Parks PointsDisruptive Go-to-Market Strategies for Residential Security
by
Dina Abdelrazik |
This year's ESX conference shed a light on competitive shifts and market disruptors that are affecting the residential security market. Security dealers, integrators and monitoring companies came together to evaluate the current security market landscape and future outlook. Over the last five years, the needle for home security system ownership, monitored or not, has stayed within 25% – 27%. Value propositions remain the same and expected growth will be driven by a combination of DIY solutions, expanding distribution channels, innovative financing and continued expansion of the value proposition through interactive services, home controls and AI integration. Key topics and points of discussion at ESX highlighted the growing interest in DIY solutions, business model strategies and the evolution of products and services.
Month-to-Month Contract Terms A slight majority of dealers report an average contract length of 36 months or longer. Most traditional security dealers follow a business model that requires contracts and professional installation. However, giants such as ADT recognize the shift in consumer behavior and preferences; many dealers are revisiting and augmenting their strategies to attract more customers. These changes in business models and pricing strategies are in response to consumer reactions to the high price point of professional monitoring. The home security industry is restructuring to make such services accessible to a wider array of consumers. A pay-as-you-go model relieves a customer from having to sign up for a long-term contract and provides a level of flexibility that may be appealing to a segment of the addressable market.
DIY & the Launch of Ring Alarm Transparency in both price and the product itself online are appealing factors, especially given the industry norm of price availability only after an in-home consultation and customized quote is made. Price appeal for DIY is apparent – among the 6% of broadband households that installed a security system themselves, 39% did it to save money. For the traditional dealer, whose business model is built on traditional installation, shifting to an entirely DIY-friendly approach may not be plausible nor advisable. However, introducing some DIY components and the option to self-install will ensure competitiveness. For instance, offering a sensor or a motion detector that can be self-installed by a consumer after a security system is installed opens the door to speed of service (i.e. if there is a backlog of technicians, an option to ship a product to a consumer can speed up the process), and consumer choice. The entrance of tech giants into the residential DIY arena is raising awareness to a broader base of consumers — the opportunity lies in market expansion rather than market erosion. Ring, Nest, Samsung and others are on parallel paths to expand the home security system market.
Price sensitivity significantly impacts the likelihood of switching to another security monitoring company. Parks Associates data reveal that more than half of professionally monitored security subscribers indicate that they would switch for a service fee that was 25% or 50% less than their current monthly fee. The sentiment in the security market is that traditional security companies will not be able to compete with Amazon on price. They will have to double down on providing an exceptional customer experience, and leverage their competitive advantage — a sole focus on providing security. Amazon’s multi-business strategy may be an attribute that works in traditional security players’ favor. Traditional security companies argue that while Amazon may be able to able to provide a number of different services, the traditional security dealer’s one and only focus is security — undiluted by other service offerings. Furthermore, the implications of Amazon’s smart speakers with privacy and security concerns have placed it in a precarious position in the ability to gain and lose consumer trust — a position that may again serve as advantageous for the traditional security player.
Shifting Product Portfolios and Key-Performance Indicators Typically dealers offer a good, better, best lineup that includes basic security monitoring as the value-tier offer, interactive services as the mid-tier offer and smart home devices as the premium offer. Given that interactive services have become mainstream, eliminating the basic security system offer and shifting interactive services to the value-tier offer will dramatically improve RMR and help smaller dealers compete. This need to effectively compete with interactive service and home controls is further evidenced by Parks Associates data on NPS scores. Professional monitoring service providers that offer basic security systems suffer from poor NPS scores, while those that offer interactive security and home control systems have NPS scores more than 50 points higher. NPS scores are an important KPI for a security company to track to illuminate and evaluate the customer experience. On average a security customer may request service or may a service call every 2-3 years. Isolating NPS evaluation separately by sales rep and by technician rep allows for a security company to evaluate overall customer satisfaction. This article was published in SSI Magazine.
Dina AbdelrazikContributing Analyst INDUSTRY EXPERTISE: Residential Security, Smart Home Products and Services, Smart Home Strategies, Voice Technology Devices and Platforms Dina leads Parks Associates residential security research and is a member of the connected home team. She has authored numerous reports covering topics such as home security market trends and competitive landscape, voice assistant technologies, smart home strategies, and technology solutions for seniors. She leads custom research projects on connected home topics and is a certified focus group moderator, with training from the Burke Institute. Dina earned her MS in Marketing, with a concentration in Marketing Analytics, from the University of Texas at Dallas and a BA in Advertising from Southern Methodist University. |