It is surprising that, with a few exceptions, key account management isn't studied and taught at most of the world's business schools. Yet more and more business is coming from fewer and fewer major customers and failure to understand how these relationships should be managed inevitably leads to lost profits. This video is the result of over fifteen years of research at Cranfield School of Management into global best practice key account management and explains in a simple-to-understand way how to manage big, powerful customers profitably.
Key accounts are represented by customers who are of strategic importance and produce most profit for the company. Key account management is a strategic activity that builds partnerships between suppliers and customers in order to reduce costs and improve quality. Some important aspects in defining key accounts are selection, categorization and profitability. Also, strategic plans must be designed for major customers, taking into account their needs and desires. Further issues such as the skills key account managers need, how IT can be used profitably with key accounts and global account management will be discussed during this session.
When it comes to sales activity, companies face many challenges such as market maturity, globalization and customer power. Customer power is one of the most important challenges of mature markets and it manifests through the ways big customers are expanding, become more sophisticated, are rationalizing their supplier base and desire tailor made solutions. To better face these demands, this material provides us some options to consider such as developing a customer classification system, avoiding the price driven commodity trap, developing integrated relationships with key customers and producing strategic plans for them.
Researches show that the desirable factors concerning suppliers include ease of doing business with and the quality of product and of people involved. Suppliers on the other hand are most interested in volume and although they have a certain interest in the potential of added value they do not measure it. The practical example of key account provided in this video refers to the different approach of profitable and unprofitable customers. They can be classified into 4 categories taking into account their account attractiveness and also the supplier preference, thus emphasizing the idea there is no such thing as the average customer and also the fact that companies should understand the real profitability of their main accounts. Another instrument we can use to measure customer account profitability is attributable costing which highlights the financial impact of the different ways in which customers are serviced.
Comparing to a traditional key account categorization based on generated volume and revenue, a more in detail type of categorization is presented based on a relational development model. This model presents how a strategic selling process grows from exploratory and basic transactions to interdependent and integrated relations. Basic relationships refer to operational and efficient transactions, mostly driven by price and with very little information sharing. Cooperative relationships imply a closer interaction but not sufficiently organized yet. These are the most common type of relations and unfortunately, they are also the least profitable. The target for most companies should be growing from basic key account management to interdependent key account management where we have a stronger relationship and a high level of information exchange, a fact which is benefic for both parties. These type of relations though cannot be established but with a limited number of accounts.
The video starts with the presentation of a purchasing matrix that buyers usually use and adapt depending on the type of products they need. Strategies like E-auctions are suitable in circumstances when we regard the price advantage more important than the relationship with the supplier. Sharing information and granting access also have risks attached but these are minimized in the context of a close, trusting relationship between purchasers and suppliers. More must have criteria and measures that companies take into account when they choose their strategic suppliers are also provided.
Key account attractiveness is determined by the potential of growing the profit. There are some key accounts that we can measure in terms of profit and others that we consider for further development of relations. If we take into account factors such as the levels of account attractiveness and supplier business strength with customer we obtain four categories of key accounts. We have strategic customers with whom the company has a very complex type of partnership. Both sides benefit from working together, these customers buy not on price but on the added value delivered by this partnership. The range of contacts is very broad and usually the products and services are developed side by side with the customer.Status customers are also very important customers in terms of value. There is a form of commitment but not so strong comparing to the ones established with strategic customers. The strategy that we are advised to use for these customers is proactive maintenance, meaning that further resources should be invested to continue the business relationship but in the same time we should pay attention not to overinvest. Star customers are the ones with whom we aim to develop a deeper relationship. For them, price is still important but security of supply and service also matter when they are taking a decision. The last category is represented by streamline customers who usually want a standard product which they choose by price. Relationships with these customers are just transactional, so large investments should not be done at this stage. It is very important to know that if we are in a cooperative stage relationship but we offer an integrated level of service and we are not further investing in the relationship to reach an integrated stage, our actions will only represent a cost. So we have to decide whether it is more convenient to further develop relationships or keep them where they are.
This analysis will help you discover customers critical success factors. It includes details regarding clients objectives, clients annual report summary and financial ratio. Knowing these details, companies can help their customers reduce costs, cut costs or create value for them. A look over the clients internal value chain offers details about how do they choose and handle the goods and thus suppliers can think of better or cheaper procedures. After this analysis is done, what the suppliers end up doing is helping their customers avoid disadvantage. They still need further actions to actually create an advantage for them and for this a key account management strategic plan must be elaborated. The necessary instruments to determine whether a key account management plan is valid or not are also provided in the material.
This video presents the sales grid proposed by Blake and Mouton in order to better understand the difference between sales styles. Two factors are considered, the concern for making a sale and the concern for the customer and thus, five styles were proposed. We have the customer friend, with a high concern for a good relationship with clients but low focus on sales and the pressure salesman at the other end who really puts a pressure on the customer to buy his products. With a low interest both in customers needs and sales is the order taker who just sells a standard product in a pure transactional way. Medium skills on both sides are the components of the compromise method approach, mixing relationship and product emphasis. Finally, the ideal combination of high skills is found in the problem solver, the person who is able to sell a product or service that solves his customers problems and satisfies their needs. Having the main types of account managers described, the next important step is to allocate them to the key accounts that need their specific combination of skills. For example, problem solvers should be in charge of key accounts which need strategic investment while softer skilled account managers should deal with proactive maintenance.At the end, we have an elaborated list of skills that key account managers should have beside the frequently mentioned negotiating and selling skills. These include business planning and strategy skills, advanced marketing techniques, financial awareness and last but not least strong interpersonal skills.