Don’t be blinkered

I have observed an emerging trend over the last two years where the residential market is being driven more and more by changes in the telecommunications sector.

The evolution from the classic landline to ADSL and GPRS services has affected the typical business model for many security manufacturers and service providers. This technology drive has led to product changes and the need for a new business model, where specialist security installers are progressively taking into account the development of the telecommunication sector to enable them to grow in the residential market.

Alliances are foreseen with telecom operators, as well as with energy companies and other utilities service providers who have a direct relationship with residential consumers, and thus have a real business opportunity to sell them intruder alarm systems.

In France, for example, the national telecom operator already offers the residential market an internet multi services 'box' through which a compatible monitored security alarm system can be connected. This solution is offered by some alarm installers that have collaborated with the telecom operator through joint promotions to the residential market.

Lower internet costs

This is an emerging trend in France, but has not yet reached other European regions. France appears to be ahead of other European countries in telecom network and technology, just as the US is about eight to ten years ahead of Europe.

In France, a normal internet connection costs a residential user from 15 euros per month, whereas the equivalent could be twice as expensive anywhere else in Europe.

Undoubtedly, the telecom sector offers an important lever to security businesses because they are increasingly linked to this technology. There is still a long way to go to penetrate the residential market, but it is beginning to open up – which as we all know is an area that can offer the security industry a lot of growth.

However, to sustain growth from the residential market, security companies would need to adapt their business models in the near future, to ones in which the cost of the sale is extremely low, the cost of the life of the product is very low and the technology provided is very high and very reliable. There is a need to establish a new way of selling and managing an alarm system at a lower cost. The balance between all these things will have two effects: that only a select few businesses will be in a position to embrace this new business model, and that it will allow new entrants into the intruder security business – perhaps other major service providers.

The traditional installation company employs a sales force to sell alarm systems, which is costly to the business. However, the installation company can create strategic partnerships in many adjacent business areas that could create sales within its existing customer base. With the emergence of new technology such as wireless communications – which is already closely linked to the end user's existing environment, the main focus for the partner company is to open the customer mindset to the benefits of the alarm monitoring service fee. Installers can avoid the expense of employing sales people and instead agree a commission fee for each sale through this new channel, leaving them free to concentrate on installation and maintenance of new and existing systems.

This business model has existed in France since 1996, with insurance companies and banks offering security systems to the public. Local insurance and bank agencies offer residential customers security alarm rentals included in a monthly service fee, without the expense of purchasing the system. That's the big trend in France. Most of the major players follow this business model, which mainly exists in France because the large installers did not already have a foothold in the residential market when this business model began.

However, in other European countries many large installers are already making direct sales in the residential market and have therefore maintained the traditional business model as the main route to market.

In Europe there is somewhere in the region of 116 million houses, of which, according to customer information, less than two percent are equipped with monitored security alarm systems. Currently the rate of growth of monitored alarms in the European residential market is around just two percent. In the US, which is a more mature market, I estimate that around 20 percent of all homes have monitored alarms and there is around a 15 percent yearly growth rate. The US was in a similar position to Europe around 10 to 15 years ago, but even if Europe does eventually catch up, the US is just one country, with one language and one regulation, whereas in Europe there are local country requirements to contend with.

It is a challenging situation to meet all the market requirements across Europe whilst optimising products and costs. Honeywell Security and Custom Electronics invests considerable time and resources to get all its product ranges to meet both the European and all the local market standards. The company's four competence centres based in the US, the UK, Germany and France provide the deep knowledge and skills base to address these requirements. Furthermore, our sales and marketing teams based in ten countries make sure we are close to our customers, helping us to meet global as well as local needs and expectations.

Installers can avoid employing sales people and instead agree a commission fee for each sale ...

In the commercial market, penetration is higher. I estimate that up to 80 percent of commercial sites have security alarm systems and most of these are monitored.

Last year saw the introduction of the EN 50131-1 standards, which have not yet been adopted in all countries across Europe. The main purpose of these new standards is to bring more professionalism to the market, while reducing the risk of user false alarms, which is one of the best ways to ensure continued police response to alarm receiving centre requests. However, the EN standards are recognised in each country, so having products that comply with them is still an advantage over manufacturers whose products do not. Until the EN standard is in force throughout Europe, manufacturers will still need to ensure their product range meets all the different regulations for each country.

As far as Honeywell Security and Custom Electronics is concerned, all the products we introduce that are manufactured the US, such as sensors, need to meet all the relevant EN standards. It is a driver for our business. Honeywell Security and Custom Electronics sells a high volume of IntelliSense sensors in a market that is very competitive and very open. What we are seeing more and more is that customers would like to consider sensors as a low value product.

Because the price has been driven so low over the past ten years, the manufacturer is forced to keep the price as low as possible, whilst offering the highest range of features and the highest possible reliability!

To gain advantage, businesses need to understand market trends and new ways of doing business and embrace them. If the market is technology driven then that's what you have to provide. If the market is service driven, you need to sell on service and if it's price, then you have to focus on price. Selling products solely on their benefits is no longer sufficient to win the sale. That is the reality of the situation in the commercial market and it forces companies to think differently about their products and the perceived value they bring to the customers.

We have to keep up with the environment we are living in. The market is quite different in 2006 compared to 1996. If you want to exist, to have a position in the market, you have to understand the market trends, or better still to influence and drive trends. This is exactly what Honeywell Security and Custom Electronics is trying to do with video verification in the Domonial alarm system. Here we are influencing the market trends. We identified an area that is not sufficiently serviced to date, and have developed a new solution of which the goal is to set the trend in both the commercial and residential alarms markets. To set a trend you need to be in a very strong position, you need to make considerable financial investment and have reliable business partners. Then you have to work with the key players, the leaders. Only the companies that understand this and invest enough to accept or anticipate trends will succeed.

Think of your customer’s future

The security market is all about cost, technology, features, service, but ultimately you cannot deliver everything at the same time. You have to think of the future – you want to be able to sell tomorrow as well as today. Some businesses come into the industry for a short-term sell.

They know something about the technology and test it out with six or seven products that are offered to the market. They sell as much as they can – then they are gone – and there is not always long-term support for the customer, whereas key players like Honeywell Security and Custom Electronics plan to be in the market for the long-term. Legacy in this market is very important. We sell around four hundred thousand systems per year in EMEA. Every time a new product is added to the existing portfolio it has be consistent with everything that has gone before it to ensure continuity for customers.

When you are launching a new product it has to provide the highest possible backwards compatibility. Manufacturers need to be visionary to drive a trend, while avoiding mistakes that can result in a loss of faith, and remove you from the market's core expectations.

If you think of the market in terms of windows of opportunity, these occur very infrequently. If you miss this window, then you have to wait for the next one, bearing in mind that the next window will have a different set of requirements with different technology, different features and expectations that will need to be met. That's why it is crucial to understand the market and your customers.

You have to be very close to your customers today and anticipate where they will be in the future. Keeping a close watch and understanding their business models is as important as developing your own.