Alistair Taylor takes a look at account management.
Key account management (also referred to as strategic account management) is the practice of selecting those key accounts from amongst your portfolio of customers that represent the most value to your business over the long term and building more collaborative and ultimately profitable relationships with them.
In this article, I want to look at five distinct ways that key account management can help your business drive its profit margin over the long term.
Before we do though, I want to explain a little bit more about what key account management actually is really all about.
What is Key Account Management?
Because value in business is usually equated with increasing revenue and winning new business, key account management is often mistaken for a simple sales strategy. But that’s to miss the long term approach that KAM necessitates. Selling is in fact just one element of this strategic approach to your customers.
One of the key motivators of a strategic account management strategy is developing an understanding of what differentiates a high worth customer from any other customer. It’s easy to boil this equation down to the volume of business a given customer generates, but this can be a smoke screen to some pretty fundamental flaws in the relationship.
Understanding Customer Value
Let’s take an example of a large customer who generates a lot of business. It’s easy to assume that this customer would qualify as a key account. But what if we were to factor into account the fact that this customer is very demanding to do business with? Perhaps they have inefficient processes, requiring more resources to be committed to do business, with little effective communication at the local or regional level. All this seeks to reduce the profit margin for you the supplier. Now let’s also take into account the fact that this customer shows no particularly loyalty to you as a supplier, or willingness to collaborate to improve the current situation. Suddenly this doesn’t seem to be a relationship worth investing in.
Once you have identified those key customers you need to bring them on board by helping them understand the opportunities that are out there. This can be achieved, through the development of a well mapped out value proposition, which will clearly outline the financial argument for committing resources to identify efficiencies and improving processes and back this up with solid data.
Let’s now look at five ways a good key account management strategy can achieve this.
- Focusing on the Right Opportunities
The power of adopting a key account management approach is the ability to think of your customers from a strategic perspective. This means looking at sales and profit margin opportunities that your key accounts represent over the long term. This long term perspective effectively does away with the constraints a short term and inherently more narrow sales focus necessitates.
Another offshoot of identifying those long terms opportunities that warrant proper investment in, is the ability to weed out those customers who represent low profit margin customers. This allows you to divert resources away from ‘free’ provision and add-on services, that don’t generate revenue or long term benefits, and put it into building more fruitful relationships with your key accounts.
- Encouraging Collaborative Customer Relationships
Key to strategic account management is the idea of building relationships that are collaborative and reciprocal in nature. This can require a certain change in mindset and requires buy-in both internally and from the customer. Once established though, stronger collaboration with your key customers can unlock economies of scale and scope.
This change in focus from a more transactional customer supplier relationship to one that is more strategic and collaborative in nature will allow higher value opportunities to be pursued, driving up productivity and introducing more effective working practices and stricter commercial discipline. In some instances this could include joint innovation teams or integrating supply chain IT systems.
Ultimately for the supplier, increased transparency and collaboration can embed loyalty, lower barriers to entry and help to establish preferred supplier status.
- Establishing Strong Internal Relationships
Internally, by identifying opportunities that exist on the lifetime value a customer represents to your business, you can justify the commitment of internal resources, budget and talent to key account management projects. Getting internal buy-in is really half the battle with key account management and this is done through establishing strong internal relationships with all stakeholders and necessary parties involved at the right level.
Many organisations running key account programmes will often blame shortcomings not from the customer end, but from poorly planned or executed internal activity. Key account management is a strategy that drives an organisational wide approach and in many cases internal relationships are even more crucial than those with key players in the customer’s business. Great key account managers will be able to reach out beyond sales and establish effective communication with all relevant departments in the supplier business, such as IT, HR and operations. Briefings, joint team meetings, cross functional planning sessions and regular debriefs are all ways of achieving this.
- Reducing Customer Costs
Key account management is a constantly evolving process that requires developing your internal team over time. This deeper understanding won’t just be around how your business does business but how your customers do business and what market challenges they face in their own fields. This inside knowledge can help you reduce your customer’s costs, both direct and indirect. An example of this could be by an initiative that cuts the materials your customer needs, therefore reducing waste cutting supply costs. Another could be improving your customer’s customer service response time and knowledge, giving it the edge over its own competition, allowing it to secure more business.
- Building up your own Competitiveness
This newfound understanding of your customer’s businesses will massively enhance your own ability to be competitive and to be seen as competitive. Whether that’s improving your own productivity and ability to react and adapt quickly to changing market conditions or optimising your own pricing and refining your negotiating positions, these insights into your customer’s business and market will go a long way to helping you win new business.
Pushing through key account management initiatives will bring its own challenges, but these will in turn encourage business ‘fitness’ and your organisation’s ability to adapt and effect strategic and tactical change in a way that helps establish competitiveness over the long term.
About the Author: Alistair Taylor 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 organisations all over the world, implementing and running highly successful key account programmes. You can connect with Alistair on LinkedIn.