Success Strategies in Channel Management Key Account Management in Collaborative Relationship Building
Stages in KAM Uncoupling-KAM Key Account Management Inter-relational causes of uncoupling: Breach of Trust Cultural Mismatch Quality Problems Key Account Quiz Analysing The Potential For Partnership/Synergy External Causes of Uncoupling: Changing market positions Financial problems
Key Account Management • Key Account Management is a natural development of customer focus and relationship marketing. It offers critical benefits and opportunities for profit enhancement to both sellers and buyers.
Customers know that they can demand more of suppliers, because suppliers know that they have to retain customers, not just to maintain profitability, but to stay in business. The nature of customer power manifests itself in many ways. Customers want bespoke, sophisticated solutions, which means that to win them is very costly and retaining them is critical to achieving long-term profitability. The Evolution of Key Account Relationships There are stages of Key Account Management that match transitions on the continuum from transactional relationships to collaborative relationships. This is called the Key Account Relational Development Model. It is possible to assess the position of supplier organisations at various stages of key account development, analyse managerial behaviour, and gain insights into the changing profile of skills necessary as relationships mature. Customer Power
Pre-KAM • No transactions exist, therefore proportion of business is zero. Nevertheless, the buying organisation has been targeted, therefore the supplier organisation is trying to establish interaction. • Pre-KAM describes preparation for KAM, or 'prospecting'. A buying organisation is identified as having key account potential, and the supplier organisation starts to focus resources on winning some business with that prospect.
The second stage is labelled Early-KAM. The buying organisation wants recognition that the value offering is the prime reason for the relationship - and expects it to work, so the supplier organisation must concentrate on getting it right, enough to convince the buying decision makers that they want more of the same. The buying organisation will still be using the value offers of other selling organisations. Some buying organisations are driven by short-term demands for low prices, particularly in difficult economic circumstances, such as recessions. The emphasis switches from product excellence to social integration at the Mid-KAM stage. Everyone in the supplier organisation will be expected to know the names of key accounts and understand their importance to the organisation, and the service that must be given. The buying organisation will now know the people in the wider key account team as well, and some senior managers. Early-KAM
The supplier organisation is now a preferred supplier, so the proportion of business from the buying organisation may exceed 50 per cent. Interactions have become more complex, and occur between many members of staff in each organisation. At the Mid-KAM stage, the supplier organisation has established credibility with the buying organisation, a degree of trust has been established. Partnership-KAM When Partnership-KAM is reached, the supplier organisation is seen by the buying organisation organization as a strategic external resource. The two organisations will be sharing sensitive information, and engaging in joint problem resolution. Pricing will be long term and stable, perhaps fixed, but it will have been established that each side will allow the other to make a profit! Mid-KAM
The supplier organisation understands that it still has no automatic right to the customer's business. Nevertheless, exit barriers have been built up. While the buying organisation is confident that its relationship with the supplier organisation is delivering improved quality and reduced costs, the exit barriers are not likely to be tested. Costing systems become transparent. Joint research and development will take place. There will be interfaces at every level and function between the organizations. There will be a joint business plan, joint strategies, joint market research. Information flow should be streamlined, and information systems integration will be planned or in place. Transaction costs will be reduced and time will be taken out of work cycles. Billing will be bespoke to that buying organisation. There is widespread understanding in the organisation that Key Account Management is strategically right, and the determination exists at the highest level of the organisation to stick with it for the long term. Synergistic-KAM
The organisation has a comprehensive and meaningful recipe which distinguishes key accounts from non-key accounts, and takes notice of the customer's need for it as a supplier as well as vice versa. Key accounts have dedicated teams, or at least there is a wide understanding within the organisation of who the key accounts are and how they are to be treated. Patience and persistence are highly valued as well as dynamism, as sometimes it takes years to develop key accounts to synergistic levels. High status is attributed to key account managers, so that they have the incentive to stay and thus develop the account. Importance is also attributed to what other professionals achieve for key accounts. These factors are discussed in more detail in later sections. Synergistic-KAM
Uncoupling-KAM • Uncoupling-KAM describes relational breakdown. Breakdowns can occur at any stage for a number of reasons. Many purchasing professionals might expect a supplier organisation to sit down and discuss exit plans alongside any contract to supply. Exit plans have certainly been common in manufacturer/ retailer relationships. Even where exit plans are not formally required, it would be prudent to develop contingency plans for Uncoupling-KAM, if only to reduce the likelihood of it happening. • Some supplier/customer relationships are ill conceived and others are affected in a negative way by changes in the external environment and changes internal to one or both organizations. Uncoupling-KAM is rarely caused by price problems.
Inter-relational Causes of Uncoupling • A change in key personnel • If relationships are not institutionalized, organization to organization, then the so-called 'single point of contact' personal relationship between the key account manager and his or her main contact will be all that holds the business together. If either leaves, the buying organisation is presented with an ideal switching point. Similarly, if the relationship between the two main contacts deteriorates for any reason and action is not taken, switching can occur which would be unlikely if there were links at many other points, including board level.
A breach of trust is the one thing which has the potential to really kill a business relationship, although the stronger the relationship, the more forgiving it is likely to be of genuine mistakes. Buying organisations do not like shocks from selling organisations. The best approach for a supplier organisation about to miss a deadline, delivery or any other sort of routine obligation, is to let the customer know in advance. A breach of trust is often rooted in a lack of communication. Exhaustion/lack of persistence Supplier organisations may lose accounts through neglect. From time to time, key account activity needs revitalization. The longer a business relationship continues, the more difficult it is to sustain a high level of attention to its progress. Complacency and frustration can creep in, and partnership becomes a debased word. Breach of Trust
Some organisations have difficulty relating to others of a different culture. The main cultural mismatch mentioned is price versus value. A organisation who concentrates on price deals might still be a key account, but will be most likely to change hands, and therefore likely to have low status in the selling organisation. Meanwhile a organisation with modest market share but interested in partnership sourcing can increase its importance to a selling organisation. National and regional cultures can create difficulties in doing business. Organisations quite often struggle to find people with the skills to deal with differences across international boundaries. Another manifestation of cultural mismatch is the fear of denigration of brand values. Cultural Mismatch
Quality Problems • If a product fails to keep pace with competitors, or if the buying organisation experiences performance problems, the relationship with the supplier organisation may be terminated. Process excellence, and high quality professional staff, are also expected from organisations espousing key account management.
Changing market positions If a buying organisation suffers a dramatic loss of market share, Key Account Management benefits do not seem so cost effective to the selling organisation. Certainly, the buying organisation that loses market share will no longer enjoy access to the top key account managers. They are very status conscious about their customers and would not want to stay on an account whose market share had shrunk. Financial problems Some account relationships falter or are terminated when either party experiences financial problems. External Causes of Uncoupling
Analysing The Potential For Partnership/Synergy • It is important for key account strategists in supplier organisations to establish whether or not a relationship between a supplier and customer can achieve higher relationship levels, and therefore would be suitable for a collaborative approach. An examination of the product/process mix, and value chain considerations can be helpful.
The value offer (product)/process mix • The potential for Synergistic-KAM largely depends on the correlation between the complexity of the processes between the supplier organisation and buying organisation, and the complexity of the product and technology the supplier organisation is delivering. • If both product and process are complex, optimum mutual benefit, and benefit for the end buying organisation, is obtained through some degree of vertical integration. The needs of the buying organisation are constantly evolving, and can be best fulfilled by a supplier with very detailed knowledge of the context in which it operates. This explains why partnership and synergistic relationships are usually observed in industrial and business-to-business markets.
Subjective Attitudes • In addition to the objective analyses that might be applied to assess potential for partnership, subjective attitudes must obviously be considered when supplier organisation strategists assess how much to invest in developing a key account. Some buying organisations have very positive views about partnerships with suppliers, some are avowedly adversarial and there are many shades in-between.
How advanced is your key account practice? How well do you know your key accounts? Score out of 10: Do you: Know your organisation's proportion of customer spend? Know their financial health (ratios, etc.)? Know their strategic plan? Know their business process (logistics, purchasing, manufacturing, etc.)? Know their key customers/segments/value offers? Know which of your competitors they use, why and how they rate you? Know what they value/need from their suppliers? Allocate attributable (interface) costs to accounts/customer groups? Know the real profitability of the top ten and bottom ten accounts/ customer groups? Know how long it takes to make a profit on a major new customer? Key Account Quiz