The Value Proposition

It’s not often that an electrical contractor has the opportunity to sell a product line that saves a customer time, money and energy; promotes green sustainability; and reduces the load on the nation’s power grid. But that’s what industry observers say LED lighting sources can do.

There are a number of circumstances coming together right now to create a perfect selling storm for the contractor aware of the market potential of LED technology.

Whether the customer is a multinational corporation or a homeowner, there are compelling arguments to be made for going LED.

However, it is important to understand the customer’s individual needs and not try to sell an LED solution where it doesn’t make sense. A contractor who oversells an LED solution in circumstances where it is not economically appropriate or feasible does so at his or her own risk and endangers professional credibility.

For example, it would be 30 times as expensive to replace a linear fluorescent in a commercial situation with an LED equivalent, and both have virtually the same lifespan. And for the homeowner, if utility (as opposed to accent lighting or dimmability) is an issue, LEDs are still comparatively costly.

The key to convincing the customer to switch to LED lighting systems is knowing the application specifics and then differentiating between initial price of the product and total cost of ownership over the life of that product. This is often referred to as “the value proposition.”

How the value proposition works
Besides the basic price tag, the proposition involves maintenance and energy usage.

“In a typical return-on-investment (ROI) drill, the contractor has to explain to the customer what the replacement tradeoffs are over a specified period of time,” said Jim Benson, general manager of marketing at GE Lighting, Cleveland. “Over 30,000 hours, one 10-watt LED PAR30 lamp would be used, costing $42. But for that same timespan, 15 incandescent 45-watt R30 bulbs priced at $4 each would be needed, and 10 halogen 50-watt PAR30 lamps each at $7.50. When you factor in maintenance (frequency of changing lamps) and energy use, then the total cost of ownership is $74 for the single LED, $225 for the 15 incandescents, and $245 for the 10 halogen lamps."

Now, these estimates are based on current pricing levels for the three product types, but to make the case for LED replacement lamps even more convincing, it is expected that, as they gain in marketplace acceptance, their prices will come down.

“LED lamp prices are decreasing, and this will be ongoing,” said Peter Soares, director of consumer channel marketing at Philips Lighting Co., Somerset, N.J. “Last November, we planned to introduce a 60-watt equivalent at $50, but by December, the price was revised to $40, and in those states where utility rebates are available, that could push the acquisition price down to $25.

“In addition, that LED lamp uses 12.5 watts of power and will last 25,000 hours, which is 25 times more than the incandescent it will replace, saving the homeowner $140 over the life of the bulb. When you multiply that by the number of lightbulb sockets in the average home, that really adds up.”

Soares also anticipates that there will be a shift in mindset among homeowners with regard to lighting, and it will begin to be considered a major energy-saving purchase decision along with state-of-the-art windows, heating systems and major appliances, not only for the attractive payback, but as a selling feature if the house is put on the market. Contractors should remind customers of this additional benefit when discussing a changeover to LED lamps.

Commercial opportunities
While the homeowner market for LED lighting is just beginning to open up, the technology’s use in commercial applications is well-established and continues to grow.

A survey of purchasing and facilities decision-makers conducted late last year by Osram Sylvania revealed that 73 percent of the participants either currently use LEDs in their buildings or plan to do so in the next few years. These installations include both replacements of other forms of lighting and completely new lighting systems or major renovations. It was also found that those who have evaluated lighting options in the last year or so are more likely to chose LEDs, indicating the increasing acceptance of the technology.

Once again, selling the value proposition is critical, and so is finding the right decision-maker.

“You can have trouble making your argument about long-term economics, depending on whom you engage with,” said John Zimmerman, marketing manager for professional solid-state lighting at Osram Sylvania, Danvers, Mass.

“If it’s a low-level person managing a really tight budget, such as a purchasing manager whose performance is measured on how much money he saves, he probably won’t see beyond the initial cost. As a rule, facilities managers and building owners are more receptive to the strategic value of choosing LEDs. Study the application being considered, and if you can demonstrate a payback within two years, that is a strong selling point even when dealing with a tactical buyer.”

Zimmerman also has this cautionary observation: “Both distributors and contractors have to be aware that all LEDs are not created equal. There are some companies that have sprung up presenting themselves as being suppliers in the LED lighting marketplace. The supply chain has to understand this technology well enough to distinguish quality, reliable products, and that have Energy Star ratings. Ask the supplier to see his certification data.”

In fact, some of the lingering doubts that skeptical users may have regarding LEDs can be traced to the fact that they purchased cheap, low-power LED lamps at retail stores over the last few years, inferior products that emit a blue or green light.

“Watch out for new entrants into the marketplace,” GE’s Benson said. “There are a lot of bogus claims attached to the marketing of these products, and contractors have to know who they’re buying from and trust that the company will be around in another five years if there are problems with their products. Quality and reliability are the paramount issues.”

The green-and-grid argument
Sources agree that customers trending toward LED lighting have generally been technological innovators or early adopters; those financially focused on energy-saving; and—increasingly—companies and individuals who are genuinely committed to going green.

Big players, such as Starbucks and Walmart, have already made massive capital outlays in LED lighting in their stores, not only to save on their electric bills and staff maintenance hours, but to demonstrate to their clientele that they are environmentally conscious. Being perceived as being green has become a critical part of the brand image of many multinational corporations, and smaller companies are beginning to follow suit.

The individual residential customer, who is his own decision-maker, is quite often even more attuned to environmental issues than the double-mocha-big-box sector is.

To the homeowner, a lower electric bill becomes even more appealing when bolstered by the argument that if service areas cut back on demand, future utility rate hikes could well be avoided. And, in some areas, this argument is even more compelling if the local utility is offering rebates for the installation of LED lighting.

Know the target markets
Contractors should be looking for new, first-time LED lighting customers in both the commercial and residential sectors, remembering that opportunity favors the prepared mind.
LEDs are already the lighting of choice in many large businesses and government sectors; it’s also used for lighting refrigerator cases in supermarkets, difficult-to-reach installation locations, and almost everywhere in traffic signals and exit signs.

The contractor can creatively plan using these examples to gain access to some fairly untouched niche markets.

“One promising possibility is the convenience store where beverage coolers can be relamped with LEDs the way the larger freezer cases in supermarkets have been,” Zimmerman said. “In fact, mom-and-pop store owners can significantly reduce energy consumption in two ways: first in the number of watts consumed by the LED light source, and second because the compressor doesn’t have to work as hard in an LED solution as it does with more heat-producing fluorescents. Typically, if they save 12 watts by going LED, then there’s an additional 6 watts in compressor load saving.”

On the residential side, ambient and decorative lighting have the strongest appeal and their use can be justified by documented savings statistics.

“When accessibility is an issue, as in the case of a high chandelier, LEDs are an ideal installation prospect,” Philips’ Soares said. “Also, these fixtures are typically in upscale homes where the initial cost is not a significant problem.”

Finally, contractors should remember that the general public still does not know a great deal about LED technology. Don’t overestimate the customer’s understanding of the subject, but never underestimate his ability to comprehend its benefits if presented clearly and accurately.

QUINN reports on a broad range of business and industry issues for journals in the United States and Europe. He can be reached at 203.323.9850 and

About the Author

John Paul Quinn

Freelance Writer
John Paul Quinn reports on a broad range of business and industry issues for journals in the United States and Europe. He can be reached at 203.323.9850 and .

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