What Are HVAC Buying Groups?
There’s great pleasure in being a successful small or medium enterprise (SME) owner. However, it doesn’t come without its challenges, especially when you’re going head-to-head with the biggest names in the industry.
Traditionally, SMEs would have a smaller share of the market and lesser buying power than large corporations. But about a decade ago, SMEs in various sectors banded together to form collectives with the same clout and spending power as large companies. And as the HVAC industry in the U.S. developed and its market grew to include residential customers, small and medium-sized HVAC retailers adopted the same strategy and formed HVAC buying groups.
What Is an HVAC Buying Group?
A buying group is a group purchasing organization that offers benefits to its members when they buy as a collective from partner vendors. These benefits include reduced prices, first dibs on premium products, and priority fulfillment.
HVAC buying groups operate on the same principle (although for many, increasing purchasing power is just one of the things they work for. We’ll discuss the other goals later in the article). Small and medium-sized retailers and independent distributors of HVAC equipment gather as a formal organization to pool their purchasing power together so they can take advantage of perks that vendors typically reserve for large companies.
Membership in an HVAC distributor buying group can be by application or invitation, and each buying group has common defining characteristics (e.g., independent distributors, independent wholesalers, and SMEs catering to a specific geographic region) with members sharing the same goals and principles (e.g., to outperform the market and to increase market share).
How Do HVAC Buying Groups Work?
Individually, SMEs have difficulty competing with large companies because the latter benefit massively from economies of scale. On the other hand, global and national brands and multinational corporations command a big chunk of the market and have considerable purchasing power. Naturally, vendors go the extra mile to earn their business, primarily by offering discounts (per unit or bulk purchase) and other exclusive perks.
From a vendor’s perspective, it is beneficial to offer discounts to large companies because their bulk orders make up for the lower unit prices. Unfortunately, offering the same discounts to SMEs would result in a loss because they buy in smaller quantities. For this reason, small and medium-sized HVAC retailers come together as one buying entity. Combining their orders and purchasing power gives them more clout for negotiation and gives vendors reason to offer the same discounts and rates as large companies.
Within buying groups, members get the same price regardless of the size of their business. This also impacts the market at large. With all players buying at the same prices, bigger enterprises are no longer entitled to the same competitive advantage when they get some of the lowest rates from vendors.
Goals of HVAC Buying Groups
Obtaining discounts and leveling the playing field is a major goal of HVAC buying groups. But over time, these organizations saw the value of elevating their members individually.
Here are some other goals and initiatives buying groups engage in:
- Cultivate relationships between member distributors and vendors.
- Promote better business practices, i.e., offering technology enhancements to help SMEs streamline their processes.
- Improve members’ bottom lines and cash flows through various saving opportunities, primarily via the organization’s discount agreements with vendors.
- Provide networking opportunities for members within and outside the buying group.
- Provide access to in-demand vendors.
- Provide market planning and promotion support via mentorship and training.
- Empower independent HVAC retailers and distributors to compete with national chains.
- Help independently operating members to meet their sales goals and forge strategic relationships in the process.
- Maximize the benefits of economies of scale and reduce supply chain costs for members (e.g., freight, storage, and inventory management fees)
- Develop a rebate program with the vendors to reward members for every dollar spent. The more members buy, the larger the rebates they earn.
The entire organization reaps benefits when members of a buying group are all enjoying a high level of success. Collective success increases buying and negotiating power, potentially bringing in more perks for the members.
To learn more about the functions, benefits, and membership commitments of HVAC buying groups, get in touch with NGC Industries. We offer volume savings and other benefits exclusive to an HVAC distributor buying group. Our experienced wholesale officers will ensure you get quality service and supplies that your customers will buy.