By Andrew Warnes
The modern residential water treatment industry has been around for 99 years – ever since the Permutit Company was founded in Delaware in 1912. Despite having almost a century to work at it, penetration rates for all residential water treatment systems are relatively stagnant at less than 20 percent. Other household products invented after 1912 (televisions, modern clothes washers, electrically powered refrigerators and microwave ovens) have US penetration rates approaching 100 percent. This article attempts to explore what has kept residential water treatment from reaching critical mass, how the situation could still change, and what our industry might need to do in order to make it happen.
The total US market for residential water treatment systems and service is worth approximately $7.1 billion (USD) per year. Consumers spend approximately $1.2 billion on equipment, consumables and spare parts, and they spend the rest ($5.9 billion) on service, installation and finance. Although these might sound like big numbers to many of the players in our industry – they are dwarfed by the revenues generated by other industries (see Figure 1). Unfortunately, this positions the residential water treatment industry today as just a niche player or an also ran in the consumer goods business. It does not have to be this way.
Comparing revenues and household penetration rates for the residential water treatment industry to other business is complex because it’s difficult to determine where water treatment products fit. Are we a consumer durable like cars, refrigerators and washing machines? Are we a health and nutrition product like vitamins and supplements? Are we a building and construction products industry like water heating or air conditioning? Or can we even compare our products to consumer electronics like LED flat screen televisions, laptops and cell phones since we compete with these products for consumer dollars? The truth is that we tend to market our products into each of these categories and, theoretically, we could benchmark against each one. To make a meaningful analysis of where we sit, it’s first necessary to select a category of products that truly fits residential water treatment products as they exist today. Although many may disagree, residential water treatment equipment is best placed into the consumer durables category for several key reasons.
- Our products are generally made to be permanently installed. More than 85 percent of the consumer spending for water treatment systems comes from devices that are plumbed in (POE softeners and filters and POU reverse osmosis).
- When operated and serviced according to manufacturers instructions, most of our products will last for 10 years or more.
- In the vast majority of cases, our products are desirable, but are not a necessity.
- The price points for the equipment that generates more than 85 percent of the consumer spending for our industry is usually well above the $198.06 (USD) average that the 2008 WQA Consumer Survey found was the amount at which a purchase is considered a significant expense (requiring the consent of all the decision makers in a family).
- Our products contain variations in function, features and benefits that require some thought prior to purchase – it is not generally an impulse buy.
Although arguments could be made to place residential water treatment systems into other categories, the consumer durables category is the only one in which our products share the most basic characteristics with other products in the same category. For the time being, this is probably the best place for us to benchmark our performance during the past 99 years.
Graduating from ‘nice to have‘ to ’must have’
The histories of the development of other consumer durable product markets contain some key lessons for our own industry – many of which reflect somewhat poorly upon the way we design our products and go to market. The humble clothes washer is a good example. Modern clothes washers came into being in 1904 when the many small local assemblers of these products attached electric motors to them for the first time. By 1928, sales approached one million units per year and mass production was concentrated amongst a few large manufacturers. By 1947, the household penetration rate approached 60 percent when GE launched the iconic ’top loader‘ that set the trend for all subsequent products. Since then, relatively few changes outside of the addition of microprocessors and water saving features were made, yet they outsell softeners by a factor of nine to one and their penetration rate is 18 times greater.
The first residential dish washers were launched in 1937 and their major technical leap came in 1940 when electric drying elements were added. As with clothes washers, dish washers have added microprocessors and water saving features recently but otherwise have not changed much. These products outsell softeners by a factor of seven to one and their household penetration rate is 15 times greater.
Granted, consumer lifestyles have changed greatly over the years and the desire for labor- and time-saving devices has grown tremendously as women went to work and time became a more precious commodity. We’ve also seen the growth of comfort products like central air conditioning as the population of the US moved South and West. But why do consumers consider these products to be must haves? What makes them so fundamentally different from what we sell?
Consumer product designers, trend setters, and gurus are fairly consistent about what it takes for a consumer product to be massively successful (see Figure 2).
Each of the key elements of success listed in Figure 2 is present in the market for products that have reached critical mass and have gone on to become must haves. A consumer electronic device like an iPod, a laptop or a cell phone tends to have a very rapid ramp up followed by declining manufacturing costs and a very quick penetration rate. Consumer durables take longer but the same basic rules apply. The residential water treatment equipment industry generally does not meet the criteria for successful consumer durable products.
The question of whether or not our products meet a genuine consumer need is omnipresent. Decades of surveying have consistently reported that consumers are not necessarily aware of what is actually in their water, nor do they care to know too much about what could potentially be in it. Consumers have been telling us that they just want their water to be safe, clean, or clear. In some (but not all) cases, they want their water to be soft or iron-free. They do want their water to taste and smell good or fresh. They don’t really care how it gets that way and they really don’t want to pay more than $200 (USD) for it.
Engineers at all of the major equipment manufacturers tend to roll their eyes and sigh out loud when presented with a list of consumer desires. On the one hand, it’s good for them to know the end result for water treatment to which most consumers aspire. On the other, they know that current technology has no way to meet these desires at a reasonable price point. Conversations between marketing and engineering teams on the subject tend to degenerate into lighthearted discussions about the tiny magic black box into which all of the consumers’ water will flow, miraculously emerging in a perfect state, at an incredibly irresistible price. Then the discussion moves on to one about the box having no moving parts, requiring no energy and lasting forever with no service. We’ve all had these discussions at one time or another.
Unfortunately we also tend to miss the real point. As an industry, we have always known what the genuine consumer need for residential water treatment actually is. We just don’t know how to meet it technically or economically yet. In the meantime, we stay focused upon what is feasible with existing technologies and price points – tangentially addressing the genuine need described by consumers, contaminant by contaminant. As long as this is the case, residential water treatment will never reach critical mass.
The struggle against perceived value of residential water treatment is also key. The distribution structure of our industry today is built upon the commonly held sense that water treatment equipment has to be sold and therefore, requires face-to-face contact with consumers in order to justify the price. We call this consumer education. In discussions with other consumer durables manufacturers I’ve had, it is described to me as an expensive sales channel brought about by a questionable value proposition. Whether they are right or wrong, many of us have seen the expression of sticker shock on consumers’ faces and the push-back that has led to margin reductions and given rise to retail sales. All of this is an indication that, as an industry, our value proposition is not yet in line with mass adoption of our products.
The remaining three key elements of successful consumer durable products are favorable economics for suppliers, the right distribution channels and organizational support. To be optimized, each of these is predicated upon the first two elements – meeting a genuine consumer need and achieving perceived consumer value. If a genuine consumer need is met at the right price, the other elements fall into line quickly. Today we have questionable economics for manufacturers, an expensive set of distribution channels and fragmented organizational support. Generally, manufacturers do not make enough margin to support or promote all the way down to the consumer level and individual dealers do not generate enough volume to support or promote to consumers on a regional or national level. This is despite the fact that in the US our industry sells $1.2 billion (USD) worth of equipment each year and $5.9 billion (USD) worth of services. Simply put, we are still too fragmented as an industry to economically spark consumer interest or uniformly support our customers. This status quo will probably hold until there is a genuine breakthrough in technology.
What will it take to go ‘mass market’?
If you accept the theory that as an industry we have yet to hit upon the right technology at the right price to spark a true mass market for residential water treatment equipment, you’re probably wondering what it will take to make it a reality. During the 99 years that we’ve been around, we’ve seen the invention of other new products that did not exist previously, met consumer needs that were unknown at the time, and have gone on to become trillion dollar global industries. What boat did we miss?
An interesting example of a product that did not exist when some of us were born but that has gone on to become a mass consumer product is the personal computer (PC). Computers had been around for decades and were generally used for government or industrial work involving massive amounts of data. Only the largest organizations could afford them. Over time, technically minded hobbyists began to experiment with computers, sell the components in kit form and dabble in programming – but the products were far from useful to consumers. The jump from a few custom-built large computing systems to millions of PC’s was facilitated by a few key steps:
- Computers had to be easier to use – innovators like Xerox in Palo Alto, CA and Microsoft in Redmond, WA developed user interfaces that minimized the need for programming skills.
- Costs had to come down – hobbyists began to standardize components and manufacturers rushed to become cost effective suppliers of standardized circuits, connectors, housings and memory drives. Standardization drove competition, which drove down costs.
- Computers needed to work together – consumers wanted to exchange information, communicate and collaborate with others. A US Department of Defense (DoD) research program that evolved into the World Wide Web became the platform to make this possible. Industry needed to develop common standards for hardware and software that made it work.
Ironically, the people who facilitated the rise of the PC into a mass market product had no idea at the time what their products would eventually be used for. Facebook, Excel spreadsheets and Powerpoint slides did not exist – nor did spam, viruses and sexting. As an industry, we are fortunate to know exactly what our products would be used for and what consumers want. We just have to figure out how to do it.
A product roadmap
The trend is for new technologies to be developed for government and corporate customers who can afford them. Once established, those technologies tend to trickle down into consumer markets. DoD has been particularly successful at sparking innovation – their DARPANET became the internet, walkie-talkies became cell phones, and the UNIVAC evolved into a laptop. Jeeps became SUVs and of course, we have NASA to thank for velcro. This trickle-down aspect is also true for water treatment technology. Reverse osmosis membranes are an outgrowth of US Government funded research in the 1940s, 50s and 60s that promised to “go to the moon and make the deserts bloom.” The first commercial RO plant was installed in California in 1965 and the first residential RO systems came about a decade later.
It’s probably safe to assume that the technology needed to take residential water treatment into the mass market exists somewhere today in a government lab, a corporate R&D department, or in the mind of a Steve Jobs type plugging away in his garage. We don’t know how it will work or how long it will take – but it is fun to try and lay out a couple of guidelines for what it will have to do for consumers. I’ve put together a speculative list and hope it holds up to the scrutiny of the industry. I also sincerely hope that it finds its way to the Steve Jobs type plugging away in his garage today. Keeping the list simple is far harder than making a list.
Here is my shot at the basic 15 rules for what a residential water treatment device has to be in order to ignite a true mass consumer market for residential water treatment equipment.
- According to the US Department of Census, approximately 87.2 percent of households are on a municipal water supply. The product has to be able to function without pretreatment for the full spectrum of water qualities present in those supplies.
- The total installed cost to the consumer should be $500 (USD) or less.
- It needs to treat up to 15 gpm ( L/m) continuously with less than 10 psi (bar) pressure drop, wasting no more than five percent of the incoming water for any reason.
- The annual operating cost (excluding cost of water and energy) should be less than $50 (USD) and the device should last for at least 10 years.
- The device has to be installed at the point of entry (POE) to treat all of the water entering into the home or building
- The device has to remove at least 95 percent or more of all anions, cations and contaminants on the US EPA primary and secondary contaminant lists.
- The device can be followed by a mechanism to add minerals back into the water to reduce aggressiveness if warranted. Excluding this, the device should never add more contaminants than it removes to either product water or drain.
- It has to be the same size or have a smaller footprint than current furnaces, air conditioners or hot water heaters. Ideally, it will be no larger than a common suitcase and can be installed in parallel when needed.
- It has to be able to sit on a floor, be suspended from a ceiling, be set outdoors, clamped onto a pipe or mounted to a wall with no great effort.
- It has to weigh less than 65 pounds ( kg) in the box and be portable for an average fit person.
- There should be no plumbing connections other than one for inlet, outlet and drain. The connections should be universal, adjustable up to two inches ( mm) or down to 0.25 inches ( mm), and the drain (if needed) should be able to travel 100 feet ( meters) and go up 20 feet ( meters).
- The connections should be simple enough for my mother to install alone.
- If the device requires power, it should be able to be plugged into any common household socket and should use no more power than a refrigerator. It should be readily configurable to operate off of solar panels.
- The system should have a reserve power mechanism to permit at least 72 hours of full function without external power supply.
- The device should readily signal to the consumer if it is functioning or not, and permit the consumer to select if the device has an active or passive shut-off during malfunction. Otherwise, there should be no consumer interaction with the device.
By staying focused upon the genuine needs and expected value proposition that consumers have consistently expressed to us over and over again, it might be possible to turn residential water treatment into a must-have instead of a nice-to-have product. Just building a system that meets the rules above won’t be enough – the systems would need to be sold and serviced through the same channels that common appliances are sold through today to truly reach most consumers. Considerable work would need to be done to lay the regulatory groundwork as well – since there are no ANSI/NSF standards for such a device and some states, like California, require certification.
If our industry were able to organize behind common technology, standard components and acceptable regulatory standards, there might still be a chance for us to go mass market on the scale of washing machines and refrigerators. In 2004, a $10 million (USD) prize was claimed by the first private company to send a reusable spacecraft into orbit (the Ansari X Prize). In many ways, a similar investment and challenge in the search for a true mass-market water treatment appliance should be even easier, more lucrative and ultimately more beneficial to mankind. The alternative is to be content with the market size we have today and accept that $7.1 billion (USD) after 99 years of effort is all we’re going to get.
About the author
Andrew Warnes, former Senior Product Manager and Senior Channel Manager for PRF (a GE / Pentair joint venture) received a Bachelor of Sciences Degree in national security policy from Ohio State University and is a former US Army Special Operations Team Chief. His areas of expertise include membrane applications for microbiological purification and regulatory compliance. Warnes is a former International Director of the WQA and serves as a member of the WC&P Technical Review Committee. He can be contacted at (847) 274-0595 or [email protected]