WHAT IS KEY ACCOUNT MANAGEMENT?

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What is Key Account Management?

Key Account Management is a strategic approach distinguishable from account management or key account selling and should be used to ensure the long-term development and retention of strategic customers. The acronym used by professionals in this industry is KAM.

The one common mistake many organizations, both small and big tend to make and repeat, is to treat all their accounts the same. It is never too late, however, to correct the situation and start looking at your account types more closely. You will notice, there is a key difference in the account types, organizations like yours, have in their portfolio.

A Key Account Management process is required to manage Key Accounts, which require more nurturing and attention than normal accounts.

The famous management rule applies in this case too, where 80 % of your profit will come from 20% of your accounts. What resources to invest and how and where, are the key questions you have to handle. Automated systems will work best for the 80% of your accounts, whereas, you can safely invest and focus your personal time on 20% of your Key Accounts.

Knowing and serving these two different account types is the key to maximizing the potential of your sales force. It will pay to look at specialized KAM Softwares to help you mine your Key Accounts and enrich your relationship for the long term.

  • Key account management is high profile but difficult to do well.
  • Key account management is appropriate to several types of relationships but is most clearly manifest when supplier and customer have a mutually recognized partnership and a degree of trust.
  • There are often mismatches between the way suppliers and customers perceive each other and their relationship, so careful communication and vigilance are vital.
  • Regular monitoring of the profitability of individual customers by suppliers provides crucial information but is quite rare because customer profitability is difficult to measure.
  • Strategic account managers need a broad portfolio of business management skills to deal with interdependent or integrated customer relationships.

Why Key Account Management?

We are familiar with Sales Funnel. Marketing generates thousands of leads & passes on the qualified leads to sales who in turn win deals. So far so good. But for B2B companies who offer multiple solutions with long term engagements with their customers, winning the first deal is only the beginning. You then farm and mine those key accounts for more revenues. Basically, you LAND and then EXPAND.

Traditional sales funnel can be extended by adding an inverted funnel at its bottom into a shape ‘hourglass’. Images are a powerful means to drive home a point – in this case Key Account Management as critical component of revenue generation for b2b companies.

Refer to the diagram below:

KAM Hourglass

For most B2B companies, the bottom half of the ‘hour glass’ generate 80%+ of the revenue in a given year. The most commonly used nomenclature is ‘Hunting’ & ‘Farming’. Hunting is acquiring new customers while Farming is growing business from existing customers.

Basically a hunter sells, while farmer helps customer buy.

The ‘hour glass’ also helps in organizing various functions in a B2B company. As you can see in the diagram it will be easy to define roles of marketing, inside sales, sales & key account management in the revenue life cycle.

Thus, role of technologies/tools for each function becomes clear. Tools for marketing automation, inside sales, lead qualification, sales process automation and finally Key Account Management.

Difference between KAM and Sales

While ‘Sales’ is an overarching process across industries, KAM is specific to existing customers in B2B companies with complex solutions, multiple offerings and long term repetitive engagements. KAM requires a deep understanding of customer domain, situation, challenges and then stitching a solution. In Sales, one would be offering a suite of products already available.

In Sales you ‘sell’, in KAM you help customer ‘buy’.

Stages of Relationship with Key Accounts

Key account management (KAM) is very much concerned with managing the relationship with the customer and it is important to understand these relationships, which vary from simple, transactional forms to intimate and complex liaisons.

Both the key account manager and the supplier organization need to know what kind of relationship they have with each customer, and therefore what they can and cannot do with it.

Tactical Relationship:

The ‘Account’ is at this stage either because it is new or nature of the ‘Account’ forces you to keep the relationship tactical. ‘You’ would be one of the several suppliers. The relationship emphasis is transactional with pricing as the main criteria. The interaction is through one person at both sides. The engagements are few & forecasts can be made for short term. It’s not difficult for either parties to exit the relationship.

Please note that, it’s ok for some accounts to remain at tactical stage even after a long time of engaging with them, especially if the ‘account’ does not believe in building partnership with suppliers or potential in the long run is not high.

However, if the potential of the ‘account’ is medium to high, plan to invest more in moving up the relationship stage.

Cooperative Relationship:

The ‘account’ has slowly started moving beyond transactions. The engagements & interactions are driven by few people at both sides, but more at operational level. The customer can still exit the relationship fairly easily, with some inconvenience. The cost of relationship is increasing from ‘your’ side without clearly visible advantages of cost savings or increased business.

It’s ok to remain at this stage if the ‘account’ is low to medium potential. If the ‘account’ has high potential, evaluate the effectiveness of the previous investments & fine tune the investments to build better relationships. The returns on these investments might not be evident yet, but ‘you’ should be on the path to realizing the returns in terms of cost savings, more business or both.

Interdependent Relationship:

‘You’ & ‘account’ are locked in mutually beneficial engagements. ‘You’ are mostly the single supplier (or at least largest) for your offerings. Interactions are taking place at all functional levels. ‘You’ have lot of access to ‘account’ information to build better solutions for them. ‘Account’ has started including ‘you’ in their planning. It will be difficult for the ‘account’ to exit the relationship.

The ‘account’ now is very profitable & ‘you’ can also forecast increased business in medium to long term.

If the ‘account’ does not have high potential, ‘you’ may want to relook at the investments being made & recalibrate.

Strategic Relationship:

This is the highest stage of relationship where ‘you’ and ‘account’ has arrived at win-win, long term strategy together. The exit barriers to relationship are very high & exit will be traumatic. The interactions between ‘you’ and ‘account’ is at all levels & very open. The ‘account’ is very profitable & ‘you’ have long term visibility of business growth.

If the ‘account’ has high potential, then this is the ideal stage. If the potential is not high, you may want to rethink on investing in building this kind of relationship.

Strategic Analysis of Key Accounts

Key Account Planning & Management require strategic thinking. At least once a year we need to look beyond dollar numbers, relationships and activities to think about our Key Accounts. A good deal of frameworks are mentioned in the book “Key Account Management-The definitive guide” by Malcom McDonald & Diana Woodburn.” A framework like KAM quadrant helps us in knowing the account attractiveness and our strength of relationship in that account.

 

  • Strategic: Invest mindshare and ensure profitability
  • Star: Invest time & money. Need not be profitable yet.
  • Status: Maintain the status quo.
  • Streamline: Manage for profitability.

 

Developing Key relationships

The way to a customer’s heart is through its business – not your business. As a minimum, the customer expects its key suppliers to understand:

  • Its marketplace
  • Its strategies
  • What its customers want
  • How it adds value in its business
  • Where it makes its money.

 

Role of Key Account Managers

There are numerous ways in which the role of the key account manager can be expressed. Put very simply, the key account manager has two roles:

Implementation: This means deciding what should happen in an account and making sure it is delivered.

Implementation roles-

  • Expert in the customer
  • Value developer
  • Point of accountability.

 

Facilitation: This involves developing the relationships that will enable the business strategy.

Facilitation roles-

  • Boundary spanner
  • Conduit
  • Focal point of contact.

 

A key account manager helps ‘customers buy’ while a salesperson ‘sells’.

Why do B2B companies need to adopt KAM technology?

Key Account Management Best Practices

Key Account Management is the most effective, profitable management of your most important assets. It drives the profitability of B2B companies, and having a Key Account Strategy is the heart of any successful business in this sector.

Smart suppliers are keen to implement KAM., Sadly however, many KAM implementations fail and are abandoned.

One should keep the following best practices in mind in order to succeed with their KAM strategy

Focus on customers that matter most

To get started with the KAM program, you need to identify some Key Accounts, and you need to develop a criteria that differentiates them from the rest of the customer base.

Good advice here is to start small. It is easier to add customers to your KAM program than it is to ‘demote’ customers once you have told them they are key accounts.

As per an HBR report, Corporations like Xerox keep the number of true key accounts below 100, and they have far greater resources than most and have been practicing KAM for years.

Therefore, your organization must have a clear understanding of what a Key Account means to you, and follow the same categorization criteria throughout. Do not add certain customers to your Key Account program just because they have been customers a long while, or they are golfing buddies with the CEO.

Key Accounts need not necessarily be the customers who are paying you the most.They are usually the customers with maximum potential to buy new and additional products or service in the future. The customers who are most likely to be consistent and loyal, and so represent significant value in the long term.

Relationship is the key

Another important aspect of Key Account Management is focused on building loyalty and long-term relationship with the customers.

As more B2B Organizations want to portray themselves strategically unique to their customers, they must ensure to maintain and approach their relationship with Key Accounts slightly differently too.

Key Account Management is all about relationship building and most importantly trust building between organization and customer, KAM wishes to see buyer considering seller as partner, and not as a vendor.

Look for opportunity

You should always be looking to grow your sales numbers out of your existing Key Accounts.

It’s far more profitable to sell more products to existing customers than to invest time and effort into finding new customers.

To make the most of the potential to cross-sell existing Key Accounts, you need a strong strategy to bring best practices to your Key Account Managers and salespeople. Additional product should be about providing customers with something that will benefit them. You might be disappointed if you push unrelated products.

Use the relationships you have already established with your clients to ask questions and find out about the issues they are encountering and look for ways to resolve those by making improvements to your existing products or develop new ones.

Key Account Management Business Impact

The correct adoption of Key Account Management by an organization can help in providing long lasting benefits. Following are some of them

Key Account Retention

Losing a client is never good, but losing a Key Account can put a dent in those revenue figures. Not to mention all the cost and effort added for acquiring a new client to make up for the loss of revenue. Key Account Management helps you identify and nurture your most important clients hence ensuring their retention.

Increased revenue

As explained earlier Key Account Management leads to increased revenue. By upselling you help increase customer retainer or subscription cost. By cross-selling you grow revenue from Key Accounts.

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Key Account Management: A Comprehensive Guide
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Key Account Management: A Comprehensive Guide
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This guide is a one stop solution for everything you will ever need to know in key account management right from creating key account strategies to the best practices for account handling.
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Demand Farm
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