In this article for CEO Blog Nation key account management consultant Alistair Taylor explores the ideas and processes behind strategic account management and how it can drive long term profit margin gains for your business.
Why Key Account Management is not a Sale Strategy
Key account management (KAM) is not a sale tactic but it’s often mistaken for one. This is because it’s really more about how you do business as opposed to just how you win new business. Sales teams tend to chase customers who can generate more revenue but not necessarily profit. The focus is on chasing down one-way transactional relationships that deliver short-term top-line gains.
Key account management is a proactive approach to identifying those key accounts in your customer portfolio that have the greatest long term potential in terms of value. Resources need to be directed towards building more productive and mutually beneficial relationships with these customer by adopting a ‘customer first’ approach.
By building mutual reciprocal relationships with key accounts, both short long term value can be unlocked. This might be achieved through more joint innovation, better communication, initiatives to improve supply chain management at the local or regional level, joint-working or more streamlined purchasing processes.
Because key account management requires rethinking processes and ways of doing business with your most important customers, relationship building is important. Internal relationships are also just as vital. It’s imperative to get senior leadership buy-in so budgets can be committed and resources allocated. Cross-team working is also necessary to deliver complex high value projects and benefits to such customers.
What makes a high value customer?
A central tenet of taking a strategic approach to your accounts is that you must have a deep and highly informed understanding of the things that your customers most want. Additionally, you must have a plan to meet these needs, which is outlined in a value proposition (more of that later).
With KAM, the notion of ‘value' is far broader than that of simple revenues. Let's look at an example. You may have a big customer who produces lots of revenue for you, but they may be extremely difficult and time-consuming to deal with, driving down the margin and profits of the arrangement and providing little loyalty. Obviously, these customers are not an ideal focus for long-term investment, as they are likely to jump ship as soon as cheaper suppliers come along.
So which accounts are actually of high net worth to your business? The answer lies in growth potential. Whilst your largest customers will tend to make better candidates for key accounts than your much smaller ones, this is always so. Those customers who represent the greatest opportunity for long-term growth and collaboration and share the same values and strategic aims to your business are the best options.
Key Account Selection Criteria
Key account selection involves analyzing your portfolio of customers and identifying those that represent strategic value for your business in the longer term. This is done by creating a rigorous selection criteria that takes into account various factors and traits. Let’s look at some of these now.
- the account's behavior – you want accounts that are good to do business with
- the potential for innovation and for you to deliver on this
- the possibility of collaboration
- shared culture and business values, making it easier to work together
- the account's perception of what value entails – if this is possible to assess before you define your own value proposition and present it.
Once your key accounts have been selected, the process moves forward to the creation of your value proposition. This is a vital stage of getting buy-in from your key customers and getting them on-board with you.
Creating a Value Proposition
The value proposition is a document that will define how you represent the best competitive offer in the marketplace for your customers, and how you can provide value. It will explain clearly to your key accounts, why they should choose to invest in a relationship with your business. It can be narrow in scope, perhaps addressing a specific service or product, or it can be generalised and apply to the business as a whole.
Five key requirements must be answered by the content of your document:
- It must be motivational so that the customer is compelled to act
- It must be credible and evidence-based
- It must be differentiated business in a way to allow your business to stand out from competition
- It must be quantified, with ROI and risk data
- It must be customer focused and demonstrate clear understanding of the specific motivating factors and concerns for their business.
When creating this document, be sure to develop it in conjunction with different functions of the business, including IT and Finance, and to gain senior buy-in. Once drafted and agreed, create the executive summary, which will be used as the shorter version to share with your stakeholders.
The Benefits of Key Account Management
Once your value proposition and identified key accounts are in place, you can begin to commit resources strategically and appropriately to those accounts which are identified as offering value. You can focus your time and energy on these high-value accounts whilst scaling down the resources you commit to other less strategically valuable accounts.
Key account management can drive profit margin for your business in many different ways, which I’ve outlined below:
- A long-term customer approach: By committing budget and resources on long term initiatives and programs you can unlock bigger and more structural commercial benefits and efficiencies that a short-term approach just can’t address.
- Reducing less profitable investment: KAM forces you to focus on high-value customers, which has the effect of reducing your investments on those customers with low-value returns so it can be redirected to where it’s most needed.
- Competitive advantage: Economies of both scope and scale can be achieved by creating collaborative and stronger relationships with your key customers. This more collaborative approach will help embed customer loyalty and competitive advantage, helping you more easily see off potential competitors.
- Enhancing your customer’s strengths: A deeper understanding of your customer’s processes is one of the real long term benefits of KAM. These insights will improve the way you do business across the board, helping you to reduce your customer’s costs and drive up their competitive advantage and their ability to sell at higher prices.
- Enhancing your own strengths: Building up an understanding of your customer’s processes will also improve your own productivity. A greater commercial discipline will allow you to improve your pricing and refine your negotiating positions, creating the bedrock for new business innovation and winning new and complex business that may have been out of reach before.
When applied well, KAM will give you competitive advantage, cost reduction, a long-term focus on customers, the ability to better link with your supplier's strengths and the chance to create bigger profits for your business – and better outcomes for your customers. Invest in it meaningfully and for the long-term, and your business will be all the better for it.
This guest post is courtesy of Alistair Taylor. He is a key account management consultant and the founder and managing partner of UK based Brightbridge Consulting. He has over a decade of experience working as a senior manager and consultant for large corporations and organizations all over the world, implementing and running highly successful key account programs. You can connect with Alistair on LinkedIn.