DR. PRADEEP SALGAONKAR elaborates on how Key Account Management (KAM) builds long lasting business relationships with their most profitable customers
Present day businesses talk of customer satisfaction, loyalty, and engagement as an important factor affecting their revenue generation and profitability. Some may even go a step ahead and practice individual customisation and continuous engagement efforts to make the customer’s journey pleasant and delightful. They may even engage in modern day marketing tools such as operating in phygital mode, omni-channel marketing strategy, customer experience etc. and yet may not get the desired results at the end. So, what do these businesses do? The solution: be choosy about your customers those who are enjoying your customer retention spending and efforts.
As the famous Pareto principle or the 80/20 rule states, ‘80% of your revenue comes from 20% of your clients.’ So, it is essential to ensure that the 20% of your top customers, i.e. the top-earning accounts are identified and well taken care of, to generate long-term revenue. Quite possibly, you may have to forgo short term earnings by ignoring certain customers, to get long term benefits and revenue growth.
The paradigm shift from ‘transactional marketing’ to ‘relationship marketing’ seen today everywhere, brought with it a management philosophy called ‘Key Account Management’ (KAM), which is considered by experts as one of the most significant marketing trends to emerge recently.
The use of a popular term ‘key account’ indicates that the customers are seen as an investment made by the business for its future, and in many cases, to be successful, this requires a short-term sacrifice for prospective long-term gains.
Key Account (KA)
Key Accounts are the lesser number of valuable customers, often large-scale clients, sometimes having complex needs, extensive purchasing power, and the potential for long-term partnerships. The links between customer retention, customer profitability, and Customer Lifetime Value (LTV) have been widely acknowledged and these have increasingly encouraged businesses to view the key accounts as a valuable asset. Key accounts are significant for sustainability, long-term growth and on the flip side require a substantial investment of resources and time in its successful management.
Key Account Management (KAM) is the process of planning and managing a mutually beneficial partnership between a business and it is most important and valuable customers. It is the process of building long lasting and trustworthy business relationships with the businesses’ most profitable customers. It describes the approach i.e a clear strategy and program structure to serve and grow these strategic key accounts, which each salesperson will need to apply, to create long term profitable relationships. KAM is specifically meant for catering to existing customers and not for attracting new customers. KAM is an important tool for maintaining key customers’ satisfaction, loyalty, and retention. It involves a deep understanding of the customer problems, needs and expectations, the challenges faced and then working together along with the client to arrive at a solution. It is all about focussing on building mutually beneficial partnerships.
The early days of KAM
Once upon a time, the sales reps did the selling, won customers and they also supported them long after the deal was done. However, this arrangement expected too much from sales reps. It was very challenging to find new customers, while still serving the needs of the old ones. There was too much work to be done with limited resources and not enough time to do it. Over the years, as buyers became more powerful, customers went global, costs came under pressure, and the supply chain became more complex, it was evident that one person couldn’t do it all. So, somewhere in 1960s the responsibilities were split. Sales people won the clients, whereas Key Account Managers serviced and retained them. By the 1980s KAM became quite popular, though not practiced by many businesses, even today.
Using KAM for strategic advantage
Identifying KAs – Identifying and segmenting key accounts is the first and most critical step in KAM. This is based on the accounts’ strategic importance, revenue potential, and long-term value to the organisation. By analysing past sales data, customer behaviour, complaints, suggestions and profitability metrics, businesses can identify the most valuable accounts, categorise them and prioritize their resources accordingly to target them. Ideally the businesses’ accounts could be classified into A, B and C category; A category being the smallest number of the most potential customers – the Key accounts, B and C category being the rest. This type of categorisation helps allocate resources and focus efforts on the most valuable accounts. The number of key accounts should be limited, and there should be a control on maintaining the key account list growth.
Relationship Development: Building strong relationships with key accounts is crucial. Key accounts often have unique needs and expectations. Businesses should strive to provide personalised solutions in consultation with them, tailored to each account. They should pursue the key accounts to become institutional partners, so that together you can innovate and create value.
Regular communication, face-to-face meetings, and proactive engagement help establish trust and rapport. It is an ongoing process that requires consistent value delivery. Businesses should continually strive to exceed expectations by providing innovative solutions, exceptional service, and timely support.
Continuous Value Creation: KAM is not a one-time effort but an ongoing process. Businesses must consistently strive to deliver value to their key accounts through innovative solutions, exceptional service, and proactive problem-solving. Likewise, regular reviews follow up and feedback mechanisms should be in place that will help to identify areas for improvement and strengthen the partnership for future growth.
Cross-functional Collaboration: Successful KAM involves collaboration within the business across its various departments, including sales, marketing, customer support, product development, and finance. Cross-functional teams should work together to deliver seamless experiences, address complex requirements, and provide holistic solutions to its customers keeping long term benefits in mind.
Expand Share of Wallet: Businesses can work strategically with key accounts to increase their share of the customer’s total spending. By offering a comprehensive range of products or services and continuously showcasing value, businesses can capture a larger portion of the key account’s budget and requirements.
Conclusion:
Key Account Management is a strategic approach that recognises the importance of nurturing long-term relationships with key clients that are most valuable. By focusing resources, expertise, and attention on these key accounts, businesses can drive revenue growth and gain a competitive advantage. Embracing this customer-centric approach will enable businesses to unlock the full potential of their key accounts and foster mutually beneficial partnerships.
