Key account management Essay

1) Introduction

About 70% of the business volume comes from few customers in a business. The purpose of Key Account Management (KAM) is to capitalise on it thus providing value to the existing customers by giving more focus in servicing them in all aspects of their business in a collaborative manner thus become a barrier to our competitor, avoiding them to enter into our customer’s business. Hence we can enjoy a consistent business flow with the customers and grow along with them. During this process we can obtain economies of scale and save a large amount of money in overheads increasing profits and operating efficiency. KAM can be applied in new business or with qualified potential customer to maximise economies of scale to increase the profit.  In transactional selling the customer contacts only the sales person of the seller company and the transaction ends. Here whatever the clarifications in design, function of a product or service, the customer clears his doubt with the sales person only. Hence a sales person represents his company’s Marketing, Engineering, Operations, Logistics, Category management, Information technology, and Finance, Board, and R&D departments. The sales person’s knowledge is limited in other domains. Hence providing valuable information to the customers other than his domain knowledge is limited.

But timely sharing of information will provide more benefits to the buyer and seller in the business. Thus concentrating more on few customers who provides us 70% of business and collaborating with them in business and managing is called Key Account Management. Here the key account manager coordinates and influence’s his company’s Marketing, Engineering, Operations, Logistics, Category management, Information technology, and Finance, Board, and R&D departments to collaborate with the respective departments of buyer’s organisation to solve the problems mutually and add value to product, service and business by information sharing, meeting and training classes. That is various departments’ communications between seller and buyer organisation will be exhaustive. Thus a bond preferably a long term business relationship is forged. We will discuss further on stages on development of key accounts, the tasks and skills required for a key account manager, KAM key success factors, advantages and dangers of KAM.

Strategic account or Key account management is the systematic development and nurturing of customers that are strategically important to an organisation’s survival and prosperity. (Bacon ,2005),

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2) Stages on development of key accounts (Relational development model)

Basically selecting a customer as key account is for a long term basis.

According to Millman & Wilson (1995), there are six stages in development of key account. They are pre-KAM, early-KAM, mid-KAM, partnership-KAM and synergistic-KAM and uncoupling-KAM

2.1) Pre-KAM

It is prospecting stage where the seller identifies a buyer and analyse whether the buyer (organisation) qualifies for key account status. If the seller is not satisfied with its growth prospective he will not initiate KAM process and will not invest. If the seller gets satisfaction regarding its growth prospects then he starts to gather information about the customer and during this process the product or the service will be available with him. He will be approaching and waiting for the opportunity to penetrate and look out for any problems with the existing seller already doing business. He will indicate the willingness to the buyer that he is ready to solve the problem.

2.2) Early-KAM

The seller finds an opportunity to collaborate with the buyer and understands the motive, culture and concern of the buyer and convinces the benefits of being a preferred customer. The products and services are customised according to the customer’s need. Consistent supplies are made to build trust and fair communication established. Key account manager tries to make a personal rapport with buyer persons and decision makers. Buyer monitors the quality, consistency of supplies and service. Account manager starts to quote for the product or service.

2.3) Mid-KAM

Trust will be built and quantity will be increased. Senior management person at seller end will involve in the process due to importance of the account. Resources will be reviewed for better and efficient handling. Supply quantities will increase and thus contacts. Competitor’s activity has to be monitored for any proactive measure.

2.4) Partnership-KAM

In this stage initiation for joint collaboration in problem solving, product design, training takes place from both the ends. Buyer starts channelling the seller as single source preferred supplier. Trust level increases and sensitive information are shared. Key account manager gives confidence to buyer to avoid any re entry of competitor. Buyer expects uninterrupted supplies.

2.5) Synergistic-KAM

At this stage two organisation starts working together. Systems are transparent for possible improvement in the process. Two organisations feel like, they have single objective to attain. They start to work together from planning stage to execution stage inclusive of R&D and costing. More and more departmental meetings take place between the organisations.

2.6) Uncoupling-KAM

This is the stage where buyer and seller way apart. This can happen at any time. The reasons are many. It may be initiated by buyer or seller. Mostly it happens in Pre-KAM stage during single point contact. It happens because of perception difference and non-adaptability.  Than price conflicts most uncoupling happens because of relational issues. Uncoupling happens when there is breach of trust in deliveries or any other commitment. In long run due to complacence the buyer may think that they are being neglected. If organisation management style changes either with seller or buyer side then uncoupling may happen. In some cases the seller will initiate uncoupling when they feel the account is not quite attractive because of loosing market share of buyer’s products or threatening financial position at buyer end.

3) The tasks and skills of key account manager

3.1) Tasks of Key Account Manager

Since Key Account Management is basically about managing the relationship for a long period, the first and foremost task naturally is building and maintaining the relationship. Then comes coordinating and persuading task where the Key account manager has to coordinate and persuade his colleges in the other departments to work with buyer’s department people towards attaining the objective and ensure multifunctional levels of interaction. During multifunctional level interaction, continuity and coordinating of communication is very vital Key account manager should coordinate those activity to ensure smooth workflow without confusion, Should maintain direct and cordial contact with key customer. For analysis purpose and report to higher people in the organisation, KA manager should maintain up to date record of business and costing regarding key account business. KA manager should always look for market opportunities and threat and should thorough knowledge of customers business; if any market share of customer’s increase or new development of some products then should find a way to capitalise on increase in the sales revenue of seller. Keep a track of competitor’s movements. Should maintain the data’s regarding market conditions of the buyer’s products and where the buyer stands. Should track possible increase or decrease in buyer market share to control inventory and give information to the organisation. KA manager should control and ensure uninterrupted service to key accounts. (Wotruba, & Castleburry 1993).

He should maintain a close relationship with top management to get their support and get authority from them to persuade his counterparts in other departments to work with buyer’s multi level departments to achieve the revenue and profit target. Unless he gets cooperation from his top management, he will not be able to do all the above said activities. (Bureau of Business Practice 1986)

3.2) Skills required for Key Account Managers to perform the task

According to Wotruba, & Castleburry (1993) to perform the above tasks a Key account manager should possess excellent human relations and relationship building skills and capable of working in a team. He should have negotiation, communication and coordinating skills. He should have an urge to attain objectives and hence focus towards that is imperative. He should proactively try to identify the problems of customers and posses high market intelligence, persuasive and selling skills.

When we discuss about Key account managers skills, we should understand how it is different from transactional selling manager’s skill. KA managers require high level of managerial ability, since KAM is relatively long process, the results are not known immediately, well planning and do right at the first time mentality, perseverance, patience, high persuasion skill and high human relation skills, coordination, good communication skills, leadership skills, self motivated and self driven skills are required than a transactional sales person.(Maher, P. 1984).He should be able to lead multidisciplinary team(Burnett, K. 1992), Should be a good team member with presentation skill.

Nowadays purchasing managers in high powerful purchasing organization are expecting key account managers to be capable of creating a strategic solution for them and specialized in product application knowledge and to be partner with them. Hence skills required for KA managers are different from transactional sales managers. (Delvecchio et al ,2004).

According to McDonald & Rogirs (2006), …the skills required by KA manager  from buying company perspective in priority order is Integrity, Understanding of business, Product knowledge(technical),Product knowledge(applications)and communications . Selling company strategic view as per priority order is knowledge of business environment, communications, strategic thinking, selling/negotiating, and product knowledge (technical). As per key account managers view as per priority wise selling/negotiation, communications, understanding customers business, strategic thinking, technical/financial/markets/credibility. Hence if we compile all the skills which a KA manager should posses is as under

Personal qualities—Integrity, resilience/persistent, selling/negotiating, likeability
Subject knowledge—Product knowledge—(technical and applications in the customers business understanding the business environment, markets),financial, legal, computer literacy, languages/cultural
Thinking skills—creativity and flexibility, strategic thinking/ planning, boundary spanning
Managerial skills—communication skills including listening ,persuasion, people management/leadership, credibility, boardroom to post room administration/ organisation
4) Functional differences between managing a Key Account and regular sales

Having understood the skill required for KA managers which differs with transactional sales manager, let us see function wise difference between two.

A key accounts manager will be ready to take on the role of partner and chief representative, so he is usually more experienced and more knowledgeable than ordinary sales reps. Key accounts managers often find themselves negotiating or discussing crucial business issues with General Managers, Chief Financial Officers and Operating Officers.
Key accounts managers have a more intense relationship than other salespeople, and the degree of responsibility is often quite high. As a result, they tend to have fewer client relationships than other types of sales professionals. They see their position as a provider and collector of information and not a promoter of specific products or services.
Another big difference may be the way key accounts managers are compensated. Because they are engaged in many non-sales activities with their client, they are less likely to be paid in the form of sales commissions.
·         Key accounts management is usually considered a significant step on the road to senior management. The position is very visible within the company, and the performance will be monitored carefully. There is a good chance that top management will be familiar with the client’s senior people, and the activities will be discussed at the C level (as in CEO or CFO). (bestpracticeschina.com,2006)

5) KAM key success factors

According to Abratt and Kelly (2002)…the following are the key determinants to success of KAM process.

First and foremost is the suitability of Key account manager for the said position. Since the task calls for high relationship skill he should be able to persuade and motivate people to attain the goal in team environment. This job is different from transactional sale wherein the sale is continuous in nature and he should maintain the relationship for consistent and smooth business. The KA manager should adapt the culture of the key account. He should possess thorough understanding on key account customer’s business. A Key account manager should have commitment on Key account programme. He should spend enough time channelling it as it will not happen immediately. He should have patience and perseverance and apply consistent and continuous attempts for business. He should understand the customer’s needs precisely so that he delivers value to them. During initial stage and after that, one thing which is constantly developed between buyer and seller is Trust. Maintaining the trust throughout the business process cycle is very much important factor in succeeding in KAM process.

To be successful in KAM process both buyer and seller and the persons related to this process at both the ends should understand KAM thoroughly; mutually conduct training classes for better understanding all aspects and benefits arriving out of it.

According to Hise & Reid the most critical conditions needed for success of key account management are –Senior management’s understanding and support is required. Management should invest more time and resources to educate and train the key account managers. (Napolitano, 1997). Very important is KA managers should understand the key account customers business. This is a critical success factor in KAM relationship. It will help in anticipating future needs of the customer. (Hannah ,1998)

 Objective and missions should be well established. Versatile working relationship between sales management and field sales person should prevail. Customers eligible for key account status should be well defined. Excellent uninterrupted communication is must. Key account program to be integrated to company’s sales effort;

6)Obstacles to KAM

When we discuss about key success factor for KAM, it is better to understand what the obstacles are for KAM, so that we should avoid it to succeed in achieving our Goal.

According to Cheverton (2006)… the obstacles for achieving KAM as below

Poor skills

Resistance from the sales team –fear of change, inappropriate skills
Inappropriate people —A non supporting team
Poor systems and process

·         Failure to measure the impact—Poor measurements of  profitability

·         Conflicting measure of performance across departments/ regions

·         Clashes of objectives and priorities across functions—Inappropriate operational excellence

·         KAM as bureaucracy –Telephone directory account plans—More meetings

·         Poor disciplines for internal communication

Inappropriate organization or structure

·         Functional managers as “Barons”

·         Multiple or competing supplier business units—whose key account is this anyway?

Failure to make it happen

Top management “cop outs” –Short term –failure to respect the need for investment—failure to identify the key accounts—failure to align the business—failure to empower the key account teams—abandoning the concept in times of crisis.
Complacency and inertia –No dissatisfaction with the status quo—existing processes no longer appropriate but too deeply imbedded
Failure to make the hard choices

·         Too many Key Accounts

·         No plan for servicing the non Key accounts—Failing to free up the energy required—service creep—every customer gets the package designed for key accounts

7)The four levels of relationship

When we discuss about the KA managers skill it is evident that the manager should possess good relationship skill and the advantage of the same is given below

There are four levels of how a key customer will currently perceive our business in relation to theirs. Key account management has to shift perceptions from a commodity or product supplier – and its implications in terms of price sensitivity and loyalty – to a value-add and partner relationship.

Perceived Level
Customer Response
Solution

1. Commodity

2. Product Provider

High Price Sensitivity

No Loyalty

High Price Sensitivity

Low Loyalty

Differentiate/add benefits to product to get to level 2

Understand customer aims and support some of them Stage 1 of KAM process

3. Value-add

4.  Partner

Less Price Sensitivity

Some Loyalty

Low Price Sensitivity

High Customer Loyalty

Stage 2 of  KAM Process

Stage 3 of  KAM Process

Stage 4 of KAM Process

Full KAM Process

marketing4entrepreneurs.com (2006),

8) Advantages and Dangers of Key Account Management

8.1) Advantages of KAM

KAM results in higher sale. More companies adopted key account selling has posted increased sales. It results in cost saving in sales overheads thus ensuring efficient sales and increased profits. Collaboration in R&D and joint promotions for sale can be possible since many people will be involved in the process, cumulative knowledge for best process can be achieved. Can able to closely work with the customer by which can know who is the influencer for purchase decisions and decision making process and an opportunity to create a rapport which will be helpful for conducting business. Buyer’s morale will be increased since they will be under confidence that a dedicated sales and service person from seller side is always available at their disposal and there will be improved communication and coordination with the team. More time available for understanding customer’s needs. Enough time to improve relationship, follow up and provide service to the customer (Jobber & Lancaster, 2006). For a customer KAM provides consistent supplies with priority even during crisis. Lower unit cost due to long term agreement, joint demand forecasting hence no missing in delivery schedules, not dependendant on single individual hence all the requirements and supplies and future requirement are available at supplier systems. Need not monitor the supplies closely hence valuable time saved and that time can be used for other value added activities. For suppliers it enables lower unit selling costs, image enhancement when supplying to world renowned companies, backing of product development by joint funding and guarantee of volumes to confidently invest.

8.2) Dangers in KAM

According to Burnett (1992), KAM has potential dangers as well. If a customer tries to abuse its key account status by pressuring on price reduction then there will be a threat to profit margin to the seller. On knowing the preferred key account status, a buyer can take advantage of it and demand more service and attention. Since seller operates with fewer companies, more dependency on them is evident.

9) Conclusion

In today’s uncertain business environment it is better to move to Key Account Management method of selling which helps in customer retention, it gives economies of scale, Substantial cost saving thus reduced sales overheads. It helps in increasing profit margin. It leads to focused approach, Can provide improved service through dedicated sales and service force. Better control of cost and operation is possible.

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