IoT Strategy

Market Strategies for Residential Security

by Dina Abdelrazik | Aug. 29, 2018

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

Ad-hoc monitoring and diminishing contract terms are relatively new trends in the market. While spoken of and envisioned, these alternative approaches have yet to significantly impact contract terms as illustrated through Parks Associates annual Security Dealer Survey.

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

The residential security market is experiencing market disruption from self-installed security system options. These systems are often sold online using a sales process that is inherently different from a traditional professionally installed, professionally monitored offering which typically relies on an in-home consultation and visit from a technician.

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.

The recent launch of Amazon’s Ring Alarm has the potential to further expand the market into the roughly 73% of broadband households that do not own a security system. However, Ring has taken an aggressive pricing strategy with both the hardware package and the monthly monitoring fee at $10/month. Lumping in video storage for unlimited cameras further sweetens the deal.

Amazon is offering “insurance-related” products that can be attached to the Ring system such as a smoke/CO listener and alarm flood/freeze sensor indicating a potential move into the home insurance space. The monitoring price alone is causing buzz and alarm in the security industry. A disruptively low price point of $10/month for professional monitoring may create downward pressure on RMR and have major implications on the industry.

Parks Associates data reveals that among the 3% of broadband households that canceled professional monitoring service each year over 2016, 54% did so as a household decision that monitoring is simply too expensive.

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

As the market for interactive services matures, security dealers must adapt by shifting their product portfolio. Interactive services are a key driver — among the 73% of broadband households that do not own a security system, 19% reported that they were very likely to acquire a security system if it had the ability to be monitored and controlled via a smartphone.

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 on Security Sales & Integration.




Dina Abdelrazik

Dina Abdelrazik

Research Analyst

Dina Abdelrazik joined Parks Associates in 2016 as a part of the connected home team. She has participated in numerous smart home projects and has authored reports on voice assistant technologies, smart home strategies, and home security. Dina frequently speaks at industry events and briefs with many industry leaders about company and product developments. She currently studies market trends and consumer behavior, focused on emerging technology products and services.

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.

INDUSTRY EXPERTISE: Voice Technology Devices and Platforms, Residential Security, Smart Home Products and Services, Smart Home Strategies

© 1998-2018 Parks Associates. All Rights Reserved.