Before understanding key account management, let us understand the phrase key account. In business terms, Account is a customer who gives you business by purchasing your products or services. This account may be a single person, a company, an entity or a group of companies. The primary Criteria is that the transactions happen only under one name for accounting purposes.
As per the Pareto principle, 80% of business is obtained from 20% account and 20% of the business is derived from 80% accounts. This means that 20% of accounts that give you the maximum business are outstanding accounts which are in other words, described as key accounts. Managing those accounts or process to maintain and expand the relationships with these accounts is called as key account management. The idea is to sustain and develop business relationships further so that maximum business can be obtained from the accounts.
The person responsible for managing key accounts is called Key account executive or key account manager. Many things are different for key accounts right from the price of the product to the services that are offered by the company. Key account management is more complicated than regular account management, but on the other hand, it is more rewarding than the latter.
There are many times mismatches in the way customers and suppliers perceive each other; this is why clear and regular communication is essential with prioritized services. Special skills are required to deal with key accounts like strategic account management, broad portfolio management and excellent negotiation skills and business management skills.
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Need for Key Account Management
As discussed above the key accounts are special accounts which require more attention than regular account, but why is there a need for Key Account Management is to be understood. Here are a few reasons as to the need for Key Account Management:
- When the customer gives you priority business which is more than your competitor gets from that account, then automatically, that account becomes an important business center for you.
- Such accounts have regular business and in good numbers, which is beneficial to the organization. The needs of such accounts are constant and they require frequent visits, prioritized services from the seller.
- A general sales executive who is assigned to a particular geography or area will not be able to manage the key account even though it falls under his territory.
- A separate salesperson must be assigned to manage such key accounts. This is also helpful in managing their day-to-day activities and the person can get work done on priority.
- Special attention to the key accounts can even be justified with the business that is generated from them.
- Key accounts get different pricing for the products because they either purchase in bulk or use them regularly. The pricing can be justified because of the volume of the business.
- The introduction of new products is first done at key accounts, and their feedback is collected and reported. This feedback if negative is worked upon, and necessary changes for the products are made and then launched in the general market.
- The senior management of the purchasing party often visits key accounts and meet their heads to give a “professional pampering.” The presence of senior management implies they mean business and respect the other party. They will also be able to associate with the account in other companies as well.
- More often than not, key accounts have many followers due to which key accounts can also be termed as influencers. It is vital to have positive feedback from an influencer so that the followers can adapt to the same product.
- Key accounts can also act as a reference to generate new business for the organization because they have a strong word of mouth in the market.
It is because of all these reasons that key account management is essential, and prioritized services are to be provided to satisfy them. Since the business supplied by them is premium, the services required by them will be on priority.
Relationship stages with Key Accounts
Managing the key account is essential, and equally important is to understand the relationships between the customer and the seller, which can vary from normal transaction type relationships to complicated liaisons. Following are a few types of relationships of key account and the supplier:
1. Tactical Relation
The key account in this stage is newly opened, which is why the supplier has to keep the relationship with the key account on a tactical level. There would be many suppliers, and the connection will be established only on pricing.
There will be interactions from both sides and there are engagements and discussions. Since it is an early stage, it is not difficult for any party to exit the relationship before it gets complicated. Some accounts are left on the tactical link for a long time on purpose.
This is true when the account does not believe in building a long-term relationship with potential suppliers. The account moves to the next step when they plan to buy or invest more in the business transaction.
2. Cooperative relationship
In the case of a cooperative relationship, the account slowly moves with increasing operations. The interactions in engagements are from both sides, particularly at the operational level. The businesses on the increasing stage, as well as the relationship between the supplier and the customer, is on the rising stage as well.
There could be some inconvenience for the customer to exit the relationship but it is still an option available. The cost of this business relation increases from the side of the supplier with clear advantages of increased business and cost savings. If the account is medium to low potential, then it is advisable to remain in a cooperative relationship for a long time.
On the other hand, if the account is a high potential account, later based on previous investments, a new future can be built to form better business relations with the customer. If the account is of high potential, then it is better to fine-tune the existing investments and build a better relationship.
The return on investments may not be high immediately, but in the long run, they are much beneficial for the business.
3. Interdependent relations
There is an agreement in which the supplier and the account are locked. Probably you are the only supplier and as that is not the case, then you are the largest supplier amongst all. Communications and interactions are taking place at a functional level as well as at operational service, and you have access to much information on the account so that you can provide better solutions and build better relations with them.
The account is slowly moving towards the key account stage and has started to include suppliers in all their planning. It will be tough for the account to exit the interdependent relationship. The supplier can forecast sales depending on the business of the account that is the reliability and trust are increased and the account has also moved to a profitable stage.
In case the account is not a high potential account then it is suggested to rework and relook into investments that are made so far. In some cases, the supplier helps the account to move from medium to high potential account. Account development will not only be profitable for the account itself but even for the supplier because the business will automatically grow if the account develops.
4. Strategic Relationship
This is considered as the highest stage of key account relationship in which supplier and the account have arrived at a win-win situation and help develop a crucial long-term account management strategy that is mutually beneficial for both of them. Relationship exit will be costly for both of them and will be very traumatic.
All of the interactions between the account and the supply route or at very open the level and supplier can assume and be dependent on account for the long-term growth of business and the account becomes very profitable. This is considered as an ideal stage of the account that has a very high potential. In the strategic relationship, there are many demands from the account and special prices or discounts or offers have to be worked out dedicated only to the key account.
It is essential to keep the relation working And profitable for as long as possible because keeping the customer in the strategic relationship is not only beneficial for the supplier but also helpful for the customer as well. There may not be a lot of suppliers in this stage and probably you will be the only one supplier.
In such cases, the dependency on each other increases which is why moving away from this business relation will be costly for both the parties involved.
Having a successful key account management strategy
1. Formalise the process
In a recent study, it was found that only 33% of the organisations have a formal approach to the process of key account management in which they require dedicated people to develop strategic plans for the key account.
However, more than 20% of organisations had a random approach that left the planning to the person and out of which only 7% were successfully able to retain the key account. The proper way is to formalise the key account management process and allocate a separate salesperson to manage the key account.
2. Clear Distinction of Key Accounts
It is essential to distinguish the key accounts from other accounts. This is why the organization has to have a clear definition of key accounts in business terms. All the accounts are going to add some value to the business but the key account is the one which would add the most value which is why it is crucial to have a different line.
For example, If the average business of every account is about $5000 a month, then the accounts which gave a business of $20,000 or more should be categorized as a key account.
3. Expand the key accounts from small level
Whenever key account management strategies implemented, it is vital to start small. Not every account is going to be a key account from the beginning. The account is short in terms of business volume and then slowly grows to a medium potential account and finally becomes a high potential account which would be designated as a key account.
The efforts should be given to expanding the currently smaller account into a high volume key account so that you have a significant stake over there. The customers will realize the efforts that you have put in and would happily associate with you. It will grow them as well as increase your business too.
4. Solutions over Products
You must have a separate strategy for key accounts which is based on mutual benefit. It is in this to push products in key accounts because they are probably already aware of all of your products.
Instead, the sales team should provide solutions to them and they should adopt a conceptual strategy. They should listen to problems or glitches that customers have and should solve them by providing permanent solutions instead of merely supplying products.
5. Meeting the key accounts
There should be regularity in meeting the key accounts by the salesperson. The term key account management signifies that to ‘manage’ the key account, you should be aware of all the happenings in that account. This is why the sales team or even high management of the seller must meet the accounts regularly.
This way, you will not only grow the account and improve your business relations with them but will also be able to identify the areas of growth and will be able to provide solutions accordingly. Active participation from your side in the key account will help to deepen their trust in you, and also the business relationship may grow and last for a long time.
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