FACTORS AFFECTING THE HVAC PURCHASING PROCESS IN BUSINESS TO

BUSINESS PERSPECTIVE

by

ALI CAN OZEN

AN APPLIED RESEARCH PROJECT

Submitted in partial fulfillment of the requirements

for the degree of Masters in Business Administration

in the Harrison College of Business

in the School of Graduate Studies and Research of

Southeast Missouri State University

CAPE GIRARDEAU, MISSOURI

2016

ii

ABSTRACT

Comfort in daily life is gaining more importance on a daily basis. Indoor air quality, fresh

air, heating, and cooling are the essential parts of comfort in indoor areas. As most people spend

eight hours or more of their day in office environment, commercial HVAC systems are

becoming increasingly important for companies.

In this research, factors affecting the HVAC purchasing decisions in commercial

marketplace will be examined. Data has been collected from customers and from HVAC vendors

by interviewing experts or supervisors who are in charge of commercial HVAC purchasing.

Facilities management and purchasing departments of companies are the customer in this study.

The factors that were asked of the respondents are as follows: 1) user-friendliness, 2) quality, 3)

initial price, 4) after-sales service, 5) efficiency, 6) brand reputation, 7) cutting-edge technology,

and 8) environmental friendliness.

The first set of data has been collected from customers in Cape Girardeau and St. Louis,

Missouri. The second set of data has been collected from HVAC experts at the AHR Expo 2016

in Orlando, Florida.

Both sides of the HVAC industry share a similar consensus with which factors are

important and which are not. Brand reputation emerged as the breakthrough factor that rated

differently between the companies and customers who attended interview.

iii

APPLIED RESEARCH ACCEPTANCE SHEET

Submitted by Ali Can OZEN in partial fulfillment of the requirements for the degree

of Masters in Business Administration.

Accepted on behalf of the Faculty of the School of Graduate Studies and Research by the

Applied Research Project Committee.

_____________________________

Name, Ph.D.

Advisor/Chair

_____________________________

Name, Ph.D.

MBA Coordinator

iv

LIST OF TABLES

Table 1 – ASHRAE Journal’s Survey 2016 …………………………………………………… 16

Table 2 – The Interview Draft …………………………………………………………………. 17

v

LIST OF FIGURES

Figure 1 – ASHRAE Journal’s “How do you rate prospects for your business in 2016?” …..... 14

Figure 2 – ASHRAE Journal’s “How do prospects compare with 2015?” ……………………. 15

Figure 3 – Factor Affecting the HVAC Purchasing Part 1 …………………………………….. 19

Figure 4 – Factor Affecting the HVAC Purchasing Part 2 …………………………………….. 21

vi

CONTENTS

ABSTRACT…………............................................................…………………………. ii

ACCEPTANCE PAGE………................................................…………………………. iii

LIST OF TABLES…...………................................................…………………………. iv

LIST OF FIGURES…..………................................................…………………………. v

1. INTRODUCTION………….…………………………………………………………. 1

2. LITERATURE REVIEW…………..…………………………………………………. 5

a. Technical Information About HVAC Systems.…………………………………… 5

b. Efficiency and Green Business in HVAC Industry……………………………….. 6

c. Indoor Air Quality of the HVAC Products.……………………………………...... 8

d. New Technologies in the HVAC Industry………………………………………… 8

e. Customer Relations in the HVAC Selling Process………………………………… 9

f. The Four P’s of Marketing for the HVAC Business……………………………..... 11

g. The Current Situation on the HVAC Market…………………………………….... 12

3. PROPOSAL…………..……………………………………………………………….. 16

4. DATA ANALYSIS……………………………………………………………….…… 18

a. Overall Analysis…………………………………………………………………… 18

b. Observations………………………………………………………………………. 22

i. User-Friendliness……………………………………………………………….. 22

ii. Quality…………………………………………………………………………. 22

vii

iii. Brand Reputation…………………………………………………………….... 23

iv. Initial Price…………………………………………………………………….. 23

v. After-Sales Service……………………………………………………………... 24

vi. Efficiency………………………………………………………………………. 25

vii. Cutting-Edge Technology……………………………………………………... 25

viii. Environmental Friendliness…………………………………………………... 26

ix. VRF Technology……………………………………………………………….. 27

5. CONCLUSION…………………………..……………………………………………… 27

6. LIMITATIONS AND EXCEPTIONS……………………………….………………….. 29

7. REFERENCES…………………………………………………………………………... 30

8. APPENDIX A…………………………………………………………………………… 33

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I. Introduction

In recent years, HVAC (Heating, Ventilating, and Air-Conditioning) systems, especially

air-conditioning, have had a critical impact on daily comfort. Residential AC systems have

garnered substantial attention and customers have become more particular in choosing a system

for their home. However recently, HVAC in work environments has become a growing concern

as well. Companies need to compare their considerations carefully when deciding which type of

HVAC system they will use in their office environment. This decision’s importance relies not

only on comfort but also energy consumption. HVAC systems that are used in buildings

consume one-ninth of the world’s primary energy (Hong, 2014). Operating cost and efficiency

are the main reasons new technological improvements focus on reducing the energy consumption

in the HVAC industry.

According to IBIS world report in 2015, Heating & Air-Conditioning wholesaling has

$44.4bn dollars revenue. Nearly thirty-one percent of this amount ($13.63bn calculated revenue)

is spent on central air conditioners (Morea, 2015). Commercial AC systems have a greater

market potential for HVAC companies, as sales are larger in amount for business to business

(B2B) sector.

The 2016 forecast illustrates the HVAC industry will remain steady. However,

companies in this market need to be careful, paying close attention to regulation and

technological changes. The consumer confidence index is growing and the market has provided

230,000 new jobs per month in last two years. Clean Power Plan (CPP), SEER (Seasonal Energy

Efficiency Ratio) ratings, and utility driven changes are just a few examples of recent change in

regulations. These regulatory changes will negatively affect the innovation in engineering and

design processes in the short-term, because companies will be waiting for the new legislation on

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the industry. As for the commercial equipment, the HVAC industry will grow significantly, and

predictably. VRF (Variable Refrigerant Flow) systems will be the biggest part of this growth.

Another opportunity for this industry is that houses built from 2002 to 2006 in the United States

need to have their HVAC systems being repaired or being replaced. This will boost the market

and help the companies to increase their profit. Technological advancements will affect the

industry as well. Warehouse management software, CRM (Customer Relationship Management),

eBusiness solutions, and smart home applications will force companies to use more efficient and

cutting-edge technology for the comfort of customers and for energy costs in different segments

of the production (Mesenbrink, 2016).

The expected rise in the cost of energy, market volatility, and the upcoming presidential

election, in relation to regulatory change, might be threatening factors for this industry. But

companies can take precautions for possible incoming threats. For example, it will be wiser to

use BEMS (Building Energy Management System) to minimize the energy usage for buildings

that install HVAC systems. (Mesenbrink, 2016).

There are some certain parameters for surviving in this sector. Like all other industries, a

strong brand name, service, and retention will be some of the key factors for success. Another

important key parameter is customer satisfaction. In this case, customers are the other businesses

which have offices in need of climate control.

This study will address the factors that affect HVAC purchasing decisions, including

quality, initial price, after-sales service, efficiency, perceived ability to be user-friendly, brand

reputation, cutting-edge technology, and environmental friendliness. This study will focus on

commercial HVAC systems in B2B perspective.

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The secondary research of this study will investigate if companies in the market are

informed about the VRF (Variable Refrigerant Flow) systems or not. The VRF system is one of

the newest technologies in the HVAC industry. Although the invention of VRF systems was a

long time ago, it has gained importance recently.

VRF systems were one of the main topics at AHR (Air-Conditioning Heating

Refrigeration) Expo 2016 in Orlando. China owns the 72% of the world market whereas Japan

has 11% market share and Turkey has a mere 2%. Variable Refrigerant Flow, also known as

“Variable Refrigerant Volume”, is seen as an alternative to all other types of HVAC systems

(chillers, split, multi split and so on), which makes the system more considered and more

valuable. Currently, the United States has the largest market potential for this system and for

other latest technologies. According to BSRIA (Building Services Research and Information

Association) presentation at AHR Expo 2016, more than 70% of buildings have been using the

same HVAC systems more than 35 years. The upgrade of the HVAC systems on these buildings,

most likely, will increase the mobility on the market. VRF systems are commonly popular in

California, Texas, New York, New Jersey and Florida (BSRIA, 2016).

According to BSRIA presentation, the market share of the leading companies in the

United States for the HVAC industry was demonstrated. Daikin is the market leader with 32%,

Johnson Controls with 8%, Toshiba with 13% and Trane with 11%. (Numbers are approximate)

Few past studies considered this exact research. However, they have established how

crucial customer service and customer retention are for organizations. Customer satisfaction has

to be measured and controlled by organizations to improve the value of the customer assets.

Measuring customer satisfaction means comparing the expected value and received value of

purchase. Perceived quality is shown to be one of the main parameters of customer satisfaction

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(Kristensen, 1999). In this brutally competitive environment, companies focus on customer-

related strategies for being ahead of their competitors. In this case, relationships affect every

interaction between the seller and the client, and give organizations a chance to improve their

customer satisfaction (Shaw, 2006).

Customers may struggle to understand the quality or value of the product if the product

requires a special technical knowledge (Kristensen, 1999). HVAC systems require special

technical knowledge to compare or to understand the quality, so perceived quality can be

different than the expected one. The industry started to realize how important this is in retaining

customers and having lasting relationships with them. Most technicians in this industry are

required to have technical skills but when they take into consideration the customer relationship

management or the soft skills, they mostly increase the value of the company they work for

(Shaw, 2006). Although past studies have demonstrated how difficult it is to measure customers’

perceptions in the area of basic technical knowledge, and although it was stated many times that

customer relations and customer satisfaction are crucial for the global competition, there is no

specific related study about B2B transactions in HVAC industry and the customers’ perceptions

about it.

The purpose of this study is to develop a better understanding for HVAC companies to

understand customers’ perceptions, and it will give them a chance to create a specific strategy for

sales approach. It also affords a chance for other researchers to expand the study to other regions

in the US or other countries.

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II. Literature Review

a. Technical Information About HVAC Systems

Having more income and having an easier life with the progression of new technologies

and globalization are making people more aware of, and sensitive to the environment. As a

result, people value comfort more. HVAC systems have become an essential part of people’s

lives due to their comfort needs at home, in car or at work.

To begin with, HVAC Systems needs to be defined clearly. According to ASHRAE

(American Society of Heating, Refrigerating, and Air-Conditioning Engineers) HVAC systems

are defined as “The equipment, distribution systems, and terminals that provide, either

collectively or individually, the processes of heating, ventilating, or air conditioning to a building

or portion of a building” (ASHRAE, 2015).

People mostly think that inside and outside units are the only parts of AC systems.

HVAC systems basically have compressors, condensers, evaporators, blowers, filters, and

pipework. (Just-auto, 2013) However, there are more parts that needs to be considered in order to

have an efficient HVAC system. When a contractor or a homeowner realizes the components of

the HVAC system, they will be able to provide comfort more efficiently to themselves or others

(Richardson, 2014).

Efficiency is one of the key parameters with HVAC systems just as it is with other energy

consuming technologies. Since HVAC systems consume approximately 11.11% of the world’s

primary energy (Hong,2014), efficiency in HVAC systems has become more exceptional. For

measuring the efficiency of the HVAC systems for commercial buildings, some parameters can

be listed as follows; (Taylor, 2015)

- Energy consumption

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- Chemical content of emissions

- Moisture in building components

- Mold in ducts or walls

- Building structural integrity

David Richardson (trainer and developer at the National Comfort Institute) points out

people to consider the big picture about HVAC Systems (Richardson, 2014). According to his

review “Defining the ‘Real’ HVAC System” (Richardson, 2014), the actual HVAC systems

includes;

- Correct size for duct system - Duct insulation valves

- Duct tightness levels - Grille and register selection

- Thermostat wiring and controls - Refrigerant piping

- Electrical wiring - Purging and evacuation

- Refrigerant change - Condensate drain and safeties

These are also significant parts of an HVAC system (Richardson, 2014). All of these

minor technical details demonstrate the importance of a comprehensive HVAC system

definition.

b. Efficiency and Green Business in HVAC Industry

One can determine if the HVAC systems are efficient enough or it has a lower

performance than the expectations of the buyer. In today’s marketplace, net-zero-energy

buildings are increasing in popularity and are becoming attractive for customers who care about

the environment, as well as the cost. Net-zero-energy buildings reduce the carbon emissions and

cut down the energy waste by obtaining sustainable high-tech equipment in houses for daily use.

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Today when one indicates net-zero-energy buildings, they are referring to the ability to reduce

energy consumption by 60-70% from current consumption (Seneviratne, 2016).

According to Jemyung Moon, Senior Vice President of Samsung Air Conditioning R&D

Group, the performance of air conditioning systems relies on four factors: temperature, humidity,

airflow and air quality. In order to test the thermal comfort and the reliability of a particular unit,

the research team was able to change the weather in a laboratory environment with outdoor ACs

units from -30 degrees centigrade to +60 degrees centigrade. In doing so, they confirmed that the

air conditioning unit was able to work at high efficiency even if the weather is too cold or too

hot. Since the weather can vary all around the world, the efficiency of a unit is measured by

checking how quickly the optimum conditions can be reached by the unit in any given variation

of outdoor operating conditions (Moon, 2016).

There is a huge debate between efficiency and environmental friendliness. One of the

most important environmental factors in HVAC systems is the refrigerant. For many years, R-22

(hydrochlorofluorocarbon/ HCFC) was one of the most popular refrigerants for HVAC systems.

However, with today’s environmental concerns, companies are decreasing their dependency on,

and use of R-22 due to its harmful effects on the ozone layer. Although in recent years much of

the negative attention has focused on R-22, R-410A, R407C, and R-134a are other popular

refrigerants that harm to the ozone layer and have begun being abandoned by manufacturers.

Mark Hakbijl, Research Manager at Oxycom, specified that using water for refrigerant is highly

efficient, through new electricity reduction technologies, and it is protecting the environment by

reducing the CO2 emission more than 98% (Hakbijl, 2016).

Although using water might be environmentally friendly for the ozone layer, there is the

problem of water shortage, which has become a problem. In recent years, agriculture and food

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industries started to have difficulties in finding water resources. This has been a growing issue on

the United States’ West Coast; struggling between energy efficiency and water usage. The

optimization of water usage needs to be spotlighted for the sake of environment (Condenser,

2015).

c. Indoor Air Quality of the HVAC Products

Indoor Air Quality (IAQ) is one of the key factors to measure the quality of HVAC

systems. The healthcare industry requires a crucial level of IAQ for the environment due to their

highly sensitive fields. The healthcare sector requires HVAC systems have the highest hygiene,

safety, and comfort in order to maintain a sanitary environment. Air conditioning for intensive

care units, sterile care rooms, and isolation rooms should meet these same special requirements

with filtrations, airlocks and pressure levels. Ventilation is another aspect coming to the forefront

of this industry. Minimizing the microorganisms in the air, keeping enough air change in rooms,

and preventing the spread of fire and smoke are crucial in hospitals and new HVAC systems

must meet these requirements. Indoor air quality is also essential for the staff working in

hospitals. Studies demonstrate that staff performance can be improved up to 6 percent if IAQ

level is at an optimum level (Zaidi, 2015).

d. New Technologies in the HVAC Industry

The HVAC industry is also one of the most technologically developed industries due of

energy efficiency and new environmental regulations on the industry. The internet of things

(IoT) is a trendy topic in this field as well. The internet allows workers to access HVAC systems

anytime via mobile devices, which can be beneficial in helping to repair or install very large and

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complicated commercial HVAC systems in buildings. With this feature, the system can be

connected the external water system or lighting system, so when there is nobody in the building

the systems can minimize the temperature changes to save energy. Facility management can use

the IoT to improve the efficiency of their work (Kuntz, 2016).

VRF (Variable Refrigerant Flow or Volume) is one of the newest HVAC technologies

that increases the efficiency and saves remarkable amount of energy. This technology allows the

electrical current to bypass the condenser and the compressor, thus reducing electrical

consumption and saving costs. The energy and cost reduction of the VRF is making this

technology much more desirable (Edwards, 2014). Toshiba, with Carrier; and Daikin, with

Goodman began to manufacture and sell VRF systems few years ago in the United Sates.

Customers and companies realized that these types of systems have a great efficiency factor, and

quickly the VRF sales in the US have increased since 2013 and are expected to continue to

increase (Harris, 2013). This sales increase is proof that people seek and respond quickly to

technological advancements when it is related to efficiency.

e. Customer Relations in the HVAC Selling Process

There are many aspects of customer relations and customer’ perspectives. But if

companies can clearly interpret the factors that are important for their customers, they will be

one step further than their competitors in this volatile industry. As the industry becomes more

complex, it is becoming more difficult to rival with competitors without knowing the customers'

perspectives in the business; specifically, in this industry. When companies have enough

knowledge about their customers, they can retain the existing ones easily and predict future

strategies for gaining new customers (Keshvari, 2012).

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The business-to-business process closely links with customers’ perspectives. Attracting

other businesses or retaining the relationship with them is known as the b2b business process. In

other words, b2b means that the relationship is between industrial suppliers and industrial

customers. Business relationships with other businesses in these circumstances will be the key

value creation (Keshvari, 2012). However, according to the past studies, the b2b market is in the

early stage of customer value (Flint, 2002). These studies show this market is mostly focused on

the product itself rather than the sales service or any customer-focused strategy (Keshvari, 2012).

“Customer retention marketing”, which is also known as “information segmentation and

mass individualization based on experiential results”, has been noted in the past literature as one

of the key factors for HVAC industry as well. Customer retention was underrated in this industry

however people, especially contractors, started to realize how important it is to create a

relationship with customers. Contractors were divided into two groups; “marketing contractors”

and “normal contractors.” Marketing contractors focus on establishing a relationship with

customers instead of focusing sales. It was stated if someone needs a sale to create a relationship

with a customer, they will retain the customer. This group of Marketing Contractors has grown

from 6 percent to 11 percent recently. Retaining customers makes them automatically

differentiated from the usual contractors who’s only focus is make-and-sell frame of mind

(Hudson, 2016).

Customer-focused selling strategies will create a long term relationship with customers

easily. Companies were not aware of this situation in which a salesperson can create value for

the firm by creating a relationship with the customer in the b2b work environment. Specifically,

small-sized or medium-sized firms are sensitive to customer relationship management. Most

businesses are looking for a valuable sales service between their purchasing department and

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salespeople of HVAC companies (Keshvari, 2012). The HVAC industry is one that needs to

realize the importance of customer relationship management. The industry employees have

technical skills which the industry requires (Shaw, 2006), but value creation will be

accomplished when companies start to realize the significance of the customer based skills of

salespersons (Keshvari, 2012).

f. The Four P’s of Marketing for the HVAC Business

The famous 4 P’s can influence the purchasing process in the industrial markets. These

marketing tools are as follows: price, promotion, place(distribution), and product.

Beginning with price, there are two strategies to consider. First, “Cost-based pricing”

illustrates the price according to overall costs from starting with raw materials and ending with

delivery of the product. Second is “Value-based pricing” which is the method that focuses on

customer demand, and the price that they are willing to pay (Keshvari, 2012). Pricing has crucial

effect on the purchasing decision of HVAC systems. And setting prices is one of the greatest

challenges for the HVAC industry. Establishing a too high price for the work, or associated labor

has a potential risk of losing the customer. Also, setting too low of a price for the work has a

potential risk to close the business due to lack of necessary revenue. Operations required for

having a successful HVAC business require a strategic pricing campaign. For example, a service

call fee can be used as a bridge to retain customers. Technicians need to understand that the job

is not only fixing the HVAC system, it is also tending to the customer and their needs, which is

essential to building an excellent customer relationship (Krawcke, 2016).

Most HVAC contractors are using “time and materials” pricing or a flat rate for their

work. From these types, flat rate is the preferable one because the business can give the price

quote from the beginning. For the flat rate pricing, understanding the total cost of the work is the

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key point. Then companies need to observe the market so as to set a margin. HVAC contractors

and companies should create a menu if they set a flat rate since they have limited options. This

option is more beneficial to the business, as the customer will be less likely to initiate

negotiations when the price is pre-determined and available in a print reference. It is more

convenient than when a technician walks into the house and says the price while looking at the

potential repair (Krawcke, 2016).

Promotions significantly help to build a relationship between the supplier and the buyer,

and also help to retain the long-term relationship with the customers. (Keshvari, 2012). Place, in

other words, distribution, is another key marketing factor in the b2b process. It is basically every

part of the process in the supply chain, and also determines an easy access point for customers to

acquire the end product. The last phase for 4P is the product. Product can be defined as a

material, system or service. This is the key factor to create a differentiation and attract customers

who need this type of product (Keshvari, 2012).

g. The Current Situation on the HVAC Market

The HVAC industry has some similarities with the airline industry. It is highly

competitive and cost driven, and customers are often looking for the cheapest price. Like all

other industries, strategic marketing is significant for the HVAC industry. Companies need to

know how they stand out and differ from other competitors. They also need to pin down their

business goals from the beginning. As a second step, companies should know their current and

previous customers and should try to understand what the customers are willing to pay for. It will

help to create potential sales for the future. Another step mentioned in past literature is to find

marketing tools based on the first and second steps. For example, if the company wants to focus

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on increasing profit by selling higher margin products to existing customers, they need to focus

on compelling reasons which will have consumers wanting to purchase their product. It will also

help to gain more place in the market by word-of-mouth if customers have good experience with

past purchases. As for the final step, companies need to create a marketing plan, measure and

adjust it according to current changes. Developing a marketing plan may not sound complicated

but it requires a strategic approach with delicate (Spaulding, 2015).

Mike Agugliaro (Co-owner of Gold Medal Service) shares his thoughts in “Four Ways to

Generate More Repeat HVAC Contracting Business.” In this book he states the importance of

customer retention in the HVAC business. “Changing Your Mindset” is the first stage of the

process. It is advised to think of the HVAC company as essential service rather than a

commodity service. It will help companies to serve their customers when they need assistance in

having a more comfortable environment to live in. The second stage is “Build a Culture of

Service.” The service that HVAC companies offer needs to be framed from beginning of pre-

sales to after-sales. When a customer comes in for a service and scheduled time cannot be

reached by the team, even offering small things like a coffee can make a difference and it can

help to improve customer satisfaction. The third stage, “Be the solution,” is stating that

employees in HVAC companies should think in the customers’ perspective. Instead of giving all

technical terms to the customers, using simple, understandable words will improve the customer

retention. Customers will want to hear their options in lay language. The last stage of this process

is “Be Proactive”. The company should call back to the customer to check if the product has any

issue after sale or service. Customers might like to hear few tips about maintaining the product

they have (Agugliaro, 2015). Although the b2b process can be different from residential AC

sales, it indicates that the HVAC market is sensitive to customer relations.

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The current situation on the commercial/industrial HVAC market seems optimistic.

According to Reeves Journal Western Trends Survey 2015, 71% of the contractors who

participated the survey think that their businesses increased when compared with the last year.

Within 45 attendees, 27% of them marked “Remained the same” for the commercial industry,

and only 2% of them think their businesses decreased in 2015. It shows the HVAC industry is in

good shape and has potential growth for future years. Another interesting point on the survey is

that 75% of the attendees think that it is really difficult to recruit/find qualified labor for the work

required to install and maintain the systems. Commercial/industrial HVAC market has many

differences from residential sales which make the market pretty unique (Sweet, 2016).

According to ASHRAE (American Society of Heating, Refrigerating, and Air-

Conditioning Engineers) 2016 Survey, attendees are optimistic about 2016 HVAC market. This

survey was made for, and given to people who attended the ASHRAE 2016 Annual Conference,

the biggest HVAC expo in the world, in Orlando. 71% of respondents think that their businesses

have a chance to grow.

Figure 1 - ASHRAE Journal “How do you rate prospects for your business in 2016?”

0% 10% 20% 30% 40% 50% 60% 70%

Poor

Fair

Good

Excellent

How do you rate prospects for your business in 2016?

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The second chart shows that the attendees expected to have growth when compared to

sales in 2015. It is reliable to presume that the HVAC industry will have potential opportunities

for new entrants and existing companies in this sector. 77% of the respondents expected growth

in 2016 compared to the last year.

Figure 2 – ASHRAE Journal “How do prospects compare with 2015?”

Another question that was asked to the attendees is: Which factors were more important

for your customer? The table as can be seen below shows answers for all HVAC businesses

including residential and commercial HVAC sales. “Reliability” has chosen the number one

important factor according to the answers. “Energy efficiency” and “initial costs” are also

significantly important factors. “Recycled materials in product or packaging” was the least

important factor that customers were giving attention to.

0% 5% 10% 15% 20% 25% 30% 35% 40%

Increase More Than 10%

Increase 5% to 10%

Increase Less Than 5%

Stay the Same as Last Year

Decrease from Last Year

How do prospects compare with 2015? You expect business to:

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How important to your customers are the following?

Very Important Somewhat Important Not Important

Energy Efficiency 64.5% 30.7% 4.8%

Indoor Air Quality 35.6% 57.6% 6.8%

Maintenance 50.8% 45.9% 3.3%

First Costs 63.3% 35.0% 1.7%

Sustainability 36.1% 45.9% 18.0%

Reliability 86.9% 11.5% 1.6%

Comfort 54.1% 36.1% 9.8%

Recycled materials in

product or packaging

6.6% 44.3% 49.2%

Table 1 – ASHRAE Journal’s Survey 2016

III. Proposal

In past studies, researchers stated the importance of customer satisfaction and customer

retention. The definition of HVAC system and some market impressions were also given.

Although it is stated that it is crucial to have an energy efficient product and have valuable

customer service, there is no specific research on whether there are some other factors that can

affect the HVAC purchasing process, especially in business to business perspective. It was also

stated as a special part of this study as to whether or not other businesses are aware of VRF

systems, which will be expected to have an increase market share in the United States.

The following interview draft will be used to collect data from more companies and there

will be a chance to compare and generalize the results.

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Gender : Male Female

Company you currently working for : Profit Non-Profit

Title of your position :

How long have you been working at your current position?

Can you briefly describe your duty for your company?

When was the last time the HVAC System was purchased for the company you are working

for?

Which company was that?

What type of system was purchased? (VRF, Multi-Channel, Residential, Rooftop etc.)

Do you maintain the system by your own employee or call for service if it is required or

both?

Can you state if there is any specific conversation between you and salesperson of the HVAC

company in the purchasing process?

If it is not confidential what was the price for the system you purchased?

Do you think the value of the purchase was the same as expected? In other words, do you

think it was worth the money?

Can you explain what are the factors you and the management consider in the purchasing

stage?

Would you please rate them 1 to 10; 1 is less important and 10 is more important?

- User-Friendliness

- Quality

- Brand Reputation

- Initial Price

- After-Sales Service

- Efficiency

- Cutting-Edge Technology

- Environmental Friendliness

Have you ever heard about VRF Systems? Do you consider buying this system in the future?

Any specific brand in mind?

Table 2 – The Interview Draft

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The hypothesis is based on the relation between the factors stated above and the

purchasing decision. The proposal can be stated as follows;

H0: There is no relation between the factors and the HVAC purchasing process in

business to business perspective.

H1: The factors are highly related to the HVAC purchasing process in business to

business perspective.

The data was collected in two parts. The first part consisted of two questions asked to

HVAC companies in the AHR Expo 2016. The factors mentioned above were focused and the

study tried to find out if companies were aware of what their customers think about these factors,

and also if they can put themselves into customer’s shoes in commercial sales. Numbers and

observations were collected by interviewing a sales engineer, a sales manager or a marketing

specialist in well-recognized HVAC companies.

The second section of the data was collected from customers. In this case, the customers

were the ones in companies (profit or non-profit) who were in charge of HVAC purchasing

decisions for the office building or for the work environment. The data was collected by having

an interview with those purchasers. With both sections, the comparison would be available; and

with there are hope to close such gaps in the industry, if any, between customers’ perspective,

and companies’ perspective should be found.

IV. Data Analysis

a. Overall Analysis

For the first part of the study’s data collection process, twenty-two experts were

interviewed in AHR Expo 2016, in Orlando, Florida. One vice president, five regional sales

19

managers, twelve sales engineers and four marketing specialists all answered the questions. All

of them were employed by well-recognized HVAC companies. When it was asked of them to

rate the factors from one to ten (one is least significant, ten is the most significant), some factors

came to the forefront such as quality. Some of them were less important such as cutting-edge

technology, according to their responses. The average of twenty-two responses is given in the

chart below:

Figure 3 – Factors Affecting the HVAC Purchasing Part 1

According to the experts’ responses, the quality of the HVAC system is the most

important factor for the commercial sales. Initial price and after-sales services are other

important factors which can be considered high priority for almost all the HVAC companies in

the market. Cutting-edge technology and environmental friendliness factors are the least

User Friendliness, 7.22

Quality, 9.31

Brand Reputation, 7.4

Initial Price, 8.22

After Sales Service, 8.13

Efficiency, 6.86

Cuttinn-Edge Technology, 5.4

Environmental Friendliness, 5.5

0

1

2

3

4

5

6

7

8

9

10

Factors Affecting the HVAC Purchasing Part 1

20

important ones compared to others. Details about the factors will be given in the observations

section below.

HVAC companies at the expo stated some other factors can be related to the purchasing

decision. These are reliability, technical support, networking, profitability, availability, technical

knowledge, experience, and pre-sale service. This information might be important for future

research.

All the while, some of the employees in HVAC companies did not want to attend the

interview. Moreover, few employees responded the questions, and after seconds, they wanted to

withdraw their answers from the interview even though the respondents were provided

confidentiality and informed that all the personal information will not be shared with the study.

The request letter shared with respondents can be reached in the appendix section. (Appendix A)

For the second part of the data collection, customers in the industry were interviewed and

asked about their opinions. Twenty interviews were collected face to face in Cape Girardeau, and

St. Louis, Missouri. Twenty-five percent of the respondents were female. There were five non-

profit organizations including three hospitals and two universities, and also 15 private companies

specializing in areas of IT, finance, insurance, consulting, and engineering systems.

All companies have at least one building to maintain and have a physical office in that

building. Some of the respondents have their own facilities management who maintain and

purchase HVAC systems for their buildings. Facility supervisors, facility managers, purchasing

supervisors or purchasing managers of the companies have attended and have responded to the

questions for this research. Special attention was paid to choosing companies that the last HVAC

purchase made within the last year or less. The HVAC systems purchased currently are VAV

(Variable Air Volume), multi-channel or VRF/VRV systems.

21

Most of the respondents think that the purchasing meets the expectations since the

process mostly happens within the tendering procedure. This ensures the budget has been already

planned before the purchasing process.

Before giving the factors list on this research, the most important factor in HVAC

purchasing stage was asked of the respondents. Initial costs, accessibility, after sales service, and

quality were the most common factors stated in interviews.

For the second part of this data collection, the factors’ rating is listed below:

Figure 4 - Factors Affecting the HVAC Purchasing Part 2

As demonstrated above, some of the factors listed are quite important and few of them

not as important as others for customers. Quality and initial price are the most important factors.

Efficiency and after-sales service rated somewhat important. The least significant result from

these numbers is the brand reputation Customers rated the lowest score for this factor when they

User Friendliness, 5.7

Quality, 9.2

Brand Reputation, 2.45

Initial Price, 9.35

After Sales Service, 7.25

Efficiency, 8.5

Cutting-Edge Technology, 5

Environmental Friendliness, 5.95

0

1

2

3

4

5

6

7

8

9

10

Factors Affecting the HVAC Purchasing Part 2

22

are purchasing HVAC systems. Cutting-edge technology, environmental friendliness, and user-

friendliness also rated at a mid-range importance.

It was stated to all respondents that these factors were asked only in reference to

commercial/industrial purchasing decisions. Results for residential HVAC systems may be

different from this data. Comparison for the part one and the part two is given in the observation

section as well.

b. Observations

i) User-Friendliness

The respondents rated this factor 7.22/10 (from the HVAC employees) and 5.7/10 (from

the customers). Mostly, it is because of the systems in commercial industries that customers do

not need ease of function for HVAC products. Moreover, most of the products for the

commercial market work with a central control unit. Only a responsible person in the company

needs to adjust the temperature or maintain the system.

ii) Quality

Quality is rated 9.31/10 from the HVAC employees and 9.2/10 from the customers. As

all technological product quality is directly linked to initial price and efficiency. With that, both

parts of the business are aware of the importance of this factor. “Quality is what we sell!” were

the words during the interview by one of the sales manager in HVAC company.

Customers think that quality is also linked with durability. Such that, if the quality of the

system is good enough, they do not need to maintain or to change the product for a long time. It

will reduce to costs in long run.

23

iii) Brand Reputation

Brand reputation has the biggest difference between the responses of customers and the

responses of HVAC employees. The results are: 7.4/10 from the employees and 2.45/10 from the

customers. According to these numbers, customers do not think that brand reputation is as

important as companies perceive it to be. This can also be proof that brand loyalty is low in the

HVAC commercial industry.

Most customers think that initial price, quality and efficiency of the product matter when

they choose a product. Since most of the companies purchase HVAC systems from sub-

contractors/sub-dealers, they care about references indicating whether the contractors have some

previous good work or not.

All in all, there is enough difference that infer brand reputation is not an important factor

for purchasing HVAC systems, which also show it is hard to survive in this market. Companies

in this sector should focus to create brand loyalty to retain customers or they should have the best

quality product with an acceptable price. Otherwise, the rivalry of the market can make them

lose their profit margin.

iv) Initial Price

Initial price is another significant factor that affects the purchasing decision. It is rated

8.22/10 from the employees and 9.35/10 (the most important factor) from the customers’ side of

the business.

As it might be expected, the initial cost is one of the main factors, especially taking into

consideration that commercial HVAC systems can be quite expensive since the system needs to

24

cool/heat the entire building; not only a room. From the interviews, the minimum amount for the

last purchase was around $10,000 US dollars and it went up to $150,000 US dollars. When

companies need to consider that amount of money, just a small percentage of a discount can

make a big difference for the competition.

According to the observations on the interviews, customers relate the initial cost with the

quality and the efficiency of the HVAC system, which is true for most cases in this industry.

Competition has forced companies to lower their profits and to engage in joint ventures with

companies nationwide.

v) After-Sales Service

After-sales service got rated higher from the HVAC experts than the customers. 8.13/10

(HVAC experts) and 7.25/10 (customers) are the results from the data collection. HVAC

companies think giving an excellent service after the initial purchase is the key factor for

customer retention. Maintaining the HVAC systems, which they sell, is a big part of the business

for gaining profit. HVAC systems are not daily sale products. When a company purchases a

system, it might take around 10-20 years to replace a new system. But they need to maintain the

system yearly or every six months. In that case, the after-sales service factor comes into

prominence.

Observations from the interviews show that customers give almost the same value for

after-sales service. They like to reach the technical service or customer relations of the HVAC

company anytime they need. Numbers went down because of the respondents who have facility

management departments or technical experts who can maintain or fix the HVAC system. Since

25

they had their own experts they rated lower than other customers. (These companies are mostly

non-profit organizations and they rated 3-6 for after-sales service.)

vi) Efficiency

Efficiency is another factor that has a significant difference between the HVAC experts

and the customers, surprisingly. The HVAC experts rated 6.86/10 and the customers rated

8.5/10. Most customers think if the efficiency is higher the turnover rate will be lower by saving

from energy consumption. This factor is directly related to quality and initial price but also it is

connected with environmental friendliness factor, at the least. Customers care about this factor’s

ability to allow them to have higher indoor air quality with less money.

On the other hand, HVAC companies rated this factor lower than customers because of

the contractors they work with. They think most of the contractors do not care about the

efficiency since they only look for the initial cost. HVAC companies think that contractors prefer

a lower initial price rather than having a high efficient HVAC system for their buildings.

vii) Cutting-Edge Technology

Cutting-edge technology is not an important factor according to the interviews. The

HVAC experts rated it 5.4/10 and the customers rated it 5/10. Although the industry works with

high-tech products, both parts of the business think nobody wants to try something new on the

market. It is directly related to the initial price factor. Since the price is too high for the systems,

they do not want to risk trying something new when there are not enough experienced technical

workers.

26

Customers like to see references with the product and with the company before deciding

to use the system. “We do not want to be the test subject for new products. So we always go for

the reliable one.” This comment shows that companies need to have an acceptable price for new

systems to get some references before actually putting the product on the market.

HVAC companies are on the same page with customers. Companies think that if

customers find a product which is reliable and efficient, they are not looking for newer systems

on the market which are giving difficulties for research and development (R&D).

viii) Environmental Friendliness

Environmental friendliness is also another less important factor for purchasing decision.

5.5/10 from the HVAC experts and 5.95/10 from the customers were given for this factor.

HVAC companies reported that there is too much pressure from the US government to decrease

their harmful components, such as refrigerant gas, and to increase indoor air quality, and also

save energy by improving efficiency. “With regulations, the government requires more green

products day by day. Instead of pushing companies to have more green products, they should

focus on the public to raise awareness of energy consumption.” A marketing specialist from one

of the HVAC company gave this comment which shows that companies are under stress and they

do not think environmental friendliness as an important purchasing decision factor for this

industry. Companies who consider improving the efficiency of the products will directly create

nature-respecting HVAC systems. They think it might be more beneficial to educate customers

on how they can use the HVAC system in a manner that is more effective and greener.

Customers’ side of the business, most of them do not look the environmental parameters

when they are choosing an HVAC system. They think the regulations on the market are covering

27

this topic sufficiently, hence they do not worry. But they also aware of how energy consumption

is affecting the environment. Since the interview was for commercial HVAC systems, most of

the companies think as business owners as well. According to their consideration, the numbers

might be more different in residential HVAC purchases.

ix) VRF Technology

Awareness of VRF technology is at a high level in the industry. Some have already had

their experience with the VRF systems. Thirty percent of the respondents already had experience

with these systems and only one person out of twenty did not know the system.

Due to initial cost and complexity of the system, customers tend to use common HVAC

systems, such as multi-split, VAV or duct type. However, because of the efficiency factor, the

experts stated that it is not difficult to convince the customers to have VRF system. Customers

are also on the same page with HVAC companies. They realize that due to the high efficiency,

the initial cost can be covered by energy savings. According to interviews both side of the

HVAC industry aware of the potential of VRF systems in the United States. Daikin, Mitsubishi,

LG, Fujitsu, Johnson Control, and Panasonic are the most well-known companies in the United

States for VRF systems according to responses of customers.

V. Conclusion

As a result, there is not enough evidence to support that all the factors are important when

customers choose an HVAC system. According to results, quality and initial price of the HVAC

products are the most important factors in the purchasing decision. Customers and HVAC

employees agreed that the quality of the product is really the key factor for choosing an HVAC

28

system. As for initial price, customers rated more but every sales person in the market is aware

of the importance of this factor. Customers also know that initial price is directly related to

quality and efficiency however, they still consider the cost as a key factor since the budget

mostly planned before the purchase of the HVAC system.

Efficiency and after-sales service proved to be a significantly important category. The

importance of the efficiency factor in commercial industries is underestimated from

HVAC experts. They consider that customers focus on the initial price but the efficiency is also

an important factor when it comes to purchasing decision. Companies should be aware of the

efficiency factor and inject it into their marketing strategies.

User-friendly products are another important factor according to the HVAC experts but

customers do not think it is important as much as the experts think. The difference between the

responses of customers and experts occur because customers who attend the interview are not the

end-users.

Cutting-edge technology or environmental friendliness are not such important factors in

HVAC purchasing decisions. Both parts of the business agree with these two factors. Companies

may not gain enough market share with focusing only on technological development. As long as

the United States government keep the regulations up, companies and customers will not worry

about these factor since they think the government is taking care of this issue.

Brand reputation is the most surprising result of this research. Although HVAC

companies think this factor is important in purchasing, customers rated lower enough that one

can say there is no brand loyalty. Companies should focus on creation of brand loyalty with

excellent customer relations or with product differentiation.

29

All in all, HVAC purchasing decision in the b2b industry is related to some important

factors mentioned before. Companies and customers mostly agree on which of them are

important and which are not.

VI. Limitations and Exceptions

Limitations for this research include the lack of foundation and difficulties with reaching

the purchasing department supervisors of companies. The small demographic regions in which

the respondents were present, as the interviews have been conducted and the data collected only

in St. Louis-MO, Cape Girardeau-MO, and Orlando-FL greatly limits the environmental

conditions compared and the number of professional opinions and variations thereof. Moreover,

the topic is quite specific, and for valid information, interviews need to be conducted with

managers or supervisors in purchasing departments or facilities management departments.

For future research, the number of interviewees can be increased and diversified over the

entire country or additional countries around the world. Also networking with multiple

Chambers of Commerce can help to reach many more companies easily.

30

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33

Appendix A

Greetings,

First of all, I would like to thank you very much for your time and for your participation. It is

greatly appreciated. I am Ali Can OZEN student in Southeast Missouri State University,

studying MBA- International Business and working as Graduate Assistant at Provost Office,

Southeast Missouri State University. I have a bachelor degree in Mechanical Engineering in

Turkey. These two degrees are helping me to create a bridge between Air-Conditioning Systems

and Customer Expectations.

On my study I would like to find out what are the real factors affecting the HVAC purchasing

process in Business to Business perspective. As a customer, which parameters are more

important than others. This study might help for future research or HVAC industry by giving

them some customer thoughts in this area.

All personal information will be fully confidential and will not be shared with anyone

under any circumstances whatsoever. And the information that will be collected by interview

will only be used for research purpose.

It should take around only 15-20 minutes to complete the interview. I again thank you

very much for your help and consider. If there are any questions/concerns about the interview,

please feel free to contact with me at acozen1s@semo.edu or alicanozen@hotmail.com .

Kind Regards,

Ali Can OZEN Signature: _______________________