The KAM Journey has just Begun!

So many customers! How does an organisation decide the key accounts?

Imagine this: It’s Monday morning and a call comes through. It is your boss: "The management is enforcing a new policy. From next month, every brand manager will be allowed to retain only three main customers." You are thrown into a quandary. Which three customers should you retain? Should you choose those that are the best in leveraging your product in the market? Are they genuinely the most profitable and will they remain lucrative in future? Or do some of your smaller distributors have greater profit potential?

This may seem a highly improbable situation, but there is one frightening fact: Most managers cannot answer those questions. The Pareto Rule states the reality: that only 20% of your customers contribute to 80% of your revenue/growth potential. That only 20% of the products and services in your portfolio give you 80% of total profit. Hence, managers should allocate their limited and valuable resources amongst the few key accounts to build a strong brand in the marketplace.

How can companies retain and build up a strong customer base-- especially the profitable ones?

The Road to KAM

TQM leads the way
The revolution began with Total Quality Management. Organisations strived to deliver improved quality products and services to the customer by using statistical processes, just-in-time systems, benchmarking, business process reengineering, high standards, zero-defect production systems, and other tools and techniques. This philosophy advocated that quality was not a one-man task, but was the responsibility of the entire organisation.

The shift to TCM
Germinating from TQM were the guidelines for Total Customer Management. TCM is about giving the other departments a chance to manage the customer. The role of the marketing manager changes. He must ensure that the entire organisation works towards focusing on customer relationships. “The corporate must get customerised” became the catch-phrase!

From TCM to CRM
While TCM meets the uniform needs of a large market segment, Customer Relationship Management is all about customisation and one-to-one marketing. CRM talks about IT-enabled tools and other database techniques to build a relationship with the customer. Emphasis is on implementing change in the people who deal with customers, understanding what customers are really like, and trying to achieve relative customer satisfaction. Developing a CRM solution has evolved into a technical science.

The destination: KAM
However, it was still external to the customer organisation. You only heard what the customer told you. Relationships developed, but you stayed only friends. Besides, servicing all customers perfectly was highly time and manpower consuming and tearing down the already low margins in the highly competitive market.

Key Customer Management has emerged as a leading marketing issue in recent years, as product and brand managers have come to recognise the importance of building closer, mutually beneficial relationships with customers. Trends towards internationalisation, market maturity and growth in customer power imply that sustaining competitive product advantage has become challenging. It's a picture familiar to many - big customers are getting bigger; distributors are rationalising their supplier base, and customers are becoming more sophisticated and aware, demanding tailor-made solutions. The cost of servicing customers is increasing.

The strategic shift is from transaction to relationship, with an emphasis placed on the profit impact of account retention and development – MVCs (Most Valuable Customers) on LTVs (Life Time Values). In implementation terms, the shift is from measuring success in terms of transactions to the quality and longevity of collaboration. Though B2B is the real focus for KAM, B2C gets its fair share of attention as well.

To get the consumer to pull the brand successfully through the channel, the brand manager needs to have a flow of great distributors and happy suppliers. Among them too, are his key accounts!

The KAM Process Pyramid:

At the peak of the KAM process pyramid lies “mutual profitability”, that is managers and customers working together on a "win-win" basis. The relationship must be profitable to both the supplier and the marketing manager. There should be a clear marketing strategy to start off with, providing the firm with clarity of the segment and the specific accounts and how each would help in building brands or products.

Channel strategy defines the entire range of customers - right from distributors to suppliers to value-added resellers. Thereon, the accounts must be carefully selected and account teams must be assessed and developed to service them optimally. The service plan for these key accounts must be planned and executed. Results must be monitored regularly.

Key accounts are the heart of a business. How they are identified and cultivated can mean the difference between a thriving enterprise and one that struggles to survive. Managing customers is quite different from managing inventory. With inventory, there are two systems: LIFO and FIFO, Last in, First Out, and First In, First Out respectively. With an effective KAM, the goal to be followed should be FISH, i.e. First In, Still Here!

Related Reading:

“Key Customers: How to Manage Them Profitably”
Malcolm McDonald, Beth Rogers, Diana Woodrum
www.marketingprocess.com, April 2000.