop pricing that matches the investment we make in new installations.

There’s one obvious reason why this new approach makes sense. Monitronics’ experience shows that accounts with an initial investment are 33 percent less likely to cancel during the first year of service than those who pay nothing up front. When consumers invest from the beginning, they place greater value on their alarm systems.

MORE THAN JUST MONEY

It’s important to understand that the idea of doing away with free systems isn’t about the dollar amount as much as it is the long-term benefit. There are other benefits to requiring an initial investment.

By eliminating customers who are taking what they perceive to be a “freebie,” you’re reducing your exposure to attrition and helping to create a long-term customer. You’re also ensuring that every sale emphasizes value creation not just through the importance of home protection, but also by potentially growing a system through the enhanced security and lifestyle of today’s home automation products. That’s an attractive proposition for a homeowner who already understands the importance of investing in their property. Internally, you’re separating the sales reps who can only give away a system from the reps who can actually sell a system.

Today, we have access to more technology than ever before. As luck would have it, we also have a world of consumers who are tech-savvy and into the Internet of Things. They want to be connected, and they want to be plugged in. These are our future customers, and we have the resources, products and services to fill their needs. We’re not going to reach them by giving away our systems, our expertise or our experience.

Traditional dealers are competing with new entrants to our industry, but remember this: You can compete effectively by using that expertise and experience, along with support from dealer programs like Monitronics. Start by showing existing customers the benefits of today’s technology, and by also emphasizing those benefits—as well as live monitoring—to new customers looking for high-tech solutions.

Above all, stop giving away free systems. In the long run, it’s costing more than you realize.

This article originally appeared in the January 2016 issue of Security Today.