Customer Value and Key Account Management
Customer Value and Key Account Management
Much is talked about key account management – what is it and what are the key elements of success?
Most companies or businesses serve a substantial number of customers of varying size and importance. Some customers are easy to please, some more demanding. Some are long-standing customers, where a relationship has evolved over time, others are new or relatively recent accounts. In many industrial and business-to-business markets the time-served 80:20 rule still applies and is relevant (i.e. 80% of the sales revenue or even 80% of the profit is generated from 20% of the customer base). In some cases, it can even be 90:10.
This begs the question: are ALL customers important or are some more important than others? Not such an easy question to answer as it may seem to be on the surface. If we take a snapshot picture of today’s business at any company, in many cases an analysis of the customer turnover and profit will show that a relatively small proportion of the total number of customers do indeed represent a very high proportion of total revenues or profit. Such customers would normally be regarded as Key Accounts and would merit special attention and treatment.
Challenge number one: is absolute size or relative share of total sales/profits a meaningful basis for determining key accounts. Answer, yes…..BUT.
But…. It is certainly not the only meaningful basis for identifying or classifying an account as key.
Other criteria for determining whether an account is a key account might include:
- what is the size of the total potential business revenue or profit represented by that account?
- is there a greater potential when we take into account sales by other business units?
- is the company a leader in its market?
Even when we have identified our Key Accounts, the open question still remains – so what and what are we going to do about it? This should lead us to consider whether we need to or want to treat some classes of customer differently from others. But before we tackle that question, perhaps we can examine a simple tool to help with the customer classification: the customer pyramid, which essentially starts with the premise that there are lots of entities in the World, some of whom might be suspected to be potential customers, some of whom might have been identified or even qualified as prospective customers, yet others might be lasped accounts, some may be active accounts (amongst whom there might be small, medium and large in size) and some who merit special attention as key accounts. This pyramid can help us to identify and classify all customers and potential customers in the market into one of these levels.
Fine, but what does that mean?
Challenge number two: do we just focus on the key accounts? Answer: no…..BUT.
Ignoring or de-emphasizing accounts not classified as key can be potentially very dangerous, as there may be significant pieces of potentially very profitable business lying hidden at those “non-key” accounts. A more enlightened approach would be to develop a set of service standards and rules for treating and dealing with each class of customer.
To this end, we might use our pyramid again to define Customer Service Standards (Example):-
KEY ACCOUNTS
Special treatment, KAM, proactive
LARGE CUSTOMERS
Value selling, regular contact, proactive
MEDIUM-SIZED CUSTOMERS
Account maintainance, reactive
SMALL CUSTOMERS
Account development/qualification to determine potential to rise in the pyramid
INACTIVE CUSTOMERS
Investigate reasons for inactivity; determine business potential and how to re-gain?
PROSPECTS
Qualify true potential; pursue good prospects, de-emphasize or eliminate low to poor prospects
SUSPECTS
Qualify to determine prospective potential; develop potential prospects; de-emphasize or eliminate non-prospects
REST OF THE WORLD
De-emphasize
For some companies or business units, it may even be meaningful and helpful to refine this customer classification further, for instance by introducing a customer segmentation. In this example, customer needs-based segments are combined with the customer classification pyramid to define a fine-tuned business model as a basis for the customer service standards.
Customer Strategies According to Customer Segment and Class
KEY ACCOUNT
PRICE BUYER: E-Business Services PERFORMANCE VALUER: R&D Partnership Program
SERVICE VALUER: Favoured Nation Service Program RELATIONSHIP VALUER:Advanced Key Account Management
LARGE CUSTOMER
PRICE BUYER: E-Commerce PERFORMANCE VALUER: Joint R&D Program
SERVICE VALUER: Tailored Service Package RELATIONSHIP VALUER: Customer Service Package
MEDIUM CUSTOMER
PRICE BUYER:Contract pricing PERFORMANCE VALUER: Product Develop Program
SERVICE VALUER:Preferential response & delivery RELATIONSHIP VALUER:Named Contacts Program
SMALL CUSTOMER
PRICE BUYER: Spot pricing PERFORMANCE VALUER: Distributor Product Offer
SERVICE VALUER: Distributor Service Offer RELATIONSHIP VALUER:Distributor Key Account
PROSPECT
PRICE BUYER: Reactive quote PERFORMANCE VALUER: Sampling
SERVICE VALUER: Develop meaningful offering RELATIONSHIP VALUER: Develop meaningful relations
SUSPECT Investigate customer needs
Applying a customer segmentation/classification grid can lead to clearer and more differentiated offerings being made to identified target customer groups. Customers value the offering more highly, because it is tailored to their needs and is clearly communicated by the customer facing representative (whether account manager, field seller, office-based seller or other contact person).
Such a grid can also help your internal staff to understand better what they should and should not offer to different customers and also helps them to understand WHY there are different offerings for different customers.
Key accounts clearly are important, but they should not consume all the attention or resources of your business unit or company. There has to be a balance, such that non-key accounts do not become neglected, but also receive an appropriate level of service.
Remember lost customers cost between five and twenty times as much to replace in comparison to continuing to serve existing customers.
Customer Value and Key Account Management - To learn more about this author, visit Phil Allen's Website.
Like this article? Share it with your friends
Customer Value and Key Account Management
Much is talked about key account management – what is it and what are the key elements of success?
Most companies or businesses serve a substantial number of customers of varying size and importance. Some customers are easy to please, some more demanding. Some are long-standing customers, where a relationship has evolved over time, others are new or relatively recent accounts. In many industrial and business-to-business markets the time-served 80:20 rule still applies and is relevant (i.e. 80% of the sales revenue or even 80% of the profit is generated from 20% of the customer base). In some cases, it can even be 90:10.
This begs the question: are ALL customers important or are some more important than others? Not such an easy question to answer as it may seem to be on the surface. If we take a snapshot picture of today’s business at any company, in many cases an analysis of the customer turnover and profit will show that a relatively small proportion of the total number of customers do indeed represent a very high proportion of total revenues or profit. Such customers would normally be regarded as Key Accounts and would merit special attention and treatment.
Challenge number one: is absolute size or relative share of total sales/profits a meaningful basis for determining key accounts. Answer, yes…..BUT.
But…. It is certainly not the only meaningful basis for identifying or classifying an account as key.
Other criteria for determining whether an account is a key account might include:
- what is the size of the total potential business revenue or profit represented by that account?
- is there a greater potential when we take into account sales by other business units?
- is the company a leader in its market?
Even when we have identified our Key Accounts, the open question still remains – so what and what are we going to do about it? This should lead us to consider whether we need to or want to treat some classes of customer differently from others. But before we tackle that question, perhaps we can examine a simple tool to help with the customer classification: the customer pyramid, which essentially starts with the premise that there are lots of entities in the World, some of whom might be suspected to be potential customers, some of whom might have been identified or even qualified as prospective customers, yet others might be lasped accounts, some may be active accounts (amongst whom there might be small, medium and large in size) and some who merit special attention as key accounts. This pyramid can help us to identify and classify all customers and potential customers in the market into one of these levels.
Fine, but what does that mean?
Challenge number two: do we just focus on the key accounts? Answer: no…..BUT.
Ignoring or de-emphasizing accounts not classified as key can be potentially very dangerous, as there may be significant pieces of potentially very profitable business lying hidden at those “non-key” accounts. A more enlightened approach would be to develop a set of service standards and rules for treating and dealing with each class of customer.
To this end, we might use our pyramid again to define Customer Service Standards (Example):-
KEY ACCOUNTS
Special treatment, KAM, proactive
LARGE CUSTOMERS
Value selling, regular contact, proactive
MEDIUM-SIZED CUSTOMERS
Account maintainance, reactive
SMALL CUSTOMERS
Account development/qualification to determine potential to rise in the pyramid
INACTIVE CUSTOMERS
Investigate reasons for inactivity; determine business potential and how to re-gain?
PROSPECTS
Qualify true potential; pursue good prospects, de-emphasize or eliminate low to poor prospects
SUSPECTS
Qualify to determine prospective potential; develop potential prospects; de-emphasize or eliminate non-prospects
REST OF THE WORLD
De-emphasize
For some companies or business units, it may even be meaningful and helpful to refine this customer classification further, for instance by introducing a customer segmentation. In this example, customer needs-based segments are combined with the customer classification pyramid to define a fine-tuned business model as a basis for the customer service standards.
Customer Strategies According to Customer Segment and Class
KEY ACCOUNT
PRICE BUYER: E-Business Services PERFORMANCE VALUER: R&D Partnership Program
SERVICE VALUER: Favoured Nation Service Program RELATIONSHIP VALUER:Advanced Key Account Management
LARGE CUSTOMER
PRICE BUYER: E-Commerce PERFORMANCE VALUER: Joint R&D Program
SERVICE VALUER: Tailored Service Package RELATIONSHIP VALUER: Customer Service Package
MEDIUM CUSTOMER
PRICE BUYER:Contract pricing PERFORMANCE VALUER: Product Develop Program
SERVICE VALUER:Preferential response & delivery RELATIONSHIP VALUER:Named Contacts Program
SMALL CUSTOMER
PRICE BUYER: Spot pricing PERFORMANCE VALUER: Distributor Product Offer
SERVICE VALUER: Distributor Service Offer RELATIONSHIP VALUER:Distributor Key Account
PROSPECT
PRICE BUYER: Reactive quote PERFORMANCE VALUER: Sampling
SERVICE VALUER: Develop meaningful offering RELATIONSHIP VALUER: Develop meaningful relations
SUSPECT Investigate customer needs
Applying a customer segmentation/classification grid can lead to clearer and more differentiated offerings being made to identified target customer groups. Customers value the offering more highly, because it is tailored to their needs and is clearly communicated by the customer facing representative (whether account manager, field seller, office-based seller or other contact person).
Such a grid can also help your internal staff to understand better what they should and should not offer to different customers and also helps them to understand WHY there are different offerings for different customers.
Key accounts clearly are important, but they should not consume all the attention or resources of your business unit or company. There has to be a balance, such that non-key accounts do not become neglected, but also receive an appropriate level of service.
Remember lost customers cost between five and twenty times as much to replace in comparison to continuing to serve existing customers.
Customer Value and Key Account Management - To learn more about this author, visit Phil Allen's Website.
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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Stephanie RobeyStephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals. She is a successful entrepreneur having started and sold 2 companies and remains on the board of directors of the third, PhotoSpin.com Stephanie began her career in the direct marketing realm creating and producing direct mail for many of the major cable television companies and directly attributes her understanding of Internet marketing to those early offline experiences. Stephanie is a graduate of San Diego State University with a BFA in Graphic Arts and also holds an Executive MBA from the Graziadio School of Business and Management at Pepperdine University. Read Steph's Blog Meet Steph and Dave Sign up for our Free 7-Day BootCamp: Self Employed & Rich - Visit Stephanie Robey's Website |
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