Jan 23, 2002

The Commercial POU Market

Commercial point-of-use (POU) drinking water equipment and services is rapidly evolving into a multimillion dollar market. This growth can be attributed to several important trends.

Heightened Awareness Levels

There is a general increased awareness level among business
decision makers regarding POU as an alternative to bottled water in the
workplace. This is becoming more and more evident each year based on feedback
from POU dealers and sales reps. Compared to the period between 1995 and 1999,
when appointments with prospects were more difficult to set and more sales
presentation time was spent explaining the meaning of POU, decision makers
today know what POU is and are more interested in specific features and
benefits. Other phenomena adding to increased awareness levels include higher
levels of concern with regard to workplace health and safety, ergonomics,
regulatory issues, facility security needs and more sophisticated nationwide
marketing efforts by POU equipment manufacturers and dealers. Also, the mere
presence of more POU coolers today in businesses has provided a visual
awareness not available in the past.

Costs and Economics

Besides the health and safety advantages of POU over bottled
water, POU provides the employer with irrefutable economic benefits. These
benefits are an integral part of any professional sales presentation and can be
divided into two categories: direct economic benefits and indirect economic

Direct economic benefits of POU are calculated easily by
comparing proposed annual POU rental and maintenance fees to the
customer’s current annual bottled water costs including cooler rental.
Often overlooked during this calculation is the value of the savings over time.
POU systems typically are rented for a flat monthly fee for a fixed term. The
price stays the same during the term regardless of the amount of water
consumed. Bottled water costs, on the other hand, typically increase each year
due to general price increases and, more importantly, due to increased
consumption by the customer. On average, over the term of a POU rental
contract, direct annual cost savings to the customer fall between 10 and 30
percent—often times more.

Indirect economic benefits of POU and the proper explanation
and calculation thereof are an extremely important part of any presentation or
proposal because these benefits easily can be overlooked. These also happen to
be the items that cause the customer the most grief and pain. Indirect cost
benefits include labor costs associated with changing bottles; bottle storage
costs; accounting costs related to handling multiple (and confusing) invoices,
packing slips, credit memos and statements; down time and workman’s compensation claims resulting from injury due to lifting or dropping of bottles; lost bottle charges and bottle deposit fees; theft or unauthorized use of bottled water; erroneous or fraudulent billings, just to name a few. On average, a fair
analysis of indirect cost benefits will yield an additional saving to the
customer of between 20 and 40 percent.

Improved Technology, Manufacturing, Distribution and Service

Above all else, growth in the commercial POU market can be
attributed to the introduction of innovative technologies and designs,
improvements in manufacturing and product quality and, most importantly, the
development of professionally managed nation-wide dealer groups. These forces
working in tandem—engineering, manufacturing, distribution and sales—with emphasis on quality, professionalism, service and value have dramatically improved the image and appeal of commercial POU products. To date, less than 5 percent of the commercial drinking water market has been converted to POU. Conservative estimates project a 30 percent conversion rate over the next five years and a 50 percent conversion rate over the next 10 years. In other words, there are tremendous opportunities today and for many years to come in the
commercial POU business. Water treatment dealers and entrepreneurs with a
strong background in business-to-business sales need to seriously consider
entering this lucrative market.

In spite of recent economic challenges at the time of this
article, POU water purification systems continue to gain market share. With
concerns ranging from terrorists acts on municipal water supplies to bacteria
levels in the bottle water cooler and potential tampering of 5-gallon water
bottles, there is a greater awareness of POU systems than ever before.
Furthermore, as businesses continue to look for cost savings, POU will continue
to gain market share and eventually become the rule rather than the exception.
POU water purification systems are definitely the wave of the future.         

Case Study: Positioning a Dealer Network Company in the POU

The following presents an example of a company that set its
sights on the commercial point-of-use market and the strategies necessary to
position a dealer network and capitalize on the seemingly endless opportunities
that lay ahead.

During the early stages of research and development,
PHSI–Pure Water Technology tested a variety of water treatment
methodologies. The key design objectives taken into account were

•           To
meet or exceed EPA regulations for overall water quality including the
elimination of microbiological contamination during the treatment process,

•           To
insure the integrity of the drinking water after purification,*

•           To
keep cost of ownership down,

•           To
provide the most state of the art and leading edge products in the marketplace, and

•           To
incorporate flexibility, modularity and consistent componentry throughout the
product family.

In January 1998, after two years of extensive research and
development, production commenced in North Idaho of its flagship product, the
Pure Water 1. Initially, corporate-owned dealerships were set-up in Fremont,
Calif.; Salt Lake City; and Boise, Idaho. Corporate-owned dealerships were
established in order to test the viability, performance and customer acceptance
of the product and to fine tune sales and marketing programs, finance programs
and dealership support programs.

With this experience in hand and as part of its strategy, in
November 1998, PHSI sold the California dealership to Barry Taylor, founder and
owner of an office equipment company that focused on business to business
sales—an important ingredient for the effective marketing of PHSI’s
products. The remaining corporate-owned dealerships were sold shortly
thereafter to prepare for a recruitment of independent dealers.

Independent Dealer Network

An extensive dealer recruitment campaign began in January
1999, leading to more than 95 dealers worldwide today. The success of a dealer
program is predicated upon the extensive support mechanisms. In addition to
ongoing dealer support services, new dealers are provided start up services
that include sales and marketing materials, on-site sales training seminars,
sales training manuals, technical training seminars, presentation materials,
dealer manuals, access to online services and customized private-label rental
agreements. Through web-based support, dealers are granted online access to all
previously mentioned materials in a downloadable format.

Expansion of Manufacturing Capability and Certifications

In an effort to expand a company’s manufacturing
capabilities, a manufacturing supplies agreement can be formed. Oasis Corp. was
selected to manufacture PHSI products because of its quality control,
manufacturing capability and capacity, continuous improvement program, ISO 9000
certification, engineering capability and flexibility with regard to product
improvements. In addition, Oasis has in-house UL Laboratories system testing
capabilities as well as an in-house equipment standards department. Certifications
on all PHSI products include UL, NSF, TUV, CE and SASO.

Financial Services

A strong financial program is important when setting up a
dealer network. After experiencing inconsistent and inferior service from a
variety of third-party finance companies, PHSI formed PHSI Financial Services
(PHSIFS). Today, it offers an extensive line of financial products and services
exclusively for PHSI dealers and products. By bringing the financial function
in-house, a company is able to protect the dealer against the whims of the
financial markets and, most importantly, to protect the dealer’s vested
interest in the equipment. With consistent rates, flexible and consistent
credit approval standards and quick funding turnaround, PHSIFS is able to
relieve dealers of typical funding “headaches” while giving them
the added security of knowing that their customer will be taken care of during
the rental term.

A rental program should provide dealers the ability to rent
systems to their customers and get paid at the time of installation for the
value of the rental contract. This private label rental program substantially
increases the marketability of PHSI systems by eliminating the conventional
capital purchase decision process typical with a piece of equipment. This, in
turn, allows the customer to treat the monthly rental payment as an operating
expense (such as they are accustomed to doing with bottled water expenses).
Most importantly for the dealer, the standard PHSI rental contract extends a
Price Protection guarantee to the customer whereby at the end of the initial
rental term the contract automatically renews at the same monthly rate. At the
request of the dealer, PHSIFS will continue to bill the customer on the
dealer’s behalf and forward collected rents to the dealer on a quarterly
basis. As a result, a rental program such as this one builds substantial equity
and value into the dealer’s business by allowing the dealer to develop a
fleet of rental income-generating equipment with minimal up-front capital

National Account Programs

Nationwide corporate accounts that have multiple branch
offices located throughout the United States and overseas easily are
accomodated by having a strong dealer base and infrastructure. This benefits
the dealer network by providing additional business opportunities in affected

For example, PHSI has installed products in  international conglomerates such as
Alcoa, United Airlines, Wal-Mart, FedEx and UPS, to name a few.

Corporate-Owned Dealerships

The principal purpose for setting up new corporate-owned
dealerships is to enable a company to better serve its dealer network. The
ownership and operation of dealerships enables a company to better understand
the needs of the end-user and the changing needs in the industry as well as to
stay on the leading edge with both products and sales and marketing concepts.
PHSI has reestablished corporate-owned dealerships and a new marketing concept
called the Per Gallon Agreement. Utilizing microprocessor technology, PHSI
products provide the ability to track the number of gallons of pure water
consumed each day, thus allowing the dealer to charge the customer by the
gallon and/or for overages. Also, the ongoing customer feedback has assisted
PHSI with product refinements, software enhancements, and the addition of three
new POU water purification coolers and expansion of the Clean Cooler
Concept™ line.

Other Product Technologies

Over the past five years, PHSI has introduced technologies
including Double Stage Ozone Injection that are designed to exceed strict EPA
protocols for elimination of microbiological contamination in drinking water:
the primary objective of PHSI products. Other proprietary technologies
developed and introduced to the industry by PHSI include Activated Oxygen Monitoring,Self Sanitizing systems and microprocessor-controlled systems that provide on-board purity and maintenance monitoring.

Ongoing Testing

Besides standard NSF testing and other industry
certifications, a company should be budgeting thousands of dollars each year
for continuous testing of its systems. Systems are tested by independent EPA
certified and approved laboratories. Test protocols include ongoing
heterotrophic plate count (HPC) bacteria testing, new materials testing,
filtration performance testing, RO performance testing as well as new component
testing and validation.       

About the author

Craig Story is cofounder and president of PHSI, Pure Water Technology Division. John Windju is cofounder and vice president of operations. They may be reached at 800-265-5167; www.purewatertech.com.