Could Small Scale Wood Pellet Manufacturing Help Revitalize the Forest Products Industry?

The forest products industry has taken a big hit with the slowdown in the economy. Without people building new homes there is a low demand for traditional forest products like lumber which had been devastating to many forest products industries. An exception to this is wood pellet manufacturing which has not only remained steady but the demand is rising.

Both firewood and pellets are unique when it comes to forest products in that they are a consumable product that consumers buy year after year. As the timber industry suffers from cutbacks and mill closures my own firewood business continues to thrive and grow. No matter what the economy is doing people still want to stay warm.

Pellets as a source of heat came onto the scene in the late 70’s but have been slow to compete with cheap and abundant electricity, oil and natural gas. Heating with pellets made a big hit with consumers but from time to time wood pellet manufacturing hasn’t been able to keep up with demand and there have been occasional problems with pellet shortages.

As fossil fuel prices rise and as consumers are looking for green alternatives and renewable sources of energy, pellets are starting to get more attention as an alternative source of energy. Because of this, demand for pellet manufacturing will likely continue to increase and be an opportunity for the forest products industry.

Pellet mill technology has been changing in recent years and there is a new trend of making smaller scale pellet mills. These lower production mills are becoming affordable for small production operations and even consumers to enter the wood pellet manufacturing market.

This opens up opportunity for small wood products businesses and small forest land owners and managers to manufacture and sell pellets. It also gives home owners the ability to manufacture their own pellets the way wood stove users can make their own firewood.

Learn more about making wood pellets learn how pellets are made and how you can make your own.

It’s Not the Funeral Product Industry

When did it happen? Has the funeral service profession always been product focused? I think a long time ago, 25+ years ago – during the good ol’ days of unit pricing- caskets were always part of the success equation but not as much as a focal point (business wise) as they have been as late. I believe that we can blame the government! Well, it isn’t their fault completely, but when it came down that all funeral services and merchandise had to be itemized on the Goods and Services contract, monies had to be attributed to the various components.

Did the merchandisers at that time come up with The Plan? “If we get the funeral home operators to attribute a good portion of the dollars from the Unit-Price total to the product, then the product would become a very important part of the financial success equation.” Whether they did or not we are left with under-price service offerings and over-priced merchandise. Another contributing factor could be the structure of Memorial Societies’ packages. Usually they target service fees, thus driving down those prices. This leaves merchandise as the one thing that funeral homes could supplement the decreased returns on their service offerings.

The Funeral Arrangement Lottery

Upon the completion of every arrangement, when the manager or owner looks over the contract, there is an uncontrollable force that draws the eyes to Merchandise column, bringing feelings of glee or melancholy. Solid copper, inlayed mahogany – instant margins are calculated in one’s head and it’s a good day! With the current pricing structure, it would be more profitable to have families select a cherry casket with immediate cremation than a cloth covered lift lid with a traditional funeral. Maybe it should be called the Funeral Product Industry. I apologize if this strikes a chord, but if the sale of merchandise is what gets you excited, it’s going to be a glum future.

Reality Check

The Pollara Report spells it out quite simply, consumers value funeral merchandise the least! For those who may not have seen the results, please see them below. Coupled with this sentiment from the public, they also told us repeatedly that they feel costs are too expensive. In addition, Canadians surveyed stated that the No. 1 reason for preferring cremation is that it is less expensive.

Value of Products and Services (10 point rating scale)

o Professional services such as embalming, conducting the funeral, visitations, & the receptions (7.1)

o Out-of-pocket expenses including flowers, notices in the newspaper / memorial cards, clergy & church fees (6.5)

o Cemetery property, including plots, niches or crypts (6.5)

o Transportation such as a hearse, limo or other car (6.4)

o Memorials such as bronze markers / granite headstones (6.3)

o Caskets (5.6)

o Urns (5.6)

o Vaults (4.2)

Impressions of Funeral Industry

o Funerals are too elaborate, prefer a service that was simple & cost effective: Agree – 78%, Disagree – 16%, Don’t Know – 6%

o Funerals cost too much, industry should be regulated: Agree – 71%, Disagree – 17%, Don’t Know – 12%

Reasons for Preferring Cremation

o No. 1 Reason: Cremation is less expensive – 23%

Source: Pollara Report, March 2004

There could be two reasons for this response. Either we are not communicating the value of all of our offerings (both services and products) or they are not seeing any value in anything we offer! The merchandise suppliers obviously supply funeral homes with “product knowledge” but who should be supplying the “service knowledge?” The one who creates it of course – the funeral home! Do you provide your staff equal amounts of service knowledge as compared to product knowledge? How are your services presented? In many instances it doesn’t take long for the “service presentation” to become product focused. “Mrs. Jones, the difference between a funeral service and a memorial service is that the …” Gee, didn’t they tell us that they do not value caskets and now we have just tied our most profitable service offering to something that doesn’t have a perceived value.

Is this the slippery slope? So the consumers have a low perceived value of funeral products, they tell us that funerals are too expensive – with the casket being the biggest ticket item, then we try offering our services where the definition of a funeral is dependent of the presence of a casket, and the number one reason for the preference of cremation is that it is less expensive. Is all of this just a coincidence?

We must realize that the rest of the world does not have the love affair that we as funeral professionals do over merchandise. For myself, I definitely want a solid maple casket placed in a double-reinforced copper vault, but we cannot assume that the public will be as passionate about funeral products as we are. Furthermore, we didn’t have to wait for the Pollara Report to tell us – the public has been telling us for years.

As previously suggested, cost is not the primary driver of impressions of the funeral industry, however, it remains an important consideration as a majority of Canadians who have yet to arrange a funeral believe that it is an expensive endeavour. This perception is compounded by the fact that Canadians do not appear to attribute significant value to funeral products and services, beyond the professional assistance they would receive on the front line. With the trend toward simplicity evident across all demographic cohorts, this value defines what future funeral clients will be searching for, for themselves and for their loved-ones.

Source: Pollara Report, March 2004

If we have been successful in educating our families that Funerals equals Caskets, and they do not see the value in Caskets, then what are they telling us when they say, “I don’t want to have a funeral.”?

This is not the fault of the manufacturers; they are just conveying their message to their customers (the funeral homes) very well – offering product knowledge in the form of seminars, print, Internet, etc. Are you spending as much time educating your staff and communicating to your customers the benefits of your offerings as the manufacturers provide to you about theirs?

The Solution

Align your service and product offerings (and the manner in which they are conveyed) with what your customer values – if they are not product focused nor should you be
Reformat your pricing by shifting some margin from merchandise to services
Invest in training and equipping your staff with knowledge to properly present your service offerings
The Effect
By lowering your merchandise prices you will:

Further the cause of strengthening the relationship with your customer as they will feel that they are not being forced to purchase something that they feel is over priced
Be able to inform price shoppers that you have the least expensive merchandise in town
Reduce the probability of third-party merchandisers (casket & urn stores, Internet casket & urn website, cemeteries, etc.) having an impact on your merchandise sales
Encourage families to purchase higher quality products, which will convey a positive message to others attending the service.
Friend: “Gee, Martha that looks like an expensive casket you got for your husband.”
Window: “Actually, not really, it was quite reasonable.”
Be able to reply to the cynic who says, “You funeral directors jack up the prices by two or three times wholesale!” “No we don’t.”

The Path to Get There
It is all well and good to tell you to raise your service fees and lower your merchandise prices, however it would not be right on my part to put this idea in your head and then leave you out on your own. This transition is easier said than done and if it isn’t well planned out, it could be disastrous to your business. You will need to be prepared to be able to justify your service fees – but I will leave that up to you as you are the experts of your offerings and of your community. Once mastering the communication of the value of your services, one option to help this transition is to create funeral packages for each of your service offerings. There are more complex pricing strategies available but by following the packaging model, you will be able to transition the service / product pricing structure easier, increase average funeral values, and provide more value to your families.

The intension of this article is not to bash the manufacturers of funeral merchandise but to convey to the funeral home operators that they must align their strategies and offerings with those of their customers. And if this alignment is successful, the consumers will be more apt to purchase products as they should have a higher perceived value of then which in turn will increase merchandise sales, and also make the merchandise suppliers happy!

So, who is going to be the first in town to have the lowest priced merchandise? Maybe the one with the new competitive advantage.

Robin Heppell, CFSP, combines his expertise in technology and pre-need, his formal business knowledge and his deep-rooted legacy in the funeral profession so that he can help funeral homes and cemeteries be more competitive, more profitable, and provide the best possible service for the families they serve.

Through his consulting firm, in Victoria, British Columbia, he assists funeral directors and cemeterians throughout North America embrace and incorporate innovative strategies and technologies.

This “Funeral Futurist” has over 20 years experience in a highly competitive, high cremation (90%) market. He is a fourth generation funeral director and a Certified Celebrant. Heppell is also a faculty member of the Canadian College of Funeral Service, a contributor to Mortuary Management and the Canadian Funeral News.

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