Key Account Management

An increasingly popular approach to marketing and customer service in many organizations is to identify key customer accounts that generate a significant proportion of revenue and assign them special attention and management. This is done to help ensure that the key account will be maintained and, if possible, grown. There are several general reasons for this practice, including, finances, customer relationships, increasing market share, and improving operational efficiency. However, key account management is not an inexpensive proposition and it is important that the provider develop criteria for choosing those customers or potential customers that will yield the highest return on investment for the key account management efforts. In addition, key account managers are much more than salespeople: They also have high levels of status and authority both within their own organization and with the customer; in this way, they can give the customer the attention it needs.

In today's world of increasing globalization and proliferation of high technology products, the opportunities for businesses are seemingly endless. However, in many industries, these same factors bring with them increased competition and the need to stay on the cutting edge in order to gain or maintain one's market share. A number of new marketing approaches have emerged that are designed to help organizations remain viable in this highly competitive environment. Strategic marketing is essential for developing a roadmap and measurable criteria of success for determining how to best market to increasingly sophisticated customers. This subfunction of marketing examines the marketplace to determine the needs of potential customers, the strategy of the competitors in the market, and attempts to develop a strategy that will enable the organization to gain or maintain a competitive advantage in the marketplace. Frequently, a business's strategic marketing plan is supported by an integrated marketing communications approach that combines and integrates multiple sources of marketing information (e.g., advertising, direct response, sales promotions, public relations) to maximize the effectiveness of a marketing campaign.

Identifying Customer Value

In most cases, in order for a business's marketing strategy to be successful, it is important not only to identify and acquire customers, but also to retain them. This is increasingly done by identifying customers that generate a significant proportion of the revenue for a salesperson or organization or have the potential to do so. This quality is frequently determined by estimating the customer's value, an estimate of how much a customer will spend with a business or brand. Analysis of customer value should include consideration of the depth, breadth, and duration of the customer's relationship with the business or brand as well as the cost to acquire, serve, and retain each customer. Another type of customer who may be designated as being key is one whose business is of strategic importance to the organization. For example, a customer for a new product line might be designated as key as might a customer who can serve as a crossover customer for both current products or services as well as those that the selling organization desires to market in the future. Although part of the philosophy of key account management is to build a portfolio of loyal key customers, an organization's key customers may change over time as other customers are acquired, the key customer's purchasing habits diminish, or the organization's strategic plan, target market, or offerings change. However, in general, it should be remembered that it typically costs more money to acquire a new customer than it doesretain an existing customer, whether or not that customer is "key" and the decision to designate any customer as not being "key" should be carefully made.

Key Account Assignments

Once these key accounts have been identified, they are typically assigned to a marketing staff member for special attention and management in order to help ensure that the key account will be maintained and, if possible, grown. Because of their strategic importance to the organization or salesperson, key accounts typically receive premium customer service in order to maximize customer satisfaction. Key account management is increasingly an important part of the marketing plan of many businesses. However, this approach to building a relationship with one's most important clients is not a quick fix. Key account management is a long term approach to building a relationship with a customer that can require up to 10 years to completely implement from identification of suitable account through achieving the full potential relationship with the key client.

Reasons for Implementing Key Account Management

According to research performed by Cranfield University's Key Account Management Best Practices Club, there are four primary reasons for organizations to implement this practice (Bruce, 2006).

• Approximately 30 percent of the businesses surveyed cited hard, financial reasons as the primary reason for implementing key account management.
• Another 25 percent of the survey sample responded that their primary purpose for using key account management was to improve relationships with their key customers.
• 20 percent responded that they were using key account management as a way to gain a greater market share than the competition.
• Another 20 percent citing the belief that treating key accounts differently results in better internal processes and higher operational efficiency.

In addition to these perceived benefits from key account management, the research revealed three additional benefits of the process.

• First, it was found that organizations that practice key account management tend to attract and retain higher quality personnel not only for the key account team, but also for related sales and marketing functions than do those organizations that do not implement such key account management.
• Second, the results of the review process with key customers frequently leads to process improvement not only for specific key accounts, but also throughout the organization as creative thinking becomes the norm and is more widely applied.
• Third, many organizations using key account management found that costs were reduced in serving non-key accounts.

Applications

Not every client -- including large ones -- is a good candidate for key account management. Key account management requires a significant investment to improve customer satisfaction and help ensure customer retention. Therefore, it is important that the provider develop criteria for choosing those customers or potential customers that will yield the highest return on investment for the key account management efforts.

Determining Good Candidates for Key Accounts

To determine which customers are good candidates for becoming key accounts, several things need to be considered. Key account management is most applicable to situations and clients where the development of a relationship between the buying and selling organizations will be of benefit to both parties. As shown in Figure 1, the likelihood of key account management success depends on the correlation between processes within both the selling and buying organizations as well as the complexity of the product or service that is being delivered. If both the account process and the product or service being delivered are complex and potentially offer optimal benefit for both organizations, key account management can be of benefit. On the other hand, if both the product or service being offered and the account processes are simple, transactional relationships tend to be more useful than the more relational key account management approach.

Factors to Consider

From the provider's perspective, there are several factors to be considered when determining whether or not a customer is a good candidate for key account management.

• Many provider organizations see sales volume as the primary criteria for determining key account selection. In many cases, this means that even if the account is not of future strategic value to the provider organization, the fact that it represents a percentage of the provider organization's revenue means that by definition it is a key account.
• A second criterion by which key accounts are often defined is their potential for future profit. In addition, many providers also use status factors as a criterion for determining whether or not an account should be treated as a key account. Many organizations, for example, covet Fortune 500 companies as clients not only because of their higher potential for high quantity sales, but also because they look good on the corporate resume and will attract other potential customers.
• Similarly, organizations that are attempting to introduce a new product line were to take their business in a new direction would tend to consider initial clients and new business area to be key accounts. For example, a hardware manufacturer that desires to add a software product line to their offerings would more than likely consider their first software customers to be key accounts.

Earning the Business of Key Accounts

Once it is determined that an account is a viable candidate for key account management, the next step is to examine the characteristics of the customer and how well their expectations can be met by the organization. Key account management -- with its emphasis on exemplary customer service -- requires much more from the organization than mere selling. In general, it has been found that customers want sellers to earn their business. They do not want to receive a hard sell, be romanced or handled, or receive generic solutions to their specific problems. Rather, customers want to work with businesses that are willing to be support team members and who will truly listen to their concerns in order to suggest or develop targeted solutions that will meet their specific needs. Further, customers look for consistently positive and supportive relationships from their providers. Variable levels of service quality do not help build key account relationships. No matter with whom the customer speaks within the organization, the service quality must always be consistently excellent. In addition, customers want to providers to be able to analyze the unique problems and offer a reasonable solution. This requires cooperation and teamwork not only between the providers marketing staff and the client, but also between the provider's technical staff and clients as well.

Customer Desires

Research has found several common themes recurring when customers talk about what they want from their providers (Maister, 1999). First, clients want providers who can actually make a positive impact on the way that they do business. This may mean helping the client organization think through their problems and develop strategies, or even leading their thinking. Frequently, this also means that members of the key account team need to be temporarily on-site at a client organization in order to better understand their problems and issues. Appropriate staff members from the provider organization should attend appropriate off-site meetings with the client in order to help them brainstorm about their business needs or sit in on problem solving sessions in order to offer support and solutions. Further, the provider and key account team should be willing to offer solutions on spec, rather than merely trying to force the client needs to fit neatly into the provider's standard offerings. In addition, members of the key account team should be proactive, offering solutions and can do that looking for future applications and offering solutions to the client before they are requested. It is also important that the key account management team understands the industry and milieu in which the client operates.

Benefits to the Customer

Like most business situations, key account relationships only work well when they are of benefit to both parties. From a client's point of view, key account relationships can improve the ease with which business can be done. Typically, key accounts are given streamlined processes that facilitate the clients' ability to do business with the provider. On the customer side, this translates into saved time and money. In addition, many buyers in key account relationships report that they are more likely to buy new products or services from existing suppliers with a track record for quality customer service. In addition, customers need to feel confident that they will receive the product or service that meets their needs before they make a purchasing decision. Key account management can help providers insure their customers that they will receive the quality of product or service that they desire. Another benefit of key account management from the customer's point of view is a higher-quality of customer service. When a customer service representative does not understand the product line, does not care about the customer's needs, does not answer technical questions adequately and accurately, or in general has a bad attitude, the potential customer is much less likely to make a purchasing decision in the provider's favor and current customers are much less likely to remain loyal. One of the emphases in key account management is customer service excellence.

To meet the level of customer service expected to be key account relationship, a key account manager needs to have a number of skills and characteristics. Key account management is much more than a sales relationship. Key account managers not only need expertise and skills in marketing, but often also in a wide range of other disciplines such as technical knowledge, knowledge of functional disciplines, the ability to work cross organizational boundaries, and the ability to work within different cultures. Key account managers are much more than salespeople: They also have high levels of status and authority both within their own organization and with the customer.

Characteristics of Successful Account Managers

Customers consistently cite several characteristics of key account managers (McDonald, Millman, & Rogers, 1997).

• First, customers expect both the key account manager and the organization which s/he represents to have integrity. As with any sound relationship, it is important that the key customer be able to trust the provider and its representative. Too often, salespersons can acquire a reputation for not looking out after the customer's best interests (e.g., using the "hard sell," trying to sell a product or service at the customer does not really need). In order for key account management to be successful, the customer must have confidence in the integrity of the key account manager and team.
• Further, key account managers and their teams need to have excellent communication skills both in one-to-one and in group settings. However, the ability to get the information across is in itself insufficient. Members of the key account management team also need to be personable and capable of developing a comfortable relationship with the customer. Another type of communication skill that is needed by the key account management team is skill in selling in negotiating. In the end, key account management personnel work for and are paid by the provider rather than directly by the customer. Although excellent customer service and is essential for good key account management, in the end in it is only a means to the ultimate goal: Earning revenue for the provider.
• In addition, the key account manager and team need to be knowledgeable about their products and services. Most customers need answers to detailed technical questions in order to determine whether or not a product or service is right for them. If they cannot acquire this information from the key account management team, then they are not receiving the customer service they need and deserve. However, knowledge of the provider's products and services alone is insufficient. The key account management team must also be knowledgeable in the customer's business and business environment. Key account management personnel are frequently asked to support customers in determining unique solutions for their specific problems. If the key account management team is not knowledgeable or comfortable in the customer's business environment, they will not be able to provide the necessary support and that the customer needs and expects.

Conclusion

Increasingly, key account management is used to help organizations that provide products and services to focus more attention on those customers and potential customers that can best positively impact their bottom line. Key accounts typically receive premium customer service in order to maximize customer satisfaction in an attempt to increase the satisfaction and retention of those customers who are best able to help the provider organization meets its strategic goals. Although key account management teams need never to lose sight of the fact that their goal is to make a sale, they are interested in this not only for the short-term, but also for the future. This means that key account management teams focus extensively on customer service and building a lasting relationship with those customers perceived as best being able to contribute to the organization's goals and bottom line.

Terms & Concepts

Globalization: Globalization is the process of businesses or technologies spreading across the world. This creates an interconnected, global marketplace operating outside constraints of time zone or national boundary. Although globalization means an expanded marketplace, products are typically adapted to fit the specific needs of each locality or culture to which they are marketed.

Key Account: A customer that generates a significant proportion of the revenue for a salesperson or organization (or has the potential to do so) or whose business is of strategic importance to the organization.

Key Account Management (KAM): The process and activities associated with managing key accounts with an eye toward customer retention. Because of their strategic importance to the organization or salesperson, key accounts typically receive premium customer service in order to maximize customer satisfaction. Key account management is also referred to as strategic account management (SAM).

Market Share: The proportion of total sales of a given type of product or service that are earned by a particular business or organization.

Marketing: According to the American Marketing Association, marketing is "an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders" (American Marketing Association, 2008).

Marketing Plan: A plan that specifies the actions that the organization intends to take to obtain customers for its proffered goods or services. The marketing plan includes the organization's marketing strategy, including such things as pricing, budget, specification of target markets, and intelligence about competitors.

Return on Investment (ROI): A measure of the organization's profitability or how effectively it uses its capital to produce profit. In general terms, return on investment is the income that is produced by a financial investment within a given time period (usually a year). There are a number of formulas that can be used in calculating ROI. One frequently used formula for determining ROI is (profits -- costs) ÷ (costs) x 100. The higher the ROI, the more profitable the organization.

Strategic Marketing: The subfunction of marketing that examines the marketplace to determine the needs of potential customers, the strategy of the competitors in the market, and attempts to develop a strategy that will enable the organization to gain or maintain a competitive advantage in the marketplace.

Strategy: In business, a strategy is a plan of action to help the organization reach its goals and objectives. A good business strategy is based on the rigorous analysis of empirical data, including market needs and trends, competitor capabilities and offerings, and the organization's resources and abilities.

Target Market: The people or businesses to which a business desires to sell goods or services.

Bibliography

American Marketing Association. (2008). AMA adopts new definition of marketing. Marketing Academics. Retrieved January 2, 2008, from http://www.marketingpower.com/content24159.php

Bruce, L. (2006). Key account management: Cracking the ROI enigma. Market Leader, 33, 12. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21278156&site=ehost-live

Davies, I.A., & Ryals, L.J. (2013). Attitudes and behaviours of key account managers: Are they really any different to senior sales professionals?. Industrial Marketing Management, 42(6), 919-931. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90422690&site=ehost-live

McDonald, M., Millman, T., & Rogers, B. (1997). Key account management: Theory, practice and challenges. Journal of Marketing Management, 13(8), 737-775. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4966994&site=ehost-live

Maister, D. H. (1999). Key account management. CPA Journal, 69(3), 62-64. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search. ebscohost.com/login.aspx?direct=true&db=bth&AN=1657 042&site=ehost-live

Salojärvi, H., & Saarenketo, S. (2013). The effect of teams on customer knowledge processing, esprit de corps and account performance in international key account management. European Journal of Marketing, 47(5/6), 9871005. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebsco-host.com/login.aspx?direct=true&db=bth&AN=88861667&site=ehost-live

Salojärvi, H., Saarenketo, S., & Puumalainen, K. (2013). How customer knowledge dissemination links to KAM. Journal of Business & Industrial Marketing, 28(5), 383395. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=88861415&site=ehost-live

Wießmeier, G.L., Thoma, A., & Senn, C. (2012). Leveraging synergies between R&D and key account management to drive value creation. Research Technology Management, 55(3), 15-22. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=74700134&site=ehost-live

Suggested Reading

Homburg, C., Workman, J. P. Jr., & Jensen, O. (2002). A configurational perspective on key account management. Journal of Marketing, 66(2), 38-60. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=6548623&site=ehost-live

McDonald, M. (2000). Key account management -- a domain review. Marketing Review, 1 (1), 15-34. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4389472&site=ehost-live

Ojasalo, Jukka. (2002). Customer commitment in key account management. Marketing Review, 2(3), 301-318. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=6673778&site=ehost-live

Piercy, N. F. (2006). The strategic sales organization. Marketing Review, 6(1), 3-28. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=20695291&site=ehost-live

-- & Lanae, N. (2006). The hidden risks in strategic account management strategy. Journal of Business Strategy, 27(2), 18-26. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21350189&site=ehost-live

Ryals, L. (2006). Profitable relationships with key customers: How suppliers manage pricing and customer risk. Journal of Strategic Marketing, 14(2), 101-113. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=20937024&site=ehost-live

Spencer, R. (1999). Key accounts: Effectively managing strategic complexity. Journal of Business & Industrial Marketing, 14(4), 291-309. Retrieved January 2, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=2200644&site=ehost-live