How to Successfully Implement Key Account Management Strategies

To fully grasp the concept of key account management, it's important to first define what a key account is in the context of business. A key account refers to a customer who regularly purchases your products or services, whether as an individual, a company, an entity, or a group of companies. The key characteristic of such an account is that all transactions occur under a single name for accounting purposes.

According to the Pareto principle, 80% of a company's business comes from just 20% of its accounts. These accounts, which provide the most substantial business, are what we refer to as key accounts. The process of managing and maintaining relationships with these accounts in order to sustain and expand the business is known as key account management. The ultimate goal is to foster strong, mutually beneficial relationships that result in maximum business opportunities.

Managing key accounts requires a skilled professional, known as a Key Account Executive or Key Account Manager, who oversees the unique needs of these important clients. Key accounts receive special treatment, from customized pricing to tailored services, making key account management a more complex task than regular account management. However, the rewards of successfully managing key accounts are greater. Effective communication is crucial in building and maintaining relationships with key accounts, as there are often differences in perception between customers and suppliers. Managing key accounts also demands specialized skills, such as strategic account management, broad portfolio management, excellent negotiation skills, and strong business management skills.

Need for Key Account Management

The importance of Key Account Management lies in the fact that these special accounts demand a higher level of attention than regular accounts. This is because they not only contribute significantly to your business, but also because the customer has given you priority over your competitors. As a result, managing these accounts effectively becomes crucial for sustaining and growing your business.

Key accounts are valuable assets for any organization as they generate consistent business in large volumes. These accounts have specific requirements that demand frequent attention and priority services from the seller. It is important to note that a typical sales executive responsible for a specific geographical area may not have the necessary skills and resources to effectively manage a key account, even if it falls under their territory.

Assigning a dedicated salesperson to manage important accounts is crucial for effective management of their daily tasks and ensuring that high-priority work is completed in a timely manner. The value generated by these key accounts justifies the need for this level of personalized attention.

Key accounts receive preferential pricing for products as they often make bulk purchases or have regular usage. This pricing structure is supported by the significant volume of business they generate.

New product launches are initially introduced to key accounts, with their feedback being collected and analyzed. Any negative feedback is taken into consideration and necessary changes are made to the product before it is released to the general market.

Visiting key accounts and meeting with their heads is a common practice for the purchasing party's senior management, who aim to provide a professional and attentive approach. This gesture not only signifies the importance of the business relationship but also allows for potential opportunities to collaborate with other companies. As key accounts are often considered influencers due to their significant following, positive feedback from them holds great value in promoting a product to their followers.

Key accounts possess the potential to serve as influential references for the organization, facilitating the generation of new business due to their strong word-of-mouth reputation in the market. As a result, effective key account management is crucial, and prioritization of services is necessary to ensure their satisfaction. Given the premium nature of the business provided by key accounts, their service requirements must be given top priority.

Relationship stages with Key Accounts

1. Tactical Relation

Effectively managing a key account requires a deep understanding of the dynamics between the customer and the supplier. These dynamics can range from simple transactional relationships to complex partnerships. Below are some examples of the different types of relationships that can exist between a key account and its supplier:

1. Tactical Relation

At this stage, the newly opened key account is crucial, and maintaining a tactical level of relationship with the supplier is imperative. In a market with multiple suppliers, the relationship is primarily based on pricing. Both parties engage in discussions and interactions, and due to the early stage, either party may exit the relationship without much complication. Some key accounts are intentionally kept on a tactical level for an extended period of time.

2. Cooperative relationship

If the account is not interested in establishing a lasting partnership with potential suppliers, then the next stage is reached once they decide to make a larger investment or purchase in the business transaction.

As operations increase, a cooperative relationship fosters mutual engagement and interaction from both parties, especially at the operational level. This results in a growing stage for both the supplier and customer businesses. While exiting the relationship may pose some inconvenience for the customer, it remains an option. The supplier bears the increasing cost of maintaining this relationship, but benefits from increased business and cost savings. For medium to low potential accounts, it is recommended to maintain a cooperative relationship for an extended period.

For high potential accounts, it's wise to focus on building strong business relationships by fine-tuning existing investments. Although the return on investments may not be immediate, the long-term benefits for the company can be significant.

3. Interdependent relations

The supplier and account have entered into a binding agreement. It is highly likely that you are the sole supplier, or at the very least, the largest amongst all. Communication and collaboration occur at functional and operational levels, granting you access to a wealth of account information, allowing you to provide optimal solutions and cultivate strong relationships.

The account is in the process of transitioning to the key account stage and has already started involving suppliers in their planning. Exiting the interdependent relationship may prove to be a daunting task as the supplier can accurately forecast sales based on the account's business, thus increasing reliability and trust. Moreover, the account has progressed to a profitable stage.

If the account does not have high potential, it is advisable to reassess the investments made thus far. In certain scenarios, the supplier plays a crucial role in elevating the account from a medium to a high potential account. Account development not only benefits the account but also the supplier, as the business automatically expands with the account's growth.

4. Strategic Relationship

At this stage, the supplier and the key account have established a mutually beneficial relationship and co-created a strategic account management plan. Both parties understand the value of maintaining this relationship, as ending it would result in significant costs and emotional strain.

The success of the business and the account's profitability in the long run heavily relies on the interactions between the account and the supply route, or at a broader level, the supplier. This phase is considered the most desirable as it boasts of high potential. To maintain this strategic relationship, the supplier must cater to the account's demands and offer special prices, discounts, or deals exclusively tailored for the key account. It is crucial to sustain this relationship as it benefits both parties involved. As a supplier, you might be the sole provider in this stage, making it imperative to keep the account satisfied.

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

According to a recent study, a mere 33% of organizations have a formal approach to key account management that requires dedicated personnel to develop strategic plans for their key accounts. Shockingly, over 20% of organizations have a haphazard approach that leaves key account planning up to one person, resulting in only 7% being able to successfully retain their key accounts. To improve success rates, it is recommended to formalize the key account management process and assign a dedicated salesperson to manage each key account.

2. Clear Distinction of Key Accounts

It is imperative to distinguish the key accounts from the rest. Therefore, it is essential for the organization to have a precise and clear definition of key accounts in business terms. Even though all accounts contribute to the business, the key account adds the most value, which emphasizes the need for a distinct approach.

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

To successfully implement key account management strategies, starting small is crucial. It's unlikely that every account will be a key account from the outset. Instead, focus on nurturing smaller accounts that have the potential to grow into medium and high potential accounts. By investing effort into expanding these accounts into high volume key accounts, you can establish a strong foothold in the market. Your customers will appreciate the time and effort you've invested in them, which will not only benefit their business but also increase your own.

4. Solutions over Products

To effectively manage key accounts, it is crucial to have a customized strategy that focuses on mutual benefits. Simply pushing products to these accounts may not be the most effective approach as they are likely already familiar with your entire product line. Instead, consider ways to strengthen the relationship and provide unique value that aligns with their specific needs.

5. Meeting the key accounts

Rather than just selling products, the sales team should focus on providing solutions and implementing a conceptual strategy. This means actively listening to customer concerns and addressing them with permanent solutions, rather than simply pushing more products. By taking a problem-solving approach, the sales team can build trust with customers and establish long-term relationships based on mutual success.

Regular meetings with key accounts are essential for effective key account management. To truly "manage" an account, it's important for the sales team or higher management to stay up-to-date on all account activity. By meeting regularly, you can identify areas for growth and provide tailored solutions to improve your business relations with the account. Active participation in the account will deepen their trust in your company and foster a long-lasting business relationship.