You can effectively grow your business "garden" when you know where to prune the bushes and trees that represent your customers.
Increasingly, large
companies mandate that their suppliers set up "key account management
teams" that specialize in selling and servicing their needs exclusively
and globally. Such account teams are often headed by a high-level executive,
sometimes a vice president. Big Companies are spending enough money with their
suppliers that they are in a position to virtually demand such response. On
initial glimpse, some supplier companies may see this as an unreasonable
requirement from sometimes difficult customers. A closer look, however, reveals
that, executed properly, there are significant advantages in such arrangement
for both buyers and their vendors.
Key account management
(KAM) is essentially the focusing of a supplier company's sales, marketing and service
resources, through a select global team, on key customers. Such customers are
deemed vital to the supplier's future because of their potential large volume
purchases through an extended time. Key account management is a strategic
sales/support tool that facilitates the development of an effective, long-term
customer relationship or strategic partnership.
The advantages to the
customer are:
- Globally
expanding customers want to achieve consistency in selection and speed up
qualification of equipment and materials, thereby reducing costs of
support, training, inventory, etc.
- Customers
want to develop purchasing leverage and drive vendors toward worldwide
pricing within worldwide purchasing agreements.
- Customers
wish to maximize their ability to transfer processes anywhere
in India rapidly and at a minimum cost.
While most customers
will not publicly admit it, central supplier teams facilitate communication
within the customer company country-wide; indeed, "peddler mail" may
be faster than intra-company e-mail and possibly more effective.
There is a downside in
the KAM scenario for large customers: Their insistence on dealing exclusively
with key account teams may cause them to overlook new and exciting
technological advances that so often flow first from smaller companies without
KAM teams in place for key customers.
KAM also offers distinct
advantages to supplier companies, including:
- Attainment
of in-depth understanding of customer specifications, support requirements
and other needs.
- Maximizing
the likelihood of selling to all or most of a key customer's
specifications. This is crucial because much money and time is needed to
qualify a purchase item like tools, electronic components etc. These long
qualification cycles emphasize the need to know the customer's present and
future requirements accurately, and also provide opportunities to adjust
effectively to changing customer requirements.
- Full
utilization of all supplier resources without costly duplication of
effort.
- Creation
of leverage among a customer's specifications. Positive product
performance in one contract consignment, can assist in moving toward
success in other specifications of the same customer.
- Keeping
professional relationships when a customer executive moves to other
assignments in other consignment.
- Gaining
insight on customer technology usage, corporate culture and the driving
forces country-wide.
Smaller vendors are at a
significant disadvantage vis-a-vis their larger competitors, even it they have
the greatest "whiz bang" in the world. Through their key account
management teams, larger customers can search company-wide and worldwide for
their own as well as competitive performance flaws and other opportunities to
meet customers' needs at the expense of competition. All of this ultimately
benefits the customer.
There are some downside
issues for suppliers to large key customers, including:
- The
leverage of the large key customer on price, terms and support items.
- The
supplier's need to learn to work in a matrix management environment. This
means dealing with executive immaturity ("I want it now!"),
limited discipline for setting and executing corporate priorities, and
managing "turf consciousness." These factors have proven fatal
to more than one corporate effort to adopt key account management.
Categorize Your
Customers
One simple way to
determine which customers you need to reassess is to categorize them by
industry or type and list them from highest to lowest profitability (not
revenue) to your business. One financial services firm did this and realized
that the source of greatest profitability for their company was people who
owned their own business. This was followed by higher net worth persons, either
retired or still working. These types of clients needed the broader and more
custom array of financial products and services that the firm offered. At the
bottom of their list was lower net worth people who needed rudimentary tax or
estate services. As a result, this company decided they wanted to focus their
business on the more fulfilling and more profitable business endeavors. They
consequently decided to refer the lower-end business to a colleague in their
industry who was best equipped to handle this type of business. By doing so,
this company not only lifted a sizable burden from its limited capacity, but
also created a strategic partnership with a colleague where there would be good
opportunity for cross-referral.
This financial service
company also took another significant step. They rated each new prospective
client using a number of criteria, including potential profitability, which
would tell them whether they would be willing to take on that new client in
their business. This allowed them to focus their business’s products and
services on the clients who would fit best with both what their firm could
offer and how they liked to work, and be the most lucrative for them.
Strategize Your
Positioning
When a manufacturing
company categorized their customers, they discovered, to no surprise, that the
no-frills commodity end of their business was the least profitable. Their
ultimate desire was to guide their business to customers who wanted value-added
services for which they would pay additional money (e.g., custom product
design, warehousing, purchasing and packaging of product accessories, etc.).
However, they just could not say "no" to their commodity-business
customers, some of whom had been loyal customers since the day the company was
founded. To resolve this dilemma the company decided to use product price and
delivery as their tools for pruning unwanted business. If they could not easily
fit the commodity business into their production schedule then they raised
their price somewhat, or extended delivery times. Rather than say
"no", this company took low-end business only if the customer would
accept these price and delivery adjustments.
As a rule of thumb, it’s
good to examine the bottom 10-15% of your business’s customers, in terms of
profitability, and then create a consistent and doable strategy for dealing
with all those customers. One service firm gracefully contacted every customer
in that firm’s bottom profitability tier. They told each of them where their
service firm was heading and how that customer could fit into that possible
future, if they so desired. Then they gave each customer a choice to stay with
the firm, by moving to higher end products and services, or to take their
business to a complementing firm that would better handle their lower-end business.
As a result, a number of unprofitable customers left on good terms, and others
chose to upgrade their products and services and stay with the firm. This ended
up as a "win-win" approach for all.
You can effectively grow
your business "garden" when you know where to prune the bushes and
trees that represent your customers. By cutting or clipping here and there, and
being deliberate about removing any unprofitable customers, or ones that are
draining your company’s resources, you have a greater chance of surviving and
even thriving in today’s ever complex and more demanding marketplace.
With best wishes
Dr Wilfred Monteiro
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