Key account management peter cheverton

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Key Account Management

• Peter Cheverton

slides by r c bhardwaj

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Key Account Definitions & their Limitations


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The Big Ones

• What about tomorrow?

• Do sales statistics determine your decisions?


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The ones you must not lose

• You will do anything to keep them happy, even it kills you?


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The ones your staff focus on

• So, do they ignore the rest?


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The ones where extra effort brings extra income

• Define return..? And how many times you can do this..?


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The ones demanding more

• Every industry has its loud mouths…does that make them important..?


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The ones that will take the business where u want to go

• Perhaps the best..but r u certain?

• Do you know…?

• The future is never clear….!


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Business Strategies or Sales Strategies


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BUSINESS STRATEGIES

• BUSINESS OBJECTIVES

• MARKET OPPORTUNITY

• BUSINESS RESOURCES


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Business Objectives

• Where u r trying to get to

• What sort of business u want to have in future


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Market opportunity

• Consideration of forces that will help and hinder..among the latter are the competitors

• Among the former are customers that will help you get to where u want to be


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Business resources

• Things that will support or constraint your progress..yr capabilities, production, logistics, money and yr people


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So balance

• Will shift continually as the market changes

• Managing future must be continual process of analysis, reassessment and change


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KAM

• Building relationships and it takes time..!

• Sales targets can’t be achieved only thru KAM..!

• Don’t compromise yr future by abusing KAM..!


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Assessing the opportunity

• S----Social Changes

• L----Legislative Changes

• E----Economic Changes

• P----Political Changes

• T----Technological Changes

SLEPT


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Michael E Porter’s Model of 5 determinants of industry profits

• Competitors Rivalry

• Bargaining power of supplier

• Bargaining power of customer

• Threat of new entrants

• Threat of substitute products or services


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Threat of new entrants

• Attracted by the profitability or growth of the market


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Threat of Substitute products or services

• Replacing your offer…?

• Thru new technology..?

• Lower cost alternative..?

• Simpler solution..?

• Will it or wont it..?


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Bargaining power of customer

• Swings of supply – demand….!

• Amalgamations and consequent increase of their buying power..!


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The bargaining power of supplier

• Thru provision of increasingly specialist high value but unique services..

• Again..swings of supply -demand


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Sales Strategies based on market position


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Established position

• Retention thru raising barriers to entry against those competitive forces


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Potential entrant into a growth market

• Growth thru finding ways to overcome barriers to entry

• ….and so………..


KAM is a means to gaining competitive advantage

25slides by r c bhardwaj

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Time

• Times Change very fast……

• Market dynamics change very fast….

• Be aware..or else u will be out..!

• Customer dissatisfaction..very deadly….!


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Customers Snap..!

• They snap when a new supplier appears


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The greatest value and so the greatest impulse for change is

usually to be found closest to the end-user


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Long term competitive advantage..?

KAM is a means to Key Supplier Status


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Sanity Check Summary..!


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Retention in a competitive market

Market opportunity Resources

Can barriers be built..?

Do u have competitor advantage ..?

Is it the right team..?

Can u secure key supplier status..?

Is it deployed correctly.?

With which customers..?


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Entry in a growth environment

Can u break thru barriers.?

Is the team sufficient..?

Do u have competitive advantage..?

Is it deployed correctly..?

With which customers..?


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Manage global accounts

Do they exists..? Are you globally oriented..?

Do they want a global service..?

Can you globally operate..?

Do they operate that way..?


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Uniform approach from a multi business company

Do customers want it..? Can you focus different business..?

Which ones..?


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Create a customer focused business, driven by key accounts

Are customer needs clear..?

Can the business cope..?

Are they sufficiently long term..?

Are support functions responsive..?

Can they be segmented..?


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So what will KAM will feel like..?

• To manage the future

• To identify customers that will help us achieve our objectives

• To retain and grow customers against competitive forces

• To gain entry to new customers

• To gain entry to new customers


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• To develop intimacy with customer needs and values

• To gain competitive advantage

• To increase long term customer loyalty

• To secure key supplier status

• To balance business objectives,market opportunity and resources

• To allocate and deploy resources, particularly people


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• To identify customer focused activities and commit to them

• To direct and drive the business, particularly support systems

• To secure a profitable future

KAM will change the nature of the relationship with customers, both in its complexity and its purposes


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Developing the relationship


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high

Low

Strategic intent of seller * Pre KAM

* Early KAM

* Mid KAM

* Partnership KAM

* Synergetic KAM

Low HighStrategic Intent of Buyer

Key account relationship development model..Millman and Wilson’94

Key account relationship


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Directors Directors

Managers Key account Manager

Main contact ‘Buyer’

Managers

Specialists Specialists

Clerks Clerks

Operators Operators

Selling Company

Buying Co

Pre KAM Stage..McDonald, Millman and Rogers, 1996

Pre KAM Stage


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Directors Directors


Main contact ‘Buyer’

Managers


Clerks Clerks

Operators Operators

Selling Company

Buying Co


Pre KAM Stage


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Possible Characteristics of Pre KAM Stage

• Simple, one to one contact

• Supplier presentations focus on their own issues and concerns

• Response to customer enquiries is yes or no

• Seller assessing volume potential

• Customer assess competence and competitiveness..latter on price


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• Customer may require trials, perhaps at suppliers cost

• Buyer may act as a gatekeeper, denying access to other contacts


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Marketing

Administration

Operations

Board

Marketing

Administration

Operations

Board

Selling Co Buying Co

Key AccountManager

Main ContactBuyer

Early KAM Stage


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Early KAM Stage

• Principal Contact between 2 people.. …salesperson and buyer

• Relationship may be competitive, each seeking to gain advantage

• At worst the relationship may be confrontational

• Buyer may see any attempt as threat to their position and power


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• Price discussions dominate

………buyer focuses on costs

• Supplier focuses on increased volume

• Suppliers judged on unspecified performance criteria

• Disputes can lead to long term breaks in supply


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Directors Directors


and Main contact ‘Buyer’

Managers


Clerks Clerks

Operators Operators

Selling Company

Buying Co


Mid KAM Stage


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Mid KAM Stage

• Contacts start to facilitate other contacts thru mutual desire to increase understanding of customer’s markets and processes

• Increase in time spent on meetings• Increased trusts and openness developing• Links become informal• Stage for mishaps..expect setbacks..lots to

do for everyone


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R&D R&D

Administration Administratio9n

OperationsOperations

Outbound logisticsOutbound logistics

Board Board

Key Accountmanager Main contact

BuyerSelling CO Buying Co

Partnership KAM Stage


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Partnership KAM

• Key Supplier Status is awarded

• Relationships are based on trusts

• Information is shared

• Access to people is facilitated

• Pricing is stable

• Customers get new ideas first

• Continuous information is expectedslides by r c bhardwaj

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• Clear vendor ratings and performance measures

• Possible contractual arrangements

• Value is sought thru integrated business processes

• Focus on customer’s markets

• Step outs are permitted

• KA Manager role is one of coordination and orchestration


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• Supplier’s main contact focused on developing supplier’s capabilities

• Supplier’s total organization is focused on customer satisfaction thru supply chain management


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KAMgr

Main contact buyer

Synergistic KAM Stage

Selling CoBuying Co


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Synergistic KAM Stage

• Joint R&D

• Transparent costings and margins

• Focus on innovation

• Collaborative approach to customer’s markets and end users

• Joint business plans

• Joint marketing plans


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• Shared communication networks

• Shared resources

• Exit barriers in place

• Focus teams involve members of both companies, led by either buyer or supplier


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frustration

• Developing a relationship requires mutual intent….

• Any imbalance will result in frustration• Supplier’s frustration leads to undue

pressure on the customer with terminal consequences

• Buyers frustration results in seeking new supplier


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KAM Profitability

• Costs of KAM must be understood and measured

• Individual customer profitability must be measured

• Throwing resources at the customer inappropriate to the buyer’s strategic intent is a sure way to reduce customer profitability


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1. Costs of winning new customers is almost always higher than u may think..retaining customers is often a more profitable activity

2. A business’s largest customers, by volume, are not necessary its most profitable

3. In context os supplier reduction plans cost of retaining existing customers is higher

4. Growth with retained customers offers increased profits over time


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Customer’s Life time value

• It is true measure of their worth

• It is the life time value that counts, not this year’s results

• KAM is thus a process of viewing the future


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• Suspect• Prospect• Customer• Client• Supporter• Advocate• Partner

From suspect to Partner..a relationship ladder


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Purchasing Professionals


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Need to understand..!

• Supply chain management

• Supply side management

• Spend intelligence

• Purchasing strategy

• Supplier positioning and key supplier status

• Supply base optimization and rationalization


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In the Past

• Price dominates

• Play the field and maintain choices

• Pressure

• Adversarial

• Transactional efficiency


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In the future..?

• Value dominates• Supply base optimization• Information• Alliance• Supply chain effectiveness• Or is there a balance..?

Changing role..from buyer to supply side buyer


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Supplier Positioning Models

• Where to spend the purchasing function’s time and effort

• What sort of relationship should be established with different suppliers

• What sort of activities should be worked on with different suppliers

• Identifying key suppliers


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Supplier Positioning Models

1. The risk / significance /spend model

2. The risk / significance / value model

3. The risk / significance / trust model

SUPPLIER SHOULD KNOW HOW THEY ARE THEMSELVES REGARDED


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RISK/SIGNIFICANCE/SPEND MODEL

Strategic Security

Strategic Partner

Tactical Made Easy

Tactical Profit

LOW HIGH

LOW

HIGH

RELATIVE SPEND

ECNACIFFINGIS/KSIR


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DEFINING THE AXES

• RISK/SIGNIFICANCE – how dependent are u on these suppliers or groups of suppliers

• RELATIVE SPEND- how much do you spend compared to other suppliers or groups of suppliers?


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Why these labels..?

• The two axes can be seen to reflect the balance of power between the supplier and customer – significance reflects supplier power, with spend as a marker of potential buyer power


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SUPPLIER POSITIONING..AN EXAMPLE FOR US

Strategic Security

TV LICENCE

Strategic Partner

Life insurance

Tactical Made Easy

Baked Beans

Tactical Profit

2nd Hand Car

LOW HIGH

LOW

HIGH

RELATIVE SPEND

ECNACIFFINGIS/KSIR


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• Most time should be spent with suppliers in the top right quadrant..this is where max money is spent that is of important to the purchaser….and not spend too much time on bottom left quadrant

• Often as much as 80% of purchasing time is spent on simple transactional activities, with suppliers that account for as little as 20 % of the spend…that has to be wrong..!


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SHIFT OF TIME AND EFFORT

Strategic Security

Strategic Partner

Tactical Made Easy

Tactical Profit

LOWHIGH

LOW

HIGH

RELATIVE SPEND

ECNACIFFINGIS/KSIR



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Strategic Partner

• This is where the supplier is welcomed with open arms

• Demand for more contact comes from customer..a desire to meet senior executives to discuss long term issues…

• Heavy demands from customers..lots of money at stake….


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Tactical Made easy

• There r plenty of fish in this sea..say stationery suppliers..and the total spend is not huge…

• What clever purchasers want here is an easy buy…not to spend too much time…

• E- commerce the best means in this sector• Self regulation and self management

reduces transactional costs significantly


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So who is the key supplier?

• Behave appropriately is u r seen in tactical made easy box

• Don’t force complex relationship on the customer• Police yr own standards but don’t be pushy..!• Everything is relative..!• Customers perception is more important than

facts..so don’t argue the facts….!!!!!!!!!


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Measuring Value

• Buy a good bed or spend half yr life only on yr bed….!


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Summarizing Value

• Value in use is a result of experience

• Value in terms of price, cost or value….

• Help customer towards this more complicated measure of supplier performance..!


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Risk/significance/value model

Managed

Supplier

Partnered

Supplier

Arm’s Length

supplier

Welcome supplier

LOW HIGH

LOW

HIGH

Total value

ECNACIFFINGIS/KSIR


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Managed Supplier

• Under close scrutiny

• Managed to deliver more value

• Access to customer controlled

• Supplier should realize what ia at issue and start working on value prepositions


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Partnered Supplier

• This suggests open doors and even books is value is the issue at stake and not costs and prices

• Don’t become complacent


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Welcome supplier

• Opportunity for the supplier to win more business..the door is open..and learn to use this privilege to the customer’s benefit—don’t abuse it..!


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Arm’s length

• U will be called upon only in times of need

• Don’t despair….

• U can prove yr capability to get the customer out of the hole..a pretty high value outcome


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Measuring trust

• Trust model is far more subjective…

• This model does not measure trust but recognize its importance

• Level of trust and confidence is often underestimated by sales people


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Risk/significance/trust model

• Aim to win trust and confidence before trying to prove your significance


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Risk/significance/trust model

Problem supplier

Promiscuous

Partnered

Supplier

marriage

Non-supplier

Frigid

Occasional supplier

Flirting

LOW HIGH

LOW

HIGH

Trust/Confidence

ECNACIFFINGIS/KSIR


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Supply base optimization

• Spend mapping and supplier positioning is the result of the customers’ desire to manage their suppliers or supply base

• In broad terms..it is

1. Which supplier will best help us..?

2. How must we help them..?


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Reducing suppliers

• Supplier rationalization..is the key word….and its horror for the suppliers

• Questions..questions..questions….talk early


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Questions…!

• Why are they reducing suppliers?• What are the target outcomes? Final nos,

specific performance, lower costs, better value..?

• What standards will they apply?• What are the givens and what are the

differentiations..?• What must a given supplier do to stand out?


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• Will they be selecting in or selecting out..?• How do we stand out now..?• What must we do to meet yr standards?• How long do we have..?• What can we expect in return to meeting yr

standards..?• Where will the competition lead to?• Are u increasing yr risk exposure?• Are they going to develop suppliers’

capabilities..?


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Becoming A Strategic Supplier


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Business Strategic Questions

Questions Issues Model

What to sell and

Where?

Products, markets and risks

the Ansoff Model

Why will people buy?

Competitive Advantage

Michael Porter’s Competitive model

What makes your business hum?

Leading business system or driver

Treacy and Weirsema’s Value drivers


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The Ansoff Model

Market Penetration

New Product Development

Market extension

Diversification

EXISTS NEW

NEW

EXISTS

PRODUCTS

MARKETS


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ANSOFF MODEL

SELL MORE OF THE EXISTING PRODUCTS INTO EXISTING MARKETS

MARKET PENETRATION

Sell existing products into new markets

MARKET EXTENSION

Sell new products into existing markets

NEW PRODUCT DEVELOPMENT

SELL NEW PRODUCTS INTO NEW MARKETS

DIVERSIFICATION


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Market Penetration

• Its safest strategy as u don’t have 100 % market share

• Risks increases from penetration to extension, to NPD and then to Diversification


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Risks reduction in Penetration

• Market Research

• Market testing

• JV with experienced partners

• Take on experienced staff, or training

• Seek help from suppliers


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Market Extension

• Information on market size and dynamics, distribution channels, pricing, consumer trends – all these will help in extension venture

• Get involved with customer’s market place


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New Product Development

• The main issue is likely to be sharing of risk rather than price or delivery schedules..!

• How much effort to put into piece of work for a customer setting out on a new venture?


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Diversification

• Risks are very significant..!!!!!!!

• Minimize risk thru partnerships with key suppliers


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Porter’s Model

• Competitive advantage comes from

1. Being the lowest cost supplier

2. Being a differentiated supplier

Success comes from the ability to focus the whole business whichever route is chosen!!!!!!!!


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Trick..!!!!

• Be lowest cost supplier and yet not let the customer know that..!

• Will look upon to supply at lower costs than the competitors…costs of supply,purchasing,manufacture, distribution - the total supply chain and take appropriate action in each case…


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Differentiation

• Customers that sees its route to success thru building points of difference from its competitors will be seeking suppliers that can help them to achieve this..

• Suppliers to understand this differentiation to enable them to make an appropriate offer


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Treacy-Weirsema’s value drivers

OPERATIONAL EFFICIENCY

Federal Exp, McDonald,Dell,Wal-Mart

PRODUCT LEADERSHIP

Microsoft, 3M, Merck, Intel, Nike

CUSTOMER INTIMACY

Kraft, Airborne Express


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Operational Efficiency

• It is about doing what u do..well. It is about effective process, smooth mechanics and the efficiency with which the products are brought to the market.

• It requires efficiencies of production, economics of scale, uniformity and conformance, accurate forecasting, slick distribution, fast response…..


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Product Leadership

• It is about producing the best, leading edge or market dominant products..

• Requires high levels of innovation and patent application


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Customer Intimacy

• It is the ability to identify with specific customer needs and match products and services accordingly

• Act on the resultant knowledge at all levels of operation


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Practical Applications of T-W

Value Driver Purchasing Focus Ideal Supplier

Operational excellence

Logistics,inventory,e-commerce

Excellent systems

Product leadership Supplier partner ships, lead times

Leading R&D, innovate

Customer intimacy Supplier relationship working in chain

Flexible,responsive,expert


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Preparing for KAM


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Skills

strategic planning Business and marketing planning

Financial understanding

Team dynamics and team leadership requirements

Team time management

Managing innovations and creativity

Communication network

Strategic influencing Project management

Analytical,monitoring and reporting skills

Managing diversity and ambiguity

Ability to help customers develop their own markets


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Systems & Processes

Information systems:

KA profitability, plans and data

Operation systems:

Forecasting,logistics,supply chain management, e-commerce

Performance measurement Systems

Communications Systems:

Email, internal//external, knowledge management


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Knowledge Management

Culture

Disciplines

Skills

Systems

Core of Knowledge Management


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insight

use

share

Capture idea

Make Available

Enhance performance

Review

Target

Edit

Knowledge Management Responsibilities of the KAM Team


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Key Ingredients for Success

1. Clear business objectives given to all

2. A flat organization

3. Encouragement of breakthrough thinking

4. The drive to create value

5. Information technology


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Organization and Resources


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Make yr organization FLAT


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Make it happen..!!!!


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change

• Discontent is the first necessity of progress

• Change in mind is greater than the costs of change…which could be..time,ego, status,etc rather than just money


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Critical Success Factors

1. KAM must be a cross business process, supported at senior levels

2. All team members must understand and share the purpose and objectives of KAM

3. KAM team must understand why they are there

4. System for cross business communication


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5.KAM team must have the right skills to carry out customer-intimate role

6.Understand the dynamics of team working

7.Skills for project management

8.Attention to detail

9.System of measuring progress and benefits

10.Written and easily updateable KA plan


Identifying Key Accounts


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Segmentation

• Every customer is unique!!!!!!!• A market segment is a grouping of

customers with similar buying needs, attitudes and behaviour


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Benefits of Segmentation

• Enhanced understanding of market dynamics, competitor strengths and hence opportunities for competitive advantage

• Greater understanding of the needs, attitudes and behaviour of customers

• Better chance to develop yr capabilities of yr business


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• A basis for structuring yr business

• Manage marketing mix in a very customary focused way

• Opportunity to add value,gain competitive advantage and build barriers to entry for competition or substitutes

• Opportunity to sell at premium

• Reduction of conflicts


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Methods of Segmentation

1. Market Mapping: identifying opportunities and levers

2. Who buys what,how,when and where?

3. Selection of Segments and positioning thru marketing mix


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Bases for segmentation..an eg.

Base Builders Consumers

Size of purchase Large volumes, large pack size

Small volume,small pack size

Frequency of purchase Weekly Annually

Tech.Specification High Low

Price elasticity Price sensitive Price insensitive

Major influence on purchase

Builders merchant staff Advertising and brand


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Marketing Plan

SP SPSP

KAPKAPKAPKAP

Business Plan Hierachy

Segment Plan

Key Account Plan


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Identification & Selection Matrix

Key Development Account

Key Account

Opportunistic

Account

Maintenance Account

LOW HIGH

LOW

HIGH

RELATIVE STRENGTH

CUSTOMERATTRACTIVENESS


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Key Account

• This is it..u want them and they like u but don’t relax..they are critical to your future..

• Remember…nothing recedes like success!!


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• This is where it could be, if only u could improve yr performance in their eyes…

• Most cos appoint jr sales persons to look after these customers..normally there is no progress…!!!

• Cos try tele marketing with these customers!• Success comes from applier effort…till then

experiment and allocate resources as test cases..!


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Maintenance Account

• This is hardest category• Customers good and loyal• Pull resources from these customers from such

customers as it is needed elsewhere!• They will trap u in long term consuming

commitments• Free yr time and yr teams time and sell the

changes to yr maintenance customers positively,like asking distributors to service them


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Opportunistic Account

• These customers will be attended to as and when it suits yr priorities

• Don’t make wild promises

• Don’t treat them as nuisances

• Be pleased with them as income is generated to meet yr KAM..!


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Key Account

Opportunistic

Account

Maintenance Account

LOW HIGH

LOW

HIGH

RELATIVE STRENGTH

CUSTOMER

ATTRACTIVENESS

INVESTMENT OF MONEY & EFFORT


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INVESTMENT PORTFOLIO

• Time and energy saved by more efficient means of handling maintenance and opportunistic accounts can be invested in future development, as can the revenue and profit from those customers!

• Contd…


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• Business with too many opportunistic account ,though very profitable, is heading nowhere in particular..It is all a question of investment and revenue

• KAM must concern not only with star earners but with managing a portfolio of customers, balancing short term and long term income and balancing the resources and the returns, and in the process appreciating the dynamics of investment and return..!


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Customer attractiveness factorsSIZE: VVOLUME,VALUE,

PROFIT,OPPORTUNITY

GROWTH POTENTIAL:VOLUME,VALUE,PROFIT,OPPORTUNITY

FINANCIAL STABILITY:WILL THEY BE THERE IN FUTURE

EASE OF ACCESS:

GEOGRAPHY,OPENNESS

CLOSENESS OF EXISTING RELATIONSHIP

STRATEGIC FIT:WILL THEY TAKE U WHERE U WANT TO BE?

ARE THEY EARLY ADOPTERS – DO THEY PICK UP NEW IDEAS EASILY?

DO THEY VALUE YR OFFER?IS IT REKLEVANT TO THEIR NEEDS?

LEVEL OF COMPETITION : LOW BEING ATTRACTIVE

THEIR MARKET STANDING


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Relative strength factors..from customer point of view!

PRICE SERVICE QUALITY

SPEED OF RESPONSE

RELATIONSHIPS & ATTITUDE

TECHNICAL INNOVATION

INVESTMENT IN THE INDUSTRY

VALUE IN USE: SUPPLY CHAIN, ETC

ATTITUDE TO EXCLUSIVITY ARRANGEMENTS

LONG TERM SUSTAINABILITY

TRUST AND CONFIDENCE


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Customer Attractive Factors: CAF’s

customers

Attractiveness Factor

1.

2.

total

Average score :

Total of all scores divided by no. of customers rated..contd.


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Remarks:

• Enter chosen customers

• Select say 6 factors

• Enter a score of 1-10 for each customer – the higher the score the better the customer meets yr aspirations


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Customer:

Critical success Factor

1.

2.

total

suppliers

you

Complete 1 table for each customer

Relative Strength vs Competition


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Identification & Selection Matrix


Key Account

Opportunistic

Account

Maintenance Account

LOW HIGH

LOW

HIGH

RELATIVE STRENGTH

CUSTOMERATTRACTIVENESS

Contd…slides by r c bhardwaj

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THE LAST TABLE

• USING LAST 2 TABLES, U CAN PLACE EACH CUSTOMER ON THE MATRIX AS IN LAST SLIDE

• IF A CUSTOMER SCORES HIGHER THAN AVERAGE SCORES THEY WILL BE IN UPPER TWO BOXES, ELSE IN LOWER BOXES

• CONTD


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• TO identify which of the two use results from the table relative strength vs. competition.

• Where u score better then yr best competitor u will occupy the right hand box and the left hand box if otherwise


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• Entry Strategy


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Customers decision making process !

• Whom to talk?

• Do we have the right strategy?


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Sales/buying processBusiness needs Personal Needs Organizational

decision-making

A Need exists What are they? Understand style and values

Who has the needs?

Who decides?

Options are considered

Presenting benefits

Matching style and values

Influencing DMU’s

Concerns are resolved

Negotiation Rapport Giving DMU a means to decide


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The Consensus DMU

• Decision made by some process of democracy…ideally all members agree or vote

• Eg. Cooperative org,governments, voluntary groups,etc


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The Consultative DMU

• Appointed decision maker will make the decision based on the views of the key influencers of the DMU


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Influencing thru acceptance


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Adopter’s curve:influencing thru acceptance

innovators 2.5 %

Early adopters 13.5 %

Early majority 34 %

Late majority 34 %

laggards 16 %


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Innovators & Early Adopters

• Easy to sell

• They like novelty and the words risk,experiment,trial and leading edge are music to their ears

• Don’t bore them with case studies..they just want to hear what’s new!!!!


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Late majority and laggards

• Much harder to sell

• They want evidence and proof

• Will see track records of success


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The early majority

• Will come knocking at you once the idea or product is fairly well established!

• The model usage is that the ideas is to use acceptance of yr ideas, where u can find it, first as a point of entry and then as a base for approaching the next stage in the curve..which is a normal curve


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Levels of seniority

1. Senior management – commitment

2. Middle management – relationship management;ensuring satisfaction

3. Junior management – meeting expectation
