New DTC toolkit   //   May 21, 2024

‘An industry the internet hadn’t reached yet’: DTC home heating & AC brands are on the rise

Home heating and air conditioning products are getting the DTC treatment.

Take Quilt, an all-electric heating pump company. After working in Silicon Valley, Quilt’s co-founder Paul Lambert was eager to refocus his energy — literally. As someone whose family had worked in the fossil fuel industry, Lambert felt a responsibility to find ways to make heating and cooling more efficient, he told Modern Retail. After learning that HVAC systems are responsible for more than 50% of the energy consumed by homes, Lambert decided to sell heat pumps that move heat from one place to another, rather than generating it.

But it wasn’t just energy efficiency that Lambert was after; he wanted to update the way people buy heating, ventilation and air conditioning systems. For years, this process has remained the same: HVAC manufacturers sell to retailers and distributors (like Home Depot or Lowe’s), as well as contractors who install entire air conditioning or heating systems in clients’ homes. Quilt, however, relies entirely on a direct-to-consumer model, meaning that customers buy their heat pumps from Quilt’s website. Quilt has its own team of maintenance workers and customer service professionals who work with clients to install and troubleshoot their heat pumps.

Lambert, who used to lead sustainability investments at Google, told Modern Retail he wanted to modernize the HVAC space. “The industry operates in a way it would have in 1980 or 1990,” he said. “You get on a phone, you get someone to come to your house, and half the time, the quote’s still on paper… This felt like an industry that the internet hadn’t reached yet… We’re taking something we’ve seen completely disrupt massive industries before and bringing it to this space.”

Quilt, which launched last week and is starting with the Bay Area market, is one of a growing number of HVAC companies turning to DTC, rather than wholesale, to change the way people buy utilities. Some of this is due to the pandemic; customers got used to buying all types of products online, including HVAC systems, and manufacturers responded by improving their e-commerce capabilities.

“That changed the retail landscape of the HVAC space significantly,” Kevin Goude, owner of First Choice Heating & Air, an authorized Lennox air conditioner dealer, told Modern Retail.

There’s also an economic incentive for HVAC brands to be DTC, as it allows them to hold onto a greater portion of profits because they don’t have to pay a middleman. And, by being DTC, HVAC brands get access to a trove of user data, which allows them to adapt products in line with users’ interests.

“It used to be that HVAC systems were ‘boring infrastructure’ inside the home,” DR Richardson, co-founder of the climate tech startup Elephant Energy, told Modern Retail. “As consumers’ preferences for electric, efficient technology have changed, HVAC companies have an opportunity to go direct to homeowners to appeal to these changing preferences.”

Breaking through the HVAC industry can be challenging. Most homes in the U.S. have an HVAC system, and two-thirds of U.S. households use central AC or a central heat pump for air conditioning. Competition is tight, and even as DTC players rise up in the space, legacy players like Frigidaire, LG and GE take up large market share.

What’s more, companies may find it tough to drum up enthusiasm and excitement for something as straightforward or practical as air conditioners. When it comes to an HVAC system, customers tend to look for well-reviewed, cheaper options over particular brands, researchers say. That can make cultivating brand loyalty — something essential for DTC — challenging.

“Whether you’re team Apple or team Android or something else, you have a preference, and you probably stay with that preference,” Michael Barbera, chief behavioral officer at marketing agency Clicksuasion Labs and an adjunct faculty member at the University of North Carolina at Pembroke, told Modern Retail. “But in the utilitarian category, the consumer is still likely to go towards something that’s low cost, because they don’t see it as fun or experiential.”

“For first-time customers, the brand isn’t as important as price and perceived reliability from reviews,” Barbera, who is researching consumers’ decisions around home service providers, added. “If you were to walk down any street in any city and say, ‘Name five coffee beverages,’ people could do that. ‘Name five brands that are sodas’ — people could do that. But if you ask someone to name five HVAC brands, unless they’re a homeowner, they could probably name one or two.”

Quilt is trying to differentiate itself from other heat pump brands by stressing how well its products integrate into an existing space. Its in-home units, which can sell for thousands of dollars depending on local rebates, look like long rectangular boxes, with panels that customers can personalize. Users control the heat pumps through circular dials on the wall in each room.

Lambert said many modern heat pumps are bulky, which may dissuade customers from buying them. Quilt, however, spent months on its design process because it wanted to make its heat pumps sleek. With most HVAC systems, “the people that the manufacturers need to sell to are actually the contractors, so they have no incentive to create a consumer-facing product that is compelling for consumer problems,” Lambert told Modern Retail.

Windmill and July, both DTC air conditioner brands, launched during the early days of the pandemic in 2020. But supply chain bottlenecks forced both companies to build waitlists: 10,000 people for Windmill, and 35,000 people for July. Windmill is now fully up and running and is on track to have 100,000 customers in every state of the country by the end of this summer. July, meanwhile, grew its customer base fivefold from 2020 to 2021, per Marketing Brew.

In 2023, Windmill attributed more than half of its business to DTC, although it also sells via wholesale through PC Richards, Lowe’s and other retailers. The brand has found DTC helpful for soliciting consumer feedback via email and surveys, co-founder Mike Mayer told Modern Retail in a new interview. “With wholesale, we don’t get the opportunity to learn from and chat with the customer,” he explained. Windmill also uses DTC to keep customers up-to-date on product announcements. It recently launched a new air circulator and fan and was able to tell its email list — mostly DTC customers — about the update.

Quilt’s Lambert said the company is focusing on California for now, although it is accepting pre-orders from all parts of the United States and Canada. It will determine where to expand to next based on those pre-orders. “We have to ensure a certain level of quality control, and that’ll be the gating factor on how quickly we can grow,” Lambert said.

“I think a lot of the value we’re going to bring to the market is as a flagbearer and as a standard bearer, where we can hopefully create a level of quality and expectation that other competitors and other manufacturers sort of mimic,” Lambert said. “Even if people get interested in heat pumps, and for whatever reason, they decide Quilt isn’t a fit for them and go buy a different one instead of their furnace, that’s a win. That’s a win for us on our mission.”