“We are in the process of building a sales team to cover our key accounts. You mentioned in your previous column that key account management is a strategy. Kindly elaborate this concept in your column. Thanks a lot for the valuable inputs you've given us in the past.” - K. Martinez
 
It might surprise some of you to know that most accounts you consider as key today may not really qualify to be your key accounts. Some of them may even be destroying instead of adding value to your business. Consider some of your biggest customers today.  Are they really bringing more profitable sales revenue than your other accounts? I have challenged a few companies to compute for the contribution margin (i.e. sales - variable costs) of their key accounts and compare their average %CM with their non-key accounts. The result?  key accounts average 8% CM;   non-key accounts (middle group) at 32% CM. Of course, as we acknowledge, there are other criteria to consider in selecting a key account like image, network, industry influence, and the like. But the most important, in most cases, is the long-term value the customer brings to the firm measured in terms of Return On Customer Investment (ROCI) and Customer Lifetime Value (CLV).
 
Most sales organisations follow a very simplistic rule in identifying their key accounts: 20% of customers who contribute 80% to sales. This is a good way to start but not quite. How we define key accounts will affect our customer investment decisions. Should we continue to invest in accounts with the lowest returns? Should we allocate our investments to accounts with the highest potential returns or customer lifetime value? So, who should be a key account?
 
A key account is a customer in whom we have decided to invest a significant share of our company’s resources (i.e. time, people, money, energy) on the assumption that that customer represents the best route to achieving our medium to long-term business ambitions.
 
Key account management, therefore, is not simply a set of activities to serve our key accounts, but a strategy. According to McDonald, Rogers and Woodbury (2002), ’Key account management is a management approach adopted by selling companies aimed at building a portfolio of loyal key accounts by offering them, on a continuing basis, a product or service package tailored to their individual needs.’
 
The definition suggests that key account management is a strategy (an approach). Strategy is a choice where, how, when to compete in order to win. You can choose to acquire more customers, expand coverage, or you can choose to focus on few but high-impact accounts who you perceive as the ‘best route to achieving your long-term ambitions.
 
The purpose of KAM is ‘to continuously build a portfolio of loyal and let me add, profitable customers.’ How to do this: ‘offer them on a continuing basis,’ which means that KAM is not a project but is part of the daily life of a sales organization. Like marriage, you replenish the source of relationship daily not only during your courtship period. Someone said, ‘love never dies of a natural death. It dies because we fail to replenish its source.’ One of the reasons for the ‘continuing basis’ is because your competitors will also be very interested to woo them on their side.
‘a product or service package tailored to their individual needs- presupposes that before we can tailor fit our ‘offerings’ we need first to understand their individual needs. A key account manager must possess a very good level of understanding of the account’s business and people needs. this requires an ability to gather relevant information and generate insights. Gathering information is a challenge for most key account management practitioners despite advancement in information technologies today. This tells us that technology is not a substitute for critical thinking and diligence.
 
Spend a few minutes to answer the following as honestly to know how well you know your key accounts:
 
1.    What is your key account’s company mission?
2.    Who are your key account’s primary target customer segments? How do they label or call each segment?
3.    What are your key account’s unique value proposition to each of these segments?
4.    Are these propositions really unique and better versus competitors?
5.    Who are your key account’s most dangerous competitors?
6.    How do your key accounts segment suppliers like you? In which segment do you belong?
 
Obtaining critical information is one and generating insights is another. It is not enough we have all the information we can get. The question is how well we are able to interpret and extract big insights (or hidden truths) from available information.
 
In summary, Key Account Management is a strategy employed by the company to develop a more collaborative, sustainable and profitable relationships with strategic customers.

 
Emilio Macasaet III is Partner and Chief Distributor Strategist of Mansmith & Fielders Inc., the country’s leading marketing and sales training company. For details email info@mansmith.netor call 584-5858.