Not too terribly long ago, figuring out what it cost to own an item such as a vehicle, cellphone, or for the sake of this discussion, an elevator was not hard to determine. You could simply obtain competitive bids from the major manufacturers, compare them with one another and make your selection based on the price and the features offered. A growing number of industries today are seeing major suppliers begin to blur the lines between the initial purchase price, contractual maintenance agreements, repair cost, and ultimately replacement cost.
Elevator or cell phone
We will look at how this is affecting the elevator industry in a moment, but first, let’s look at an industry where this practice is a little more visible and easier to understand the cellular phone industry. Think about the true cost of a name brand smartphone. You can buy a really nice phone for $200, with a contract. You also have to buy chargers, protective cases, screen protectors, insurance plans, apps, etc… that “fit” your new phone. A case for your phone costs less than $1 to manufacture, yet you pay $50. Why? Because a certain portion of that purchase price is helping to pay for your phone. This is what is known as price deferment, or increasing the residual costs of ownership. If you had to purchase a phone at full price, the phone would more than likely cost you over $800. As the lines become blurred between the initial purchase price and the price for upgrades, add-ons, and such, it becomes increasingly difficult to determine the true cost of ownership. The danger for consumers in any industry is that end users and professionals alike begin to rely on brand name recognition instead of true product research which allows the product quality to decrease, and the overall costs to increase. Therefore it becomes easier for manufacturers to increase profit margins without losing sales.
Price deferment in the elevator industry
This phenomenon is now occurring in the elevator trade as well. However, the elevator trade is different in one respect. Think about the example of the smartphone we just discussed. What if a new company were to emerge that could provide a better smartphone with better features and a longer lifespan and could sell it to you for $250.00 with no contract or delayed costs. Many consumers would not even consider purchasing the superior product because it is $50 more expensive and they don’t recognize the name. What if the new smartphone company could produce their product for $185? The name brand phones would simply begin selling for $180 and more of the cost would be transferred into the residual costs. Most consumers will be happy to report to their friends that they were able to buy the latest and greatest phone for only $180 never realizing that the true cost of ownership never really changed. Meanwhile, they’ve missed out on the really great deal of buying the $250 phone.
This is exactly what is occurring in the elevator trade today. Large companies are providing elevator products with significantly reduced life spans, non-serviceable components, and proprietary parts. These elevators appear to compete with the elevators offered by your local independent service company and in many cases, they seem to cost just slightly less than what you pay for non-proprietary equipment. However, once these products are installed, the service and maintenance costs can be devastating to your budget. Another major problem with cost deferment in the elevator industry is that buildings and properties change hands. From a builder to the owner, to future owners, the entity that benefits from the costs savings up front is more than likely not going to be the same entity that ends up paying the higher costs later on.
The problem with proprietary equipment
Some manufacturers unashamedly offer proprietary products and will be quick to share their sales pitch as to why they are justified in doing so. Others claim that their product is non-proprietary, however, any replacement components are not available on the open market and must be purchased directly from the manufacturer. Now a relay that would normally cost around $10 costs $900. A tachometer for a truly non-proprietary elevator can cost anywhere from $250-$300, but on these particular elevators, it costs $2500. As you can see, it doesn’t take long for the residual costs to add up to huge profits for the manufacturer, especially when many of the non-serviceable components they are using have less than 10 years of life expectancy under normal use.
How do I make sure I am getting the best value for the price that I’m paying?
Deferred costs are not a bad thing as long as the customer is informed of the total cost of ownership and can fully compare the products available. The first, most important comparison any potential buyer must make is the life span of the equipment. If one elevator lasts 25 years under normal conditions and another lasts 12 years, this is important to know. It’s no surprise that the company with the product that only lasts 12 years is not quick to advertise that fact, so it’s important to ask. Secondly, it is important to understand if the product you are buying is proprietary or not. A non-proprietary product will have to measure up on initial quality. In my experience, non-proprietary products do more to meet the needs of the customer and last longer. Therefore I would recommend specifying certain components of your elevator system must come from a short list of highly regarded non-proprietary manufacturers. For example, the controller must be one of the following:
- 1. Smartrise
- 2. Motion Control
- 3. Virginia Controls.
Do the same for door equipment, push button fixtures, cabs, and entrances, etc… as you see fit but the controller is the key to keeping your equipment non-proprietary. This allows you to shop competitively for maintenance providers and keep your costs low in the future as well. This will also allow the major companies to offer a price to install your elevators, but they will have to be more upfront about what they are really charging for their products. And finally, don’t be afraid to reach out to your local independent elevator company to ask for advice. There is a good chance there is a wealth of knowledge there waiting to be tapped into. The great thing about an independent service company is that they don’t have a manufacturing facility that they are tied to, so in most cases, the information you get will be unbiased. If you are planning on buying a building that already has elevators installed, find out what brand of elevators they are and call a local independent service company. Ask their opinion of the equipment and if it’s proprietary or not. If nothing else, you may want to adjust your offer price based on the answers you receive.
If you have found any of this information useful, please continue to check back periodically in the weeks and months to come. I will be posting more information regarding proprietary building design, service contracts, and ways to protect the longevity of your equipment.