ServiceMaster Sees a Stronger Future

Throughout most of the 1980s and 1990s, ServiceMaster represented the kind of investment everyone wished they own. Buffeted by a series of significant acquisitions, the company that owns TruGreen-ChemLawn and TruGreen LandCare saw its earnings rise dramatically from year to year, pleasing investors.

Amid new struggles in the late 1990s, the organization brought in a new leadership team, headed up by chief executive officer Jonathan Ward. On June 20, after 18 months on the job, Ward announced to investors that the company had completed the strategic review process he called for upon joining the organization and that now he had a plan for the future.

Portions of this new plan have already been implemented, such as the sale of the landscape construction business to Environmental Industries earlier this year. This deal was among a series of moves made to help the company refocus its efforts squarely on the residential customer. In fact, ServiceMaster created a new tagline for its marketing efforts, “America’s Home Service Company.” This heightened focus on the single-family residential customer led to other changes, such as the pilot program selling lawn care and landscape services through Home Depot.

Ward said one of the key lessons he has learned over the last year and a half is that a residential focus is the way to go for ServiceMaster. “Eventually, every homeowner requires service,” he observed, noting that companies that can provide a range of such services are well positioned. “When they do, their hope for good service is high but their expectations for it are low.

“The average homeowner relies on the Yellow Pages for finding home services today, and that process is filled with guesswork and anxiety,” he continued, explaining what he sees as ServiceMaster’s strategic advantage with so many consumer-oriented services. “Will they be on time? Are they in uniform? What does the truck look like? In the future, a fully managed service experience will be the norm.”

The green industry represents a key part of ServiceMaster’s growth strategy, especially given the fact that TruGreen-ChemLawn contributes more profit to the corporate coffers than any other part of the company. One area that Ward has repeatedly expressed a need to improve is the company’s marketing efforts, which led to the hiring a new chief marketing officer for ServiceMaster and the creation of a similar position for TruGreen.

Don Karnes, president of the TruGreen Companies, told the investors that 2002 is shaping us as a terrific year for the company as it makes up for its loses in revenue and customer count from last year. “During the last couple of years, our residential customer base was declining,” he acknowledged. “We’ve reversed that this year. We were down 3.5 percent in count last year, and this year we project being up by 2 to 3 percent by the end of the year. That’s an incredible reversal and it gives us a lot of reason for optimism.”

Karnes attributed much of the growth to the company’s new marketing efforts. “We knew the business had to be reinvented, especially from a marketing standpoint,” he noted. One example was TruGreen’s work on what Karnes called “market segmentation.” This involved classifying all of its customers as one of three types: renewers, which represent about 60 percent of the company’s customers annually; churners, 20 percent of the customer count; and triers, another 20 percent.

“Insight leads to strategy, and ours is to keep the renewers happy and turn the triers into renewers while also trying to hold on to more of the churners,” Karnes explained, adding that this effort began with the selling season for this spring.

Part of the new strategy also de-emphasizes TruGreen-ChemLawn’s historical marketing lifeblood – telemarketing – to some degree. “The demise of telemarketing has been greatly exaggerated,” he maintained, adding that 1.1 million of the company’s 1.3 million new sales will come via the phone this year. But the company is looking for a broader marketing approach, including television, direct mail, and the aforementioned retail channel efforts.

“These other efforts have helped us grow our sales even when telemarketing isn’t as successful,” Karnes related, pointing to the firm’s growth in Indiana, which has one of the most restrictive do-not-call lists of any state. “That list cut our prospect list by 50 percent in Indiana, but our branches there have boosted their sales by 1.5 percent this year as telemarketing has gone from a 90/10 ratio [in terms of sales generation] company wide to 70/30 in Indiana.”

Of course, the marketing effort that has most people’s attention is ServiceMaster’s partnership with Home Depot. Ward said that fully evaluating the program is hard to do at this point since the effort is only five months old, but he’s encouraged by the results. “We’re convinced there’s a future in the retail channel for ServiceMaster,” he asserted. “Right now, it’s too early to tell who that will be with and how that will pay out, but this has worked very well, especially for TruGreen and Terminix.”

Mitch Engel, ServiceMaster’s new chief marketing officer, also said the company will benefit from extensive research it’s conducting into customer satisfaction. “One of the biggest issues we’ve identified is problem resolution,” he said. “When someone calls in experiencing a problem with the service, our response time to that has been less than adequate. Now we’ve got insight into that, and we’ve been taking all of the branches and ranking them against their problem resolutions scores, and we’re linking that to the retention rates to see if there’s any connection there.”

Another key part of the company’s strategy will include a return to a former strategic move – tuck-in acquisitions, which the company stopped doing for the last 18 months while it focused on Ward’s review. Now, the company is ready to begin making acquisitions again, so long as the target firms meet certain gross profit and customer retention requirements.

Lastly, Karnes talked about the growth opportunities lying in front of TruGreen LandCare, and his comments here focused primarily on the national account side of the business. “We think the commercial landscape business is growing at 8 percent, and it’s obviously much larger than the residential market,” he explained. “Our share is just 3 percent right now, so there’s plenty of opportunity to grow, which is largely a matter of getting out and selling. We’re conducting a nationwide search for a leader to drive our sales efforts, and we’re building up our national accounts sales team that is presently overloaded with opportunities. Plus, there are some areas we haven’t gotten into yet, such as government work.”

Dave Slott, chief operating officer for TruGreen, said one of the company’s goals this year is to improve performance at poorest-performing branches. “Currently we have more than 100 branches operating with a combined profit margin of 8 percent, but the bottom 25 percent of the branches had a negative margin last year,” he shared. “This year, those same branches are on track to range from 0 percent to 5 percent net margin, compared to the top quartile, which average 17 percent.”

The author is Editor of Lawn & Landscape magazine and can be reached at bwest@lawnandlandscape.com.