Scott Woods company visits – Service Master
World in Motion – Global equities blog

Scott Woods company visits – Service Master

Pest control is a rational market. Businesses do not tend to undercut others on price. Scale is also important because it not only gives a company purchasing power, but it means you can be the top search in Google in a particular region when people search for pest control. The latter is important because, with pests, people are usually desperate to get rid of their problem quickly. This also makes pest control a price-insensitive industry.

To see a lot of these factors in action, I headed to Pittsburgh one afternoon last year to visit a local Terminix, the pest service brand Service Master operates under in the US. Service Master has quite a rational oligopoly, with a strong national brand that people recognise and trust.

The first house was owned by an existing customer who had called Service Master because she had a previous problem with mice. When you call for a single problem, Terminix will usually offer you a deal where you can pay the normal price upfront for a single visit or you can pay less upfront by taking out a contract that allows you to call Terminix year after year. By committing to a three-year deal, each visit is cheaper as there is no longer a call-out fee to pay.

Termites, for example, are a huge problem in the US. To deal with them, you have to build a chemical barrier around the house which needs to be replenished every year – which means a decent recurring revenue fee. So they tend to get recurring contracts where people stay with the firm for peace of mind.

At the next house there was another mouse problem. The Terminix pest control guy was in a jumpsuit while I was in a suit and tie. Still, I went into the attic and could see mice running through the insulation. I was asked to grab one of the traps and, of course, it had a dead mouse in. We laid new traps and then did an outside walk, through the snow in my smart shoes, which obviously got ruined. He was an excellent salesman, very clever at figuring out where the mice had got in.

Back at HQ they explained how the company had grown in recent years, as well as some of the mistakes the previous management had made. For example, they had tried to control costs by decentralising the telephone customer service operatives, but in doing so had lost a lot of the personal touch from some of the older staff, nicknamed “Marys”. Removing the Marys didn’t work because customers like speaking to people they know from their own community, rather than someone in a call centre thousands of miles away.

The new management has been pivoting away from that strategy of cost-cutting and reinvesting instead. The lesson is that there is a point where you can cut too much back from a business.

6 July 2020
Scott Woods
Scott Woods
Portfolio Manager
Share article
Share on twitter
Share on linkedin
Share on email
July 2020
Share article
Share on twitter
Share on linkedin
Share on email

Important information

For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). Past performance is not a guide to future performance. Your capital is at risk. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. This document is not investment, legal, tax, or accounting advice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating to an investment with Columbia Threadneedle Investments. The analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. This document includes forward looking statements, including projections of future economic and financial conditions. None of Columbia Threadneedle Investments, its directors, officers or employees make any representation, warranty, guaranty, or other assurance that any of these forward-looking statements will prove to be accurate. Information obtained from external sources is believed to be reliable, but its accuracy or completeness cannot be guaranteed. Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

Related Blog Posts

2 July 2021

David Dudding

Portfolio Manager, Global Equities

The power of compounding – a shaggy dog story

Read portfolio manager David Dudding on Junior Isas, Nestle and a cavapoo puppy.
Read time - 4 min
2 July 2021

Pauline Grange

Portfolio Manager, Global Equities

Fashion, Adidas and the circular economy

Adidas has been a core holding since the inception of the Threadneedle Global Sustainable Equity strategy. Its production and promotion of technical sports performance products contributes positively to our social theme of “Good Health and Wellbeing”.
Read time - 5 min
1 July 2021

Alex Lee

Portfolio Manager

Japan sets its sights on a software revolution

The use of software solutions by companies to improve competitiveness, efficiency and productivity, and reduce costs, is picking up pace – just in time, as a shortage of skilled workers continues to bite
Read time - 3 min

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Investment Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.