Rachio - Marketing A Disruptive Sprinkler Technology

CASE: M-369
DATE: 09/14/17
RACHIO:
MARKETING A DISRUPTIVE SPRINKLER TECHNOLOGY
You are permitted to view the material on-line and print a copy for your personal use until 28-Jan-2021.
Please note that you are not permitted to reproduce or redistribute it for any other purpose.
I kept walking by irrigation system after irrigation system in my neighborhood that was watering
yards in the rain, and I thought ‘Okay this has got to stop. We have to find a way to fix this.’ And
Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

that is how Rachio started.
1
—Chris Klein, Rachio CEO and Cofounder
As much as 50 percent of the water we use outdoors is lost due to wind, evaporation, and runoff
caused by inefficient irrigation methods and systems.
2
—The Environmental Protection Agency
Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I
INTRODUCTION
Order reference F373286
Chris Klein was just trying to be a good citizen. In 2012, his hometown of Denver had seen a
three-year drought, and he was doing his best to conserve water when watering his lawn. But as
he walked around his neighborhood with his dog that summer, he saw many houses with
automatic sprinkler systems that were over-watering lawns. At first, he wondered why people
did not seem to care about pitching in and saving water. But then he had a realization. These
homeowners often did not know their sprinkler systems were running, nor did they even know
when they were supposed to run. That was because the piece of hardware that controlled when
sprinklers turned on and off was an automatic timer that did not adjust for weather conditions.
And owners found the timer hard to understand and use beyond giving it basic instructions. This
was the genesis of the idea Klein would build a company on: digitize sprinkler systems and
1
Interview with Chris Klein, April 2017. Subsequent quotations are from case author’s interviews unless otherwise
noted.
2
U.S. Environmental Protection Agency website, https://www.epa.gov/watersense/statistics-and-facts
(August 30, 2017).
Debra Schifrin and Professor Wesley Hartmann prepared this case as the basis for class discussion rather
than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 2017 by the Board of Trustees of the Leland Stanford Junior University. Publicly available cases are
distributed through Harvard Business Publishing at hbsp.harvard.edu and The Case Centre at thecasecentre.org;
please contact them to order copies and request permission to reproduce materials. No part of this publication may
be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means ––
electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate
School of Business. Every effort has been made to respect copyright and to contact copyright holders as
appropriate. If you are a copyright holder and have concerns, please contact the Case Writing Office at
businesscases@stanford.edu or write to Case Writing Office, Stanford Graduate School of Business, Knight
Management Center, 655 Knight Way, Stanford University, Stanford, CA 94305-5015.
Distributed by The Case Centre North America Rest of the world
www.thecasecentre.org t +1 781 239 5884 t +44 (0)1234 750903
case centre All rights reserved e info.usa@thecasecentre.org e info@thecasecentre.org
Rachio: Marketing a Disruptive Sprinkler Technology M-369 p. 2
enable homeowners to control their systems from their smartphones with a user interface they
were already accustomed to using. In 2013, he co-founded Rachio with Franz Garsombke, and
in 2014 the company released the Rachio Smart Sprinkler Controller. (See Exhibit 1 for product
images.)
A traditional sprinkler controller was usually installed in a homeowner’s garage or other outdoor
structure, about 70 percent of the time by a professional contractor, and it enabled homeowners
to “set and forget” the automatic timer. The Rachio Smart Sprinkler Controller, a box of about
the same size as a traditional controller, was relatively easy to install in as little as 30 minutes,
and it connected to a home’s Wi-Fi system. The Rachio smartphone app acted as a remote
control for managing the sprinkler system, and it provided a customized watering schedule based
on the yard’s specific plant and soil types. The app also made use of detailed weather reports to
auto-adjust watering—making sure the sprinklers never watered in the rain or heavy winds. In
addition, the app provided detailed water usage reporting. Rachio’s customers were reporting up
to a 50 percent drop in water usage.

Rachio had seen strong early adoption, and it had a dominant market share of residential,
Internet-connected smart sprinkler controllers. It was the best-selling product in its category on
Amazon, and it was leading the space in Tier One brick-and-mortar retailers like Home Depot. It
was getting positive third-party reviews, and it had happy customers, reflected in a good Net
Promoter Score (NPS). But the percentage of homes with smart sprinkler controllers was still
quite small. Rachio was continually working to raise awareness of the product to help the
company grow. Although the Internet of Things (IoT) market was growing rapidly, the space
was still relatively new and expensive. Rachio had to get the right messaging across by keeping
it simple—taking concepts like smart scheduling and artificial intelligence and making them
understandable to an average consumer.
Klein said Rachio was similar to many other consumer IoT companies in that the majority of the
value of the product was really in the software, but the revenue was coming from a one-time sale
of a piece of hardware. This old model of selling consumer products made it hard for Rachio to
achieve solid revenues and margins. It needed to continually improve the software for the
existing hardware, but it did not have a mechanism for charging for that service. Rachio also
was still developing the right types of channels and partnerships. Klein said that some of these
players were moving toward a future that included IoT, but others were firmly holding on to the
traditional industry model. Rachio was mainly a B2C product for homeowners, but the existing
market was dominated by B2B sales through landscape professionals. Rachio’s large incumbent
competitors had a strong hold in that market. In late 2017, these incumbents were a step behind
Rachio in smart controllers, however they were starting to copy Rachio’s product, feature for
feature. The same was true for other large and small competitors, so there was no time for
Rachio to slow down. The company needed to convert more homeowners into the B2C channel
or move to extend their early wins in smart controllers to B2B markets.
SPRINKLER CONTROLLER MARKET
The sprinkler controller market had been the same for decades. It was almost entirely a
replacement market: Homeowners got a new controller when the old one broke, and the average
controller might last 10 to 12 years, but some could last 20 or 30 years. It was rare for
homeowners to upgrade a traditional controller if their current controller was working. An

estimated 20 million households nationwide had an irrigation system with a sprinkler controller.
Industry-wide, about 70 percent of these homeowners used professional contractors or
landscapers to install their controllers. These professionals bought controllers from distribution
centers and marked them up to sell to homeowners when they installed them. The professional
irrigation contractor industry was competitive, and installer’s overall margins were low.
Homeowners generally had low visibility into how much mark-up on controllers professionals
baked into what they charged for the entire installation. The 30 percent of homeowners who
installed the controller themselves (the Do-It-Yourself, or DIY crowd) usually bought it at a
retailer like Home Depot. For Rachio products, however, the installation numbers were flipped.
Over 80 percent of Rachio end-customers installed the controller themselves.
Three privately held incumbents dominated the market: Rainbird (founded in 1933), Toro
(founded in 1914), and Hunter (founded 1981). All three sold controllers to distribution centers.
Another big player was Orbit, which had popular controllers for the DIY segment. Traditional

controllers were priced anywhere from $30 to $100, the most popular being in the $50 to $75
range (see Figure 1).
Figure 1: Controller prices by brand (non-smart)

Source: Author compilation of prices listed on Amazon.com and manufacturer websites.
Controllers used automated timers to control when sprinklers turned on and off. Homeowners
would go to their timer, and set it to water each “zone” of their yard for a specific amount of
time—for example, for 20 minutes every three days. (Some traditional controllers made
seasonal shifts based on historical weather data.) The sprinklers would turn on according to that
schedule, regardless of the external weather conditions, or whether the yard needed watering.
Thus, these automated timer controllers did not turn off the sprinklers during rain or high winds,
which caused water wastage and higher water bills, and it could cause yards to flood.
The first “smart controllers” added wiring to improve water cycles by introducing features like
moisture sensors. When wired between the garden and controller, these sensors could tell the
controller not to water if the soil was moist enough. However, starting in 2013, the irrigation
controller market began shifting more significantly when digital information could be connected
without wiring. The technological advances in the Internet of Things (IoT) was spurring a huge
growth in sales of smart home products such as Nest (smart thermostats) and Amazon’s Alexa
and Google Home, which were intelligent personal assistants for the home. These smart home
products were blazing the trail and getting more non-tech customers into IoT products. IoT
advances led Rachio and a few other start-ups to build products that enabled homeowners to use
their smartphones (via Wi-Fi) to control and adjust their sprinkler system timers. Rachio was the
first to market in 2014, followed by start-ups Skydrop and Blossom. These new smart
controllers—now connected—used the power of the cloud to automatically adjust watering
schedules based on season, local weather, temperature, and humidity. Many smart controllers
were connected to, and integrated with, other smart home products. In 2016, 80 million smart
home products were delivered worldwide, a 64 percent increase from 2015.3 In 2016, the big
irrigation incumbents began jumping into the IoT space. By 2017, Rainbird, Hunter, and Orbit
had come out with connected smart controllers.
Retail prices for smart controllers generally ranged from $100 to $300, depending on

sophistication, the number of zones they could target in a yard (usually 6, 8, 12, or 16 zones),
and compatibility with the major smart home products (see Figure 2). Rachio sold two versions
of its product: an 8-zone smart controller for $199 and a 16-zone smart controller for $249.
(Rachio also offered an optional outdoor enclosure for $30). Some of the incumbents’
controllers were comparable in price to Rachio’s 8-zone smart controller. For example,
Rainbird’s 8-zone smart controller (STO80) sold for $177 on Amazon. Others competitors
offered cheaper products with fewer features. For example, Orbit sold its B-hyve 6-zone
controller for $99.

Figure 2:
Smart Controller Prices by Brand (retail prices)
Smart controllers: Smart controllers:

Up to 8-zones 12-zones or more
Rachio $199 $249
Rainbird $177
Hunter $169 $189
Orbit (B-hyve) $99 $119
RainMachine $149 $249 - $279
Blossom 8 $180
Skydrop $130 - $300
Source: Author compilation of prices listed on Amazon and manufacturer websites.
RACHIO
In founding Rachio, Klein turned to Franz Garsombke to be his cofounder. Garsombke had a
software background and never thought he would work in hardware, but he was drawn to Rachio
because he saw it as a perfect opportunity to leverage technology by applying algorithms to the
3
Diana Olick, “Why 2017 will finally be the year of the smart home: Consumers figure it out,” CNBC, January 4,
2017, http://www.cnbc.com/2017/01/04/why-2017-will-finally-be-the-year-of-the-smart-home-consumers-figure-it-
out.html (September 8, 2017).
difficult problem of efficient watering. “Customers could build spreadsheets and use other
means of tracking real-time weather data, but it would be massively time consuming. Using
technology allows us to automate and make this really complex problem simple for people.”
Similar to how professional contractors and homeowners installed incumbents’ controllers

(either new or replacement), customers using Rachio’s products did not have to touch any of the
piping and plumbing that was already installed in their yards for the irrigation system. Installing
the Rachio controller involved moving the wires from the existing controller and placing them
into the Rachio controller. Where Rachio differentiated itself was that once the wires had been
moved, the Rachio controller would then be connected to the Internet. The controller itself
turned on and off the valves at certain times of the day for certain durations.
Like for other notable categories in the connected space—including smartphones, smart home
products and electric cars—questions were arising about whether the market value was shifting
from hardware to software. For their part, Klein and Garsombke viewed Rachio first and

foremost as a software company rather than a hardware company. In fact, Rachio initially
looked for ways to have only a software product, but decided in the end that it needed to have a
physical product for end-customers to have in their homes.
Rachio’s Generation 1 product came out in 2014. It was a square box with no buttons that
connected to a homeowner’s Wi-Fi. Homeowners held their smartphones up to the box to

initially connect it to the Wi-Fi. For Generation 2, released in February 2016, Rachio wanted to
put more of its branding and culture into the product, and the company carried out more
customer research to get additional insight into what homeowners wanted. As a result, Rachio
put buttons on its controller so customers could run it manually if they wanted to. Rachio made
the wiring bay much larger and made the controller design more attractive.
Rachio had access to a large amount of data that came from its controllers in homeowners’ yards.
Rachio tracked every minute of water usage and had a good estimate of how much water was
being used. Rachio anticipated that this data might provide a competitive advantage.
In terms of competition, Klein said the gap had widened between Rachio and start-ups. This was
the year of a new type of competitor—the incumbents. Klein noted: “The competition is now
companies with money and distribution.”
On the marketing side, Klein said there were challenges with marketing a new product that
created a new category by turning something that was once analog into a digital solution. For
example, he noted that knobs and dials on old controllers were analog inputs for setting
schedules, while a smartphone app was a digital input for scheduling:
This is extremely difficult because in the early years a digital version of an analog
product feels like a better mousetrap. Messaging the better mousetrap wins for a
period of time, but it’s not sustainable as incumbents catch on and begin to copy.
In the early stages, it’s so fuzzy and can be hard to pin down and message about
what makes this new digital solution unique. But an industry can feel it.
Another challenge was that the smart home market was still in the early-adoption phase. In
2017, about a quarter of U.S. Internet users had smart home technology, predominantly
entertainment products.4 In 2017 surveys, one-third of consumers said they were interested in
buying a smart home product, but that percentage had not changed since 2015.5 Consumer
demand studies revealed that high prices, limited consumer demand, and long device
replacement cycles were top barriers keeping the smart home market from moving from the
early-adopter stage to the mass-market stage.6
CHANNELS OF DISTRIBUTION
The controller industry had three main channels: trade shop distributors, brick-and-mortar stores,
and online sales (see Figure 3).
Figure 3: Distribution channels
Industry Wide
Trade Shop Distributors 70%

Brick and Mortar 30%
Online + Other < 1%
Rachio
Trade Shop Distributors 15%

Brick and Mortar 30%

Online + Other 55%
Source: Rachio.
1) Trade Shop Distributors
The big three incumbents mainly sold their controllers through wholesale distributor centers
around the country, and they did very few direct sales. Most professional installers exclusively
used this channel to buy controllers to sell to homeowners at a markup as part of the installation
service. Professional installers bought many other irrigation products besides controllers through
distributors, such as valves, sprinkler heads and pipes, which created a sticky relationship with
the distribution channel. Rachio used this distribution channel to reach most of its Pro installers
customers as well. However, Rachio also sold its controllers directly to consumers online and
through retailers like Home Depot—which many distributors and professional installers did not
like because it allowed homeowners to price compare the exact same products. That also meant
that Rachio was cutting the distributors out of the value chain for those sales. Ric Miles, Rachio
vice president of business development and strategy, said that as a result: “As we work through
4
PricewaterhouseCoopers (PwC), “Smart home, seamless life: Unlocking a culture of convenience,” January 31,
2017, https://www.pwc.com/us/en/industry/entertainment-media/publications/consumer-intelligence-
series/smarthome.html (September 6, 2017).
5
Ibid.
6
Andrew Meola, “Most people have no idea where to buy smart products,” Business Insider, June 29, 2016,
http://www.businessinsider.com/most-people-have-no-idea-where-to-buy-smart-home-products-2016-6
(September 6, 2017).
this, we have a delicate relationship with traditional wholesale distributors.”7 Rachio sold
through two big distributors, Ewing Irrigation and SITEONE Landscape. Ewing Irrigation was a
strong partner for Rachio, and it told Rachio that it was excited about selling a product that had a
level of cool that did not generally exist in the irrigation category. Professional contractors who
bought Rachio controllers through those distributors got a discount off the retail price so they
could still make a margin—although generally not as big a margin as with a traditional
controller.
2) Online
It was rare for the big three incumbents to sell their controllers directly online. By comparison, a
large percentage of Rachio’s business came from the online channel. Amazon drove most of
Rachio’s online sales, and the fact that it was the category leader on the site drove even more
sales. Rachio was seeing great benefits from its 4.7 rating (out of 5) on the site. Rachio’s online
channel also included online divisions of brick-and-mortar retailers such as Home Depot.com,
and sales from Rachio’s website. The majority of Rachio’s business from this channel came

from end-customers/homeowners buying the controllers to install in their own yards. Competitor
Orbit also sold its B-hyve online, as did Rachio’s smaller competitors such as RainMachine.
Less than 10 percent of Pro customers bought irrigation controllers online—a figure that applied
both industry-wide and to Rachio. In April 2017, Rachio launched a more dedicated store around
online shopping for Pros, and highlighted Amazon for Business and Ewing Irrigation on a new
website.8 Rachio handled certain large national accounts on a direct basis, also online.
3) Brick and Mortar
The DIY homeowners who wanted to install irrigation controllers in their own yards accounted
for 30 percent of total controller sales, and they mainly bought the controllers at big Tier One
retailers such as Home Depot, Lowes, and Best Buy. Orbit was an important player in the
channel, and it did not generally sell through distributors. Rachio’s DIY customers also shopped
at these retailers, and they accounted for a significant number of Rachio’s sales. Home Depot
was the first retailer that Rachio launched with in 2014, and Rachio quickly expanded to Best
Buy and then to Lowes in 2017.
Traditionally, few Pro contractors bought from the big Tier One retailers. In terms of the smaller
brick-and-mortar stores where professionals shopped, Rachio’s Vice President of Sales Brian
Ewing said, “I think that professional installers have a lot of reasons to enjoy the benefits of
going to what I would call the local convenience store and buying a lot of parts and pieces and
getting support.”9 But Rachio was wondering if that might shift as digitization took a firmer
foothold in the market.
7
Interview with Ric Miles, May 2017. Subsequent quotations are from the author’s interviews unless otherwise
noted.
8
Rachio website, http://rachio.com/pro (September 6, 2017).
9
Interview with Brian Ewing, April 2017. Subsequent quotations are from the author’s interviews unless otherwise
noted.
CUSTOMERS
Rachio was finding that marketing this type of disruption/aggregation was an art. Klein said it
was about understanding the current customer and staging for the future: “It’s about knowing
how to highlight the subtleties that start shifting the consumer’s mindset toward the future: how a
new digital version of this product is defined and monetized.”
End-customers / Homeowners
Rachio was highly focused on the homeowner/end-customer. Industry-wide, the typical profile
of a sprinkler controller customer was a male, middle-aged homeowner. Rachio’s current
customers (and the customers it was targeting) were a more tech-savvy and higher-income subset
of this industry profile. Almost 80 percent of Rachio’s customers already owned a home
automation product (like Nest, Amazon Echo, or Google Home).
Throughout the DIY home improvement category (represented by Home Depot and Lowes

customers) the average customer was around 50 years old with an average income of about
$57,000. Fifty-five percent were male, and men spent about 30 percent more than female DIY
customers at these stores10 (See Figure 4). For the smart home market, the largest concentration
of owners was 35-49 year olds11 (See Figure 5).
Figure 4: Average DIY home improvement customers

Age: 50
Income: $57,000
Gender: Male 55% / Female 45%
Spending habits by gender: Males spend 30% more than females
12
Source: The Motley Fool.
Figure 5: Smart Home Product Ownership per Demographic
Gender Percentage who own

smart home products
Male 32%
Female 20%
Age
18-34 29%
35-49 35%
50-64 13%
Total 26%
Source: PriceWaterhouseCoopers.
10
Jeremy Bowman, “Who is Home Depot’s Favorite Customer?” The Motley Fool, May 25, 2016,
https://www.fool.com/investing/2016/05/25/who-is-home-depots-favorite-customer.aspx (September 7, 2017).
11
PwC, op. cit.
12
Jeremy Bowman, op. cit.
Smart Home products including Nest and Alexa were leading indicators for Rachio, and because
of their integration with Rachio, a homeowner could control a Rachio product by saying
something like “Alexa, pause irrigation for 15 minutes.” Rachio’s current and targeted customer
was brand driven, and would perceive having a smart thermostat and a Rachio irrigation
controller as a nice combination. Brian Ewing described these customers’ attitude as: “I’m going
to spend some money to save money.” These customers were also heavily online and social
media driven, motivated by the active online community that Rachio had. They got a significant
amount of information online, which was one more reason that Rachio was seeing the continued
importance of its online channel to its sales.
Through its research, Rachio discovered that the number-one reason why its customers were
buying its product was to have what Klein called “control and empowerment.” That was because
Rachio enabled customers to interact with the once-complex controller system at their house. As
Klein described:
It was the first product of its kind, an irrigation controller, that created a consumer
brand. Before that, the system was so complicated that for the most part only
landscapers could install it and solve problems, which is why homeowners did not
know how to use controllers. And we created a product that empowered
homeowners to actually understand how to use their irrigation system and do
something they hadn’t been able to do in the past.

Homeowners could control and make any watering adjustments they wanted from their
smartphone—eliminating the need to go outside to the garage to make changes. Ewing said,
“What we are hearing about our customer is that he likes to stand at the end of his driveway and
show his neighbor what he can do in his yard.” End-customers could even make adjustments
and track water usage directly when they were not at home, a big convenience factor. They also
had more control over how healthy and aesthetically pleasing their lawns were because their
sprinklers were not running during the rain or heavy wind, which could lead to over-watering.
Homeowners had traditionally deferred to the professional contractor installing their controller to
make decisions about which controller to buy. But as Rachio’s smart controller gained traction
in the market and homeowners were seeing the benefits, they began asking their professional
contactors to install Rachio—another way they were gaining more control over their watering
needs.
Because the Rachio controller was relatively easy to install in as little as 30 minutes, 80 percent
of Rachio’s homeowner customers were installing the controllers themselves. Thus, these Do-It-
Yourself customers saved the cost of hiring a professional contractor to do the installation.
Whether they installed the Rachio controller themselves or hired a professional installer,
homeowners could share the app with their landscaper, contractor, or gardener, who could make
sprinkler system adjustments from their smartphones as well. Since those professionals did not
need to access the garage or other part of the home to make changes to the controller (as they did
with traditional controllers), homeowners did not need to be home when those professionals
came by to check on their lawns and gardens, which was an added convenience factor.
A second and third reason end-customers were purchasing Rachio was water savings and the
associated monetary savings. Because they could reduce water usage by up to 50 percent with
Rachio, homeowners’ water bills were significantly reduced. Rachio said that the precise water
savings were tough to quantify because the company did not have a baseline to compare for each
individual homeowner, thus the figures for water reduction percentages were anecdotal. From
their smartphones, homeowners could see if the amount of water they were using was about to
push them into a higher pricing tier for water, which would cause a jump in their water bills.
Armed with this information, homeowners could make informed decisions about how they
wanted to manage their water consumption. As an example, the first 5,000 gallons of water
allotted by the water company to cover indoor usage might be priced at $2 per thousand gallons,
but each additional gallon (typically used for outdoor) might be priced at $5 per thousand
gallons. A typical single-family home with outdoor irrigation might consume 10,000 gallons of
water per month—and adopting a smart controller would yield considerable savings.
As smart controllers were trying to addresses water conservation, they could potentially lead to

broader household involvement in the decision-making process. [See Figure 6 for the
breakdown of household involvement in the Decision Making Process (DMP) and Decision
Making Unit (DMU)]
Figure 6: Rachio Customer Decision Making Process by Gender

DMP DMU
ADULT ADULT
MALE FEMALE
NEED/PROBLEM RECOGNITION 50% 50%
CONSIDERATION SET FORMATION 70% 30%
EVALUATION 70% 30%
PURCHASE 77% 23%
INSTALL 85% 15%
USAGE 85% 15%
POST-PURCHASE EVALUATION 50% 50%
Source: Author compilation from Rachio data.
OTHER DECISION MAKERS
Industry-wide, some homeowners were willing to purchase and install a sprinkler controller on
their own as a DIY project, but most of the time the major decision maker was a professional
contractor. There were also additional influencers for potentially both of these sales, including
other gardening, irrigation, and home automation experts, and municipalities (see Figure 7).
Figure 7: Industry-wide Decision Makers
1) Professional Contractors
2) Do-it-yourself (DIY)
3) Landscape installers
4) Landscape maintenance
5) Home automation experts
6) Municipalities
Professional Contractors
Industry-wide, 70 percent of controllers were sold to homeowners through professional
contractors. For Rachio, the number was much smaller. Klein said that for early adopters,
Rachio found installers who wanted a new way to do business and were looking for something

that their customers wanted. Rachio originally started gaining traction with these contractors
because the company was so focused on the homeowners, and homeowners wanted the product.
Contractors were seeing Rachio products at the homes they were servicing. Klein said that when
the homeowner purchased a Rachio controller, professional installers needed to know what it
was and how it worked. This was an emerging shift for the industry; this had previously been a
space where customers did not have opinions about controllers. According to Klein:
We had contractors saying, “I need to understand this because these controllers

are showing up at homeowner’s houses.” We would educate them on the product
so they become comfortable with it and could then offer help to other customers
who were asking for the product. Not every irrigation professional is going to go
for that and would prefer not to learn the product; they might not be our
customers right now. On the other hand, there are a lot of professional
landscapers who are seeing value in the product as a business driver and they are
getting on board organically.
The typical professional contractor was a middle-aged man who owned a small professional
contractor company. The contractor typically had over a dozen years of experience, employed
fewer than 10 people, and was heavily residential and service-oriented, doing very little yard
design. These contractors focused on updating and automating current irrigation systems, and
had realized that it was a good business because many homeowners did not know how to use
their sprinkler controller or other automated yard products. These homeowners therefore relied
on professional service and maintenance. One clear advantage of the Rachio controller was that
the pro could also be given access to manage the water system remotely. Pros using Rachio told
the company that as a result of this access, they were able to be more efficient with time and
resources and complete more jobs every day. For example, some Pros reported they could
service seven homes a day, versus the five homes they were servicing before Rachio.
However, there were still many hurdles to more widespread adoption by professional installers.
Rachio had to convince them of the value proposition to pull them away from the way they had
always operated: buying a controller for as low as $30 and then selling it for as large a margin as
they could—anecdotally these margins were anywhere from 2-3X, and in some instances much
more. In contrast, because of the pricing transparency of Rachio, it could be hard for a
professional contractor to sell a Rachio controller for much more than a homeowner could buy it
online.
The big three incumbents had strong loyalty programs for installers, which incentivized them to
stay with their products. An installer typically had an account with a distribution center, which
kept a running total of what each installer bought. The incumbents gave out points based on the
installer’s purchase volume. So installers could then use these points to buy sports tickets and
occasionally something more expensive like a TV, which created incentives to stay with an
incumbent.
Rachio was also hearing some objections from Pros about issues related to the actual use of a
new type of product. For example, Pros were saying things like, “There is no screen on the box
[for generation 1.] How do I change it when I’m standing in front of the box?” Or “What if I
don’t have a smart phone?” Pros were also telling Rachio that it was a problem for them that

Rachio controllers were sold in retail channels; as a group, they generally did not want to sell a
product to customers that came directly from retail stores.
Home Automation Sellers

A subset of the professional contractors in this sector was the home automation seller, who went
into end-customers’ homes to set up their smart homes. Home automation installers bought their
products from a different wholesale distribution network. Rachio’s integration with Google
Home, NEST, and Alarm.com were driving these professionals to Rachio because customers
were looking for whole home automation systems.
Municipalities/Utilities
Another influencer was the local water company. Concerned with managing water usage during
droughts, the local water company in parts of California and other areas often provided rebates
for smart irrigation controllers. While rebates varied in magnitude, some were enough to cover
the entire cost of the controller and installation.
PRICING
When Rachio brought its first product to market in 2014, the company was essentially alone in
the smart controller space, so it looked at the top product in the connected home space, the Nest,
which was selling for $249. Rachio then followed suit, adopting the same pricing for its 16-zone
product.
For the professional channel, Rachio priced its products lower through local distributors. That
way, professional installers could sell Rachio’s product to end-customers for the same amount
end-customers could buy them online—ensuring that the professionals still had a margin. It was
a new model, because professional installers were not used to selling products that were
available to end-consumers through all the same channels.
Members of Rachio’s leadership team noted that price was not a driver for sales. Rachio was
seeing that its current and target end-customer was not driven by price. Brian Ewing said many
retailers were telling the company that it could quicken mass adoption of Rachio by lowering the
price. He noted, “We certainly don’t believe that. We hear that if our product gets down to a
certain price point, the rest of the world will be more engaged in the category. I’m not sure if we
see the data to support that. Certainly, our customers aren’t telling us that today.” However,
even Rachio’s management had differing opinions, as Ric Miles suggested, “We have to closely
watch the evolving buyer and the influence price has on adoption—elasticity. Our long view is
not necessarily for Rachio to be the premium-priced solution. Perhaps it should be the solution
that everyone wants. Pricing strategy is just plain tough.”
Klein said that it was too early to tell if companies that were selling similar products for less
were a threat:
In the broad scope of things, they are taking market share, but I don’t know if it is
our market share or a competitor’s. A customer could buy Orbit’s base controller

for $59 or its B-hyve smart controller for $99. I don’t know if the $59 consumer
is thinking about this as an upgrade to what they already have, or a brand-new
type of product. Eventually you want to provide a product for everyone. But
right now, it is going to take some time, and the indications we get from general
research indicates that consumers see our controller and company as being
different. They don’t go look at the $99 alternative and compare that to our $199
controller. They see it is a different product.
Garsombke added that Rachio did not want to get into a “feature checkbox” war; it wanted to sell
its brand and vision. Rachio hoped customers would be attracted by the optimized water
schedules and the insight into their usage and conservation opportunities that a software solution
could provide. Rachio did not see inexpensive alternatives taking the market share that might be
expected at that price point, but occasionally a low-end product beat out Rachio’s controller in
the sales ranking on a specific day.
Pricing Software: The Future?
In mid-2017, Rachio’s revenue came exclusively from the hardware sale, even though the
company saw a tremendous amount of the value coming from the software. Klein said from a
marketing perspective it was much easier to market a one-time sale of a product that was very
focused on one category, such as the consumer, “as opposed to getting into how do you sell it as
software and prove that the monthly fee for software is less than what you would have spent on
water. It is a much more complicated story because nobody is used to buying a product that
way.” Rachio had done a fair amount of research on this idea, and it found that people disliked
paying for a service.
As a possible way forward, Rachio was evaluating a hardware-enabled services model (such as
Nest had established by offering advanced features for a monthly fee). Klein said some areas
where Rachio was selling its products, including Denver and California, had microclimates, and
Rachio’s controller might be looking at a weather station that was eight or nine miles away. The
precipitation might be different at a house. “There are ways through software to make that a lot
more accurate. Obviously, it costs money on our side, but we could hypothetically offer
advanced-weather or similar premium functions to the user for a nominal fee.”
Advertising Strategy
Rachio’s primary advertising strategy was driving awareness on a small budget. The company
accomplished this most often through digital advertising on Amazon, Google AdWords, and
Facebook. Rachio was constantly testing new advertising channels to determine the ROI. These
included addressable TV (it partnered with AT&T and Comcast) and podcasts. However, digital
advertising remained the most cost effective. Because most of Rachio’s sales happened on
channels outside of Rachio.com, it could be challenging for the company to get an accurate read
on efficiency between the channels.
STRATEGIC PARTNERS
Technology Partnerships

Rachio worked closely with the large technology companies, including Amazon, Apple, and
Nest, as well as with smaller players, from both a technology integration stance and a marketing
perspective. Klein said the technology partnerships were critical because the big players were
leading the efforts to make the smart home come together and were speeding that adoption—and
Rachio wanted to be a part of that story with them. Rachio was integrated with Alexa and
Google Home, which enabled homeowners to start or stop the controller or the watering schedule
through a voice command to those devices. Klein said Rachio also had partnerships with other
integrators, for example Wink, SmartThings, and Alarm.com, “Never before would a security
company offer irrigation controllers, and now that is happening. So, we think they are unique
channels and unique partnerships. They were slow moving at first, but they are starting to pick
up steam.”
On the marketing side, Rachio wanted to have a solid symbiotic relationship with Google, in
which, as Google was building its smart home presence with Google Home, it would have a
vested interest in making Rachio successful. As an example of this effort, Rachio and Google
released a combined press release when Google released a dozen new products that worked with
Google Home, including Rachio. Likewise, Rachio wanted to promote Google’s product and
show that Rachio was integrated and at the cutting edge of working with partners. Rachio’s
technology works seamlessly with the rest of the smart home. Similarly, Rachio had a
partnership with Nest, as the smart thermostat company was working to expand its “Works-with-
Nest” products. Rachio’s conversations with Nest centered on “building a smart home” story.
CONCLUSION
To make near-term and long-term decisions about its strategy and marketing, Rachio had two
fundamental things to sort out. First, where was the IoT industry heading and what did the
company need to do to help the space grow? How could Rachio secure a strong position in that
market? Second, how did the company develop a go-to-market strategy to convert homeowners
to Rachio in the face of growing competition in smart controllers from incumbent sprinkler
controller manufacturers?
Source: Rachio.
Rachio: Marketing a Disruptive Sprinkler Technology M-369
Exhibit 1
Rachio Smart Controller Images
p. 15

Exhibit 1
Rachio Smart Controller images (continued)
p. 16

Source: Rachio
Exhibit 1
Rachio Smart Controller images (continued)
p. 17


Rachio - Marketing A Disruptive Sprinkler Technology

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Rachio - Marketing A Disruptive Sprinkler Technology

Uploaded by

Copyright:

Available Formats

CASE: M-369

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

SPRINKLER CONTROLLER MARKET

homeowners to upgrade a traditional controller if their current controller was working. An

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Figure 1: Controller prices by brand (non-smart)

Source: Author compilation of prices listed on Amazon.com and manufacturer websites.

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

controller for $99.

Smart controllers: Smart controllers:

Similar to how professional contractors and homeowners installed incumbents’ controllers

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

connected to a homeowner’s Wi-Fi. Homeowners held their smartphones up to the box to

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Trade Shop Distributors 15%

Brick and Mortar 30%

1) Trade Shop Distributors

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

3) Brick and Mortar

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Figure 4: Average DIY home improvement customers

Figure 5: Smart Home Product Ownership per Demographic

Gender Percentage who own

something they hadn’t been able to do in the past.

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Figure 6: Rachio Customer Decision Making Process by Gender

OTHER DECISION MAKERS

Figure 7: Industry-wide Decision Makers

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

We had contractors saying, “I need to understand this because these controllers

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Home Automation Sellers

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

controller. They see it is a different product.

Pricing Software: The Future?

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Rachio: Marketing a Disruptive Sprinkler Technology M-369

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

Purchased for use by Pardeep Singh on 28-Jan-2020. Order ref F373286.

You might also like