KEY ACCOUNT MANAGEMENT (KAM) in B2B SEGMENT w.r.t INSTRUMENTATION INDUSTRY

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1 KEY ACCOUNT MANAGEMENT (KAM) in B2B SEGMENT w.r.t INSTRUMENTATION INDUSTRY SAMIR GOVIND BUWA, M.B.S (Mktng) Student (MBS-Finance) I.B.M.R. - / Mobile ABSTRACT This Paper is to explain concept of Key Account Management (KAM), importance of this valuable concept in modern marketing management, selection criteria to find out key accounts from existing customers, categorising it from prospecting customers list & from competitors customers list, benefits to both purchasers and sellers, various stages of KAM relationship building process, terms & conditions where purchaser or seller agrees, risks involved at the level of both the parties. Critical Key Success Factors, challenges faced in implementing this concept and relevance to various industrial marketing in various sectors& segments of industrial verticals& in particular to Instrumentation industry, It will help in formulating right strategies to achieve Sales Budgets & subsequent Business Plans of ever ambitious global corporations across the globe, where global customers are expecting same kind of service where they operate in. It will also help corporations may be small or big in size to make focused approach, thinking beyond 4Ps of traditional marketing &it will ensure long term development & retention of strategic customers. In the era of globalization, no company can afford to ignore KAM. This is that tool which will build trust & partnership kind of relationship between buyers & sellers across the continents where customers are going & suppliers are just following them to satisfy their global clients needs & to find our more business opportunity locally. Understanding the Customers need, Making perfect plan of KAM, following it up systematically, measuring, monitoring & taking corrective actions at the appropriate time with value proposition in industrial marketing will lead to faster & sustainable growth achievement of every business entity in terms of Top & bottom line. Collecting field inputs from customers by using relationship & giving the same to R&D department for future product development, securing future & thus reducing the gaps of need & supply is also the important work of KAM. This paper explains how important to use KAM in instrumentation industry & Key Account Management (KAM) is the tool used to optimise the available resources, where resources itself are limited & Sales Budget pressure is high & adding value to buyer & supplier relationship. 1

2 KEY WORDS- KAM, Globalization, Trust, Partnership, Relationship, Gaps, Top Line, Bottom Line, Future. OBJECTIVE 1. To explore the possibility of optimizing Top Line by using KAM. 2. By using KAM, with minimum resources, achieve improved Bottom Line. 3. Development of Strategy with usage of KAM. 4. Development& Management of Future with the use of KAM in modern age business. 5. New Customer Acquisition, Retention of existing ones, development of change management in the organization. 6. Strategic suppliers development by applying KAM. 7. KAM is also a route to Sustainable Competitive Advantage (SCA) INTRODUCTION & CONCEPT The Key Account is an account that you can count on for repeat business over time. Key Account are considered to be the accounts which can have a positive strategic effect on business. Particularly they are our best & biggest customers. The concept of Key Account Management was introduced in decade of 1950 in Americas & Europe. The basic assumption for a key account management model is the correct classification of the key accounts. A basic model often used in the period of was the classification model of Webster, this model has been adapted by Milman and Wilson into a two dimensional model and was paramount in the period of Bensaou has tested this model empirically by his research of carmakers in the United States and Japan and corrected the fundamental flaws. De Blick synthesized the adaptations into the 4S-model, which is at present the dominant key account classification model. Key Account Management is an important method to create value through implementation of the processes targeted on the most important customers. Modern companies aim to permanently increase their value by the means of customer orientated change development and retention of them. Moreover, the relationship marketing literature suggests over hauling the economic decline through focusing on the business with the main contributors to a company s budget. 2

3 In the era of globalization, no company can afford to ignore KAM, this is that tool which will build trust & partnership kind of relationship between buyers & sellers across the continents where customers are going & suppliers are just following them to satisfy their global clients needs & to find our more business opportunity locally. Understanding the Customers need, Making perfect plan of KAM, following it up systematically, measuring, monitoring & taking corrective actions at the appropriate time in industrial marketing will lead to faster & sustainable growth achievement of every business entity in terms of Top & bottom line. Collecting field inputs from customers by using relationship & giving the same to R&D department for future product development, securing future & thus reducing the gaps of need & supply is also the important work of KAM. It is an business fact that 80 per cent of revenues come from 20 per cent of your customers in most of the business segments. It therefore paramount important to pay focus on those key customers. Key Account Management (KAM) is one of the best ways to ensure repeat purchases, additional purchases and referral to other prospective customers like themselves. Key account management includes sales but also includes planning and managing the full relationship between a business and its most important customers. An account manager who works in this role will engage in a variety of tasks including project management, coordination, strategic planning, relationship management, negotiation, leadership and innovative development of opportunities, keeping record of transaction of sale and purchase goods. Some companies have more seasoned account managers. These can be called global account managers or named account managers So let s see how does it work? It should be started by dedication of a KEY ACCOUNT MANAGER whose role is to lead and manage the key account process effectively. How the key account sees the role of the manager is also importance. The key account will expect the Key Account Manager to: Be the main link into your company for all issues To understand its business, market needs and competitive environment Help sell them products/services that achieve Customers business objectives Add value in the relationship to their business by, for example, advising on issues Relevant to their business & giving them complete solution inplace of mere Help exploit market opportunities and identify new challenges Act with integrity and professionalism. 3

4 KEY ACCOUNT MANAGER TRAITS, ROLES & RESPONSIBILITIES A Key Account Manager is not a mere Sales Manager or Account Manager, this is not the role of only selling but it is all about long term relationship building & most importantly trust building between buyer & seller, as we aim to consider buyer should consider seller as partner, & in this thinking shift KAM manager plays very crucial role. KAM Manager TRAITS KAM Manager needs to have following traits 1. He/She must have Expert Product knowledge. 2. He/She must have Expert Product knowledge w.r.t. application of Key accounts technical process requirements. 3. He/She should have the knowledge of the key account s business domain & industry vertical. 4. He/She must be good in personal selling. 5. He/She must have eye on detail & should posses analytical brain 6. He/She must have problem solving approach 7. He/She must be good at relationship building 8. He/She must be good & comfortable at communicating at all levels of customer s hierarchy 9. He/She must have cross functional knowledge of complete business of both parties KAM Manager ROLES a)managing the account & current activities with smooth flow of operation at every level b) Building & developing relationships c) Developing industry knowledge pertaining to key accounts business sector d) Solving day to day problems at customer & at own end e) Selling, Negotiating f) Promoting company as brand & its business g) Quick internal communication 4

5 h) Managing Local, Regional & Global team of KAM Managers i) Training & education to customer who would be end user j) Other related activity KAM MANAGER - RESPONSIBILITIES To improve top line & bottom line significantly with respect to specific time, acquire & retain strategic customers. General Practise of Market is based on TRANSACTIONAL SALES SOURCE- accessed on 30 Dec 2012 METHODOLOGY Explorative Redesign Study is based on one of the Japanese MNC for which name is not to be disclosed (Industrial Instrumentation &Analyzer company) The researcher has its own 15 years of experience in the field &is a major input on which findings are based. Study period is around 3 years i.e. from Jan 2010 to Dec REVIEW OF LITERATURE- PROCESS OF DEVELOPMENT OF KEY ACCOUNT MANAGEMENT A. Segmentation B. Selecting Key Accounts &Categorizing Key Accounts C. Development Phases & Risks involved D. Profiting from Key Accounts 5

6 A. SEGMENTATION Segmentation means A market Segment is a grouping of customers with similar buying needs, attitudes & behaviours Here we see first joy & first headache Its all about making choices & that is the art & science of segmentation. How to go for Viable segment? Here are some test questions by which one can determine proper viable segment--- Is it large enough to justify focused attention? Are the customer s needs attitudes & behaviours similar enough to be distinguishable from other segments? Is it possible to design an appropriate Marketing Mix for the segment? Is the segment reachable? Can it be identified, measured, analyzed, communicated to, and sold to discretely from other segments? Positive answers, will take you close to freezing Viable segment. By preparing a different & specific marketing mix for each segment,the business ensures that it will meet the needs of each grouping of customers in more focused way. It enhances its opportunity for maximizing profits through premium pricing or differentiation or the offer of a lowest cost options-whatever the dynamics of the particular segment demands. Method of Segmentation- Customers Mapping method Who buys what? How? When? & Where? Answer will help in Viable segmentation. B. SELECTING & CATEGORIZING KEY ACCOUNTS We have to be careful in identifying key accounts & selecting them out from customer databank. Let us consider this matrix to figure out key accounts Attractiveness--- It consist two set of factors, do you like them? & theirs (Customers) do they like you? High Expectation of Returns High Key Development Account Key Account 6

7 Custo mer Attra ctive & ness & Alloc ation of Low Opportunistic Account Low High Relative Strength Maintenance Account Selection & Category decision can be done by following factors - - Size, Volume, Value, Profit Opportunity Growth Potential Ease of Access- Geographically & Openness Financial Stability-Credit Rating checking, future possibility of same credit rating Current Ratios, Profit Margin, Their Credit Period, Report about the same. Closeness of existing relationships Strategic Fit-Do they see the world the same way we do? Will they allow me to go where I wish to be? Are they early adapters? Do they pick up new ideas & experiment it? Or they wait for others to test it? Their market standing- Industry Leader or Follower, Prestige, Ethics, Image Competition- How competition placed? If less then its more attractive. Our own business plan alignment with Key accounts business inclination Are they in political stable environment? By this way one can find Customer attractiveness, Select it properly & categorize them for focused approach. *RELATIVE STRENGTH - - It means our strength in customer s eye & we have to access what are they looking for? This is really difficult task but following points will help us to derive Relative Strength from customers perspective. Price Service On time full measure or Just in Time requirement etc Technically innovative product Speed of Response Quality Value in use i.e. Value in supply chain, Total Acquisition cost etc Long term sustainability 7

8 Relationships & Attitudes Investment in the industry Trust & Confidence i.e. ethical standards & Behaviour Our (suppliers) image in his eyes in terms if reliability, flexibility etc Besides this we have to pay attention to Global Key Accounts Regional Key Accounts The Business Units Key Accounts The National Key Accounts Local-Sales Engineer s Key Account *Types of Accounts 1.Maintenance Account They are good customers & loyal to us kind of customers, but they give us very less margins, but we need such kind of customers to maintain our cash flows. 2.Opportunity Account- These are the customers we may not consider to service because they remember us only when they don t get any other suppliers & their buying frequency is almost negligible. 3.Key Development Account These are those accounts where we need to give more focus on making them eligible for Key accounts as they have great potential in terms of volume, profitability etc. Allocate higher resources on those accounts where our image building process is going on, which will benefit us in future. 4.Key Account- These customers are giving you maximum benefit & are critical to our future & they deserve energetic attention from KAM Managers to keep them on top of change. They are more susceptible than any others as our competition is also vying them always. C.a) DEVELOPMENT &PROGRESSION PHASES OF KEY ACCOUNT- 8

9 Phase 1- Basic Level- This is the phase of new customer acquisition, operational relationship gets developed wherein transactions are handled efficiently, smoothly & quickly. Phase 2- Co-Operation& Interdependence Level- Over the period of time with repeat orders, cooperation is done by both the parties for reduction of risk and enhancing ability to forecast, reduction in ordering costs, inventory carrying cost by JIT(Just in time delivery Model). We can club Interdependence phase here as this gives more confidence level to both parties as customer ask product without much assistance from his side as he trust suppliers capability. Phase 3- Integrated Level- In this phase, both the parties realise fullest potential. The characteristics of integrated key account management are; i) buying and selling processes/systems and strategies are integrated by both the key account buyer and seller, ii) there exists complementary and mutually dependent relationship between buyer and seller, iii) dedicated cross boundary, functional/project team is setup on both sides which are socially bonded. iv) There are high exit barriers for both the parties. v) Even if there is an exit by either party, the exit is traumatic, as substantial time, energy and resources are invested by both the parties. For a buyer, in order to change a supplier several types of costs are involved such as psychological, physical, and economic costs which may act as a barrier for switching. FINDINGS PROFITING from KAM - - Low Business development costs : Both the parties join hands and leverage their contacts to make new assignment successful as stakes of both are tied. Cost reduction & sharing on R&D front Cost effective design for New Products Right information at right place at Right time Reduced uncertainty Reduced Protection measures Better logistics management with proper supply Cost savings getting from most trusted partner Assured Quality of goods. Improved Supply Chain Efficiency Low investment high returns in less time Faster decline in costs to serve for key customers than for non-key customers Leading to improvements in Bottom Line Bonding/Improvements in relations with key customers Improvement in satisfaction ratings with key customers Loyalty strength increased, customer becomes advocate for us NON FINANCIAL BENEFITS of KAM : Good knowledge about customer requirements Leading to think for innovations, Out of Box thinking Ease in joint formulation of strategy thus managing the future Hassle free implementation and help from clients 9

10 Comfort in dealing with Key customers Better customer portfolio management leading to inclination towards us Top management support as when required C. b) RISKS INVOLVED EXETERNAL RISKS Price Pressure New technology demand always Key Customer s order book is down, so is ours.. *INTERNAL RISKS We may build capacity for key customer, but if he fails to lift that much material?? i.e. inappropriate asset building He may be opportunistic with us, can play with others Inappropriate strategy formation, driven by Key customers Above internal & external risks can be mitigated by applying proper care & mechanics. *RELEVANCE TO INSTRUMENTATION INDUSTRY Industrial process control & analytical industry s selling activity was always a challenge for every sales person, because it involves technical engineers as well commercial officers from purchase department. As customers are ever demanding on technological front, we need to have KAM Managers to address customer s concerns about pre & post purchase in terms of project management. BEFORE KAM Implementation in Instrumentation Industry SALES MANAGER PURCHASE MANAGER INSTRUMEN TATION MANAGER 10

11 AFTER KAM implementation in Instrumentation Industry - - SALES MANAGER PURCHASE OFFICE CONTACTS (All level) CORPORATE STRATEGY DEPT. KAM MANAGER INSTRUME -NTATION DEPT& PROJECT DEPT R & D DEPT. INSTRUME- NTATION FACTORY LEVEL CONCLUSIONS In my paper I analysed the business context of the Instrumentation industry and identified the need of introducing a managerial concept that would raise the customer inclination and profitability in highly competitive environment, & I found that Key Account Management (KAM) is the most appropriate technique to use for. An introducing of an KAM as an appropriate marketing-management concept would help the industry to increase its earnings, would offer to effectively concentrate on its customers, emphasising the partnership model based mutual benefit to both parties with optimum usage of resources considering limited resources available. 11

12 Strategic accounts & its ever increasing complexity can be addressed by KAM technique. Proper understanding of the Key accounts by KAM Managers will enable modern business corporations to address each individual accounts needs & develop solution as per the complex requirement of those demanding customers & derive financial value from them. References McDonald, M. and Woodburn, D. (2007): Key Account Management: The definitive guide, (2nd edn), Amsterdam, Elsevier Peter Cheverton (2004):Key Account Management Stephan Scheffman: Mastering Your Key Accounts (ebook edition) Some websites related to marketing 12