The whole on-demand piece, you heard us reference pay-as-you-go, or a-la-carte. We think that there’s really a market for people who don’t want to get locked into a contract and want to pay for a repair or upgrade their system on a one-time basis. And that’s really what we’re going to zero in on. So for now, we’re really trying to engage, we’re not making money at $25 with unlimited chats, but we think it’s a good lead into the brand. It’s certainly the unique user experience with our experts. We are really proud of, and we think it’s going to enhance the brand long-term. So still working on the specifics of that – as we bring the booking engine into the app and the like. So we’ve got – we’re very, very excited about the strategy, but you know, as Jessica said, we’ve got to bring the execution level to the same level that we’ve had across the company.
Is there anything you want to add on that?
Jessica Ross: No, I would just add in, I’m glad you asked both questions AHS and Frontdoor. Because as we think about growing this business and long-term profitability, it really is about both brands. We are very pleased and thrilled with how our margins have rebounded so quickly. And we’re really excited about, especially like a lot of that has been our core, but as we’re thinking about the future and really growing this business, it’s going to be about being innovative. It’s going to be launching new products and offerings and going after more customers, which is really about Frontdoor. I think the margin profile of that product is going to be very different, I think, from a home on an on-demand services perspective. And so if we’re thinking about that longer term profitability mix, it’s really, again, like I said earlier, going to depend on what of that is coming from Frontdoor.
But we are excited about both. We’re excited about where our margins are right now and what that’s going to look like going forward.
Ian Zaffino: Okay. Thank you very much.
Bill Cobb: Thank you very much.
Jessica Ross: Okay. Thank you, Ian.
Operator: The next question today comes from the line of [indiscernible] from JPMorgan. Please go ahead. Your line is now open.
Daniel Pfeiffer: Hey. This is Danny Pfeiffer on for Cory Carpenter. I just have two quick ones. On the claims cost inflation, can you maybe unpack that 4% in 3Q and talk about what components are being the stickiest there? And then on the second one, on the success in on-demand services outside of HVAC, are there any other categories or services to call out you’re seeing success in or most excited for from a revenue opportunity perspective? Thanks.
Bill Cobb: Why don’t you pick the first, I’ll pick the second.
Jessica Ross: Thanks, Bill. So just from a claims cost perspective, yes, we have been forecasting, right, 9% compared to the 4% that we’re seeing this quarter. I think a couple of things I just want to – concepts that I just want to put out there is, one, there’s a lot of concepts in this business that operate on a delayed views, right? We talk about our pricing actions, claims cost development, and some of that is what you’ve seen this year just in terms of how we’ve seen inflation or deflation manifest into our results. We’ve talked also about in terms of, as you think about Frontdoor cost inflation, really it being comprised of three buckets, the contractor-related costs, parts and equipment and additionally, some of the impact that we’re seeing on regulatory changes.
I think right now what we’re seeing from inflation is it’s really comprised or heavily driven by two buckets, the contractor-related costs and the parts and equipment. And that’s probably equally balanced between the two of those, which are really trending closer to CPI right now at this 4%.
Bill Cobb: Now, with regard to other services, to your question, Danny. So let me unpack this. So the engine for us right now is upgrades, specifically HVAC upgrades. We have a long way to go on that. That is just touching the service. We are thrilled with our contractor relations team, our contractors have done, the marketing team in terms of reaching out to our customers in terms of getting an HVAC upgrade. And I won’t go into right now, we’ll talk about this more in Q4. The changes that the EPA is bringing in that it’s going to basically force a bunch of consumers to have to upgrade their system, but I won’t get into that now. We will talk about that in Q4. But upgrades are the engine. We do think that there is opportunity, real opportunity in appliance and water heater.
We’re getting the model down on HVAC and then moving to probably those two areas, whether we could get into pool, spa and other things. But the two to think about behind HVAC are appliances and water heaters. Then the repair piece. We’ve been doing appliance repairs in about 15 markets, and we’re working through the model and how that whole piece works. That is showing good traction. We will expand the number of markets we’re still working through what that is, but repair will be not only in the shorter term an expansion of markets, but as we get a booking engine into the app where people can call for a repair as they put it an a-la-carte basis, that we think will be an additional good driver. I think there’ll be a, let me call it a nice little business on maintenance.
We actually have a good business right now doing tune-ups around HVAC. I think we’re still working through. We have other maintenance services. I think we’ve got to sort through how we position those to customers and make those available. But I think that is a part of it, that’s a natural part. So I’m excited from an on-demand basis that we can look at these three areas and have real opportunity and all, it’s pretty much a greenfield for us.
Daniel Pfeiffer: Thanks.
Operator: The next question today comes from the line of Eric Sheridan from Goldman Sachs. Please go ahead. Your line is now open.
Eric Sheridan: Thanks so much for taking the questions. Maybe two, if I could. First on marketing longer-term, you obviously leaned into marketing intensity in the last 12-plus months and seeing good returns on that. How should we thinking about marketing levels and marketing ROI that you want to sort of think about for the medium to long-term as sort of a cost input to drive the types of growth you want to establish as a baseline for the business? That’d be number one. And then number two, I’m curious just to go a little bit deeper in the idea that you could be in the more individual service request business over the long-term, and how you think about the market opportunity there and what investments would be key to capitalize on that potential shift? Thank you.
