A New Study Seeks to Enhance Propane's Standing with Homebuilders

With rising oil and materials costs, weak winters and unsure economic times, propane retailers are always looking for additional sources of income.

Since there are already myriad products targeted to residential consumers, homebuilders have been the focus of recent industry market research study completed by the Propane Education & Research Council and Avant Marketing Group. The study provides data on perceptions the building industry has towards propane and what propane marketers can do to break into the builder market.

The research shows that the builder is critical to the choice of the energy source in housing. For commercial projects, the developer and mechanical engineer are jointly involved in decision making for an energy source. The research indicates that local propane marketers need to reach out and educate homebuilders, who often choose an energy source without knowing propane's benefits.

Study results

The builder market study found that while consumers prefer gas for water heating, they defer the decision to the homebuilder. Many builders are still recommending that electric water heaters be installed in homes.

According to Tracy Burleson, PERC's director of residential trade outreach and partnerships, the propane industry needs to continue to directly engage homebuilders and reinforce key messages, such as cost efficiency and long-term availability.

She suggests propane marketers provide information with direct comparisons of propane to competing energy sources to help builders understand how propane can help them build a higher quality home that results in a higher profit margin.

"Builders need to be educated on propane's operating efficiency compared to electricity and how it can create a home that will sell faster," says Burleson.

"They also need to understand the installation costs and be assured that a propane installation won't interrupt the build cycle for a new home."

She noted the research found that key messages resonate with builders, particularly propane's low operating cost compared to electricity. The high efficiency ratings of propane appliances were also of interest to builders, who are conscious of homebuyer desires to control energy costs.

Propane's environmental benefits also appeal to builders, the research found.

To reinforce those messages, the report recommends that the propane industry create a Web site that features comparison data and new tools to help builders understand the value of propane compared to competing energy sources.

Underground tanks for both individual homes and entire developments were well received by builders, primarily because they eliminate homeowner and developer concerns about the visibility of the tank.

Propane's dominance in outdoor applications extends beyond the grill is another key component that builders already know.

"In every region across the country, propane was selected as the dominant energy source for outdoor appliances," says Burleson.

What can retailers do?

While 66 percent of homebuilders surveyed said they turn to the propane industry for information about underground tanks, they are still interested in learning more about propane. Burleson says industry members should be encouraged to reach out more to homebuilders in their respective markets and talk to them about propane, as builders are open to improving their understanding of propane and its benefits.

When builders were asked how they would improve propane's market share, 46 percent cited a need for more advertising that reaches homebuilders. PERC will answer this in 2007, with a national campaign that will introduce a builder-focused advertising campaign to reach homebuilders, according to Burleson.

The research also found that the Internet is the second-most popular choice for homebuilders when looking for information about propane.

"Industry members should review their Web sites and assess if they are effective in reaching homebuilders," says Burleson.

Dave Donahue of Donahue Gas in Indiana is active in PERC's Consumer Education Advisory Committee and the builder market. He agrees that homebuilders should be targeted; but they're not they only ones marketers should look at.

"Everyone goes straight to the builders, but we've found a lot of success by going to the sub-contractors," says Donahue.

"If we can get them to implement propane, then we're in the house. And once the home owner is a customer, we can sell them upgrades and new products."

Donahue notes that his company belongs to homebuilder associations in every market they serve, and that a large majority of those associations is made up of sub-contractors, not actual builders. Meeting and establishing relationships with the sub-contractors is key to increased propane sales, he says.

It's difficult to get a homebuilder to convert a whole house to propane. But if you start out small, you can slowly convert the home over time. "It's an evolution, not a revolution," Donahue says.

He also agrees that the builder market study goes a long way to help marketers know just who to target.

"You need to find out who makes the decision - sometimes it's the builder, sometimes it's the sub-contractor - then target them and make sure propane's message is there," says Donahue.

"From there, we can tailor the message to the specific party and get propane into the house. We offer more options than other utilities, and now we've got the tools to show that."

Background

PERC spent $160,450 to fund the study, which was conducted in 2006. Its goal was to identify and qualify commercial and residential builder attitudes concerning propane, with a focus on perceptions regarding propane's benefits and barriers.

Homebuilders were asked to rate propane in terms of ease of use, installation and cost-benefit for both builders and owners.

The study also examined the differences between contracted builders and builder/ developers, identifying what influences the builder when deciding on the primary energy source and appliances used in buildings.

About 50 builders participated in five focus group sessions and 500 builders were recruited to participate in a quantitative survey conducted by phone. Builders were recruited from across the country with a focus on securing a statistically representative sample that adheres to the regional market map developed by the National Association of Home Builders.

According to the NAHB, propane use varied substantially within the five regions.

In Region 1, natural gas was the leader, with 64 percent of homes supplied by natural gas. Electricity was second at 32 percent, followed by propane (20 percent), wood (13 percent), geothermal (0 percent), fuel oil (0 percent) and solar (0 percent).

Region 2 was led by electricity (51 percent), followed by natural gas (49 percent), propane (26 percent), geothermal (5 percent), wood (5 percent), solar (1 percent) and fuel oil (0 percent).

Electricity dominated Region 3 (77 percent), followed by natural gas (41 percent), propane (10 percent), solar (9 percent), geothermal (2 percent), wood (2 percent) and fuel oil (0 percent).

Electricity also led Region 4 (54 percent), followed by propane (40 percent), fuel oil (24 percent), solar (7 percent), wood (6 percent), natural gas (5 percent) and geothermal (2 percent).

Region 5 was also dominated by electricity (82 percent), followed by propane (19 percent), natural gas (17 percent), wood (1 percent), geothermal (0 percent), fuel oil (0 percent) and solar (0 percent).

According to the NAHB, nationwide housing starts in September 2006 regained the ground they lost in a steep decline the previous month, but issuance of building permits - a key indicator of future building activity - continued on a downward trend, according to numbers released by the U.S. Census Department.

September housing starts rose 5.9 percent to a seasonally adjusted annual rate of 1.77 million units, in close alignment with July's 1.76 million-unit rate and the third quarter's average of 1.74 million units. Single-family starts were up 4.3 percent to a rate of 1.43 million units, while multifamily starts were up 12.7 percent to a rate of 346,000 units.

Regionally, starts rose 14 percent and 3.4 percent in the South and Midwest, respectively, but fell 14.1 percent and 2.2 percent in the Northeast and West, respectively.

Building permits, which can be a good indicator of future building activity, fell 6.3 percent in September to a seasonally adjusted annual rate of 1.62 million units. Single-family permits were down 6 percent to a 1.21 million-unit rate while multifamily permits fell 7 percent to a rate of 412,000. Permits were down 3 percent in the Northeast, 6.9 percent in the Midwest and 9.5 percent in the South, and recorded no change from the previous month in the West.

The complete report is available via PERC's Propane Marketing Resource Center (MaRC) at http://members.propanecouncil.org/. Burleson says industry members are encouraged to download the report and review it to learn more about the study and the regional findings for their respective local markets.

For more information on the research, contact Burleson at 202-452-8975 or at tracy.burleson@propanecouncil.org.

Article courtesy of LP Gas magazine, Questex Media Group.