Strategic Customer Planning, 2006 Update (Hawksmere Report)

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STRATEGIC CUSTOMER PLANNING HOW TO DEVELOP AND IMPLEMENT A STRATEGIC ACCOUNT PLAN

Alan Melkman and Professor Ken Simmonds

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A Thorogood Report

STRATEGIC CUSTOMER PLANNING HOW TO DEVELOP AND IMPLEMENT A STRATEGIC ACCOUNT PLAN

Alan Melkman and Professor Ken Simmonds

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Acknowledgements This Report is dedicated to my wife Sue who has, by taking over the full weight of managing the day-to-day business pressures, allowed me to devote the time to research and write this Report. My particular thanks are also due to Tony Hoskins, Simon Lawson, Mike Purdue, John Tew and John Trotman who, despite being extremely busy people, managed to devote time to read the manuscript and to give me their invaluable comments. These not only helped to channel my random energies and thoughts into logical and understandable prose but also extended and built on the basic materials.

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The authors Alan Melkman MBA, BSc(Eng) is Managing Director of Marketing Dynamics Ltd, a qualified engineer and a graduate of London Business School. He specialises in customer and strategic account management, implications of Internet based technologies to the marketing and sales function, effective selling, strategic and marketing planning. He started his career as a design engineer with construction company, Haden Young, before moving to the USA where he gained interesting experience selling encyclopedias. Subsequently he worked in retail distribution with Fine Fare Ltd, and then worked as account manager, brand manager and finally as marketing manager in the European fast moving consumer goods market with W R Grace Inc. Alan has been a consultant for over 30 years, with substantial experience working for many organisations across a number of markets. He has conducted a wide range of public and in-house training programmes in Europe, East Asia and Africa, and has carried out a broad variety of assignments for several hundred substantial companies across varying cultures. He is the author of ‘How to Manage Major Customers Profitably’, a workbook published by Gower Press, and a number of articles. Alan is a highly rated speaker at Management Centre Europe, Hawksmere and Frost and Sullivan, where he speaks on a variety of sales and marketing management programmes. His clients include Unilever, Disney Consumer Products, Electrolux, Campari International, IBM, Compaq/Digital, CAP Gemini, Ciba Speciality Chemicals, Bayer, Rhodia, Dixons Stores Group, Boots, Royal Mail, BT and the London Stock Exchange. Ken Simmonds is a pioneer in the field of strategy and marketing and has worked as a consultant to some 400 firms from 30 countries. His clients have included IBM, LG, BP, Shell, Citicorp, Gazprom, Raytheon, Mosanto, General Motors, and Saudi Aramco, as well as many smaller firms. Ken is an active angel investor and has been a director of numerous companies, including British Steel and EMAP. Following ten years in business Ken completed doctorates at Harvard Business School and the London School of Economics and was a member of the small team that started the consultancy Arthur D. Little in Boston. Moving to the UK with ITT he set up the first UK teaching department in marketing at Cranfield and was the first professor of marketing at the Manchester Business School. He subsequently took over the Chair of Marketing at the London Business School and has been on the faculties of Harvard, Indiana and Chicago Business Schools. Ken’s casebook combining strategy and marketing is the first in the field and he was also responsible for introducing the field of strategic management accounting in 1980. Ken is currently working on strategy in new and emerging markets.

CONTENTS

Contents

INTRODUCTION

1

Defining the terms used in this Report ........................................................3 The role of the account manager .................................................................5 The major challenges of strategic account planning ....................................5 Strategic account planning – the key success criteria .................................6 How to use this Report ................................................................................7 Using the account development model to get the most from this Report ................................................................10

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THE KEY ACCOUNT PLANNING PROCESS

15

1. Introduction ..........................................................................................16 2. The purpose and benefits of the key account plan ................................17 3. The steps of key account planning ........................................................25 4. Key account vs. marketing planning ......................................................28 5. Using the key account plan ....................................................................30 6. The structure of the key account plan ...................................................31 7. The role of the customer ........................................................................33 8. Summary .................................................................................................34 Benchmarking the benefits obtained from the key account planning process ....................................................................35

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THE CUSTOMER FACT FILE

37

1. Introduction ...........................................................................................38 2. Structuring the fact file ...........................................................................39 3. Data capture ...........................................................................................43 4. Storing and accessing the data ...............................................................46 5. Managing information ............................................................................47 6. The account profile ................................................................................48 7. Summary .................................................................................................49 Benchmarking the customer fact file .........................................................50

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ANALYSING PERFORMANCE DATA

51

1. Introduction ...........................................................................................52 2. Internal assessment ................................................................................53 3. External assessment ...............................................................................67 4. Summary .................................................................................................80 Benchmarking your organisation’s ability to analyse performance data .....82

CONTENTS

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CUSTOMER RELATIONSHIP ANALYSIS

83

1. Introduction ...........................................................................................84 2. The customer base map .........................................................................84 3. Analysing customer relationships ...........................................................95 4. Using bonding mechanisms .................................................................102 5. Relating the customer base map to the customer relationship model ...107 6. Summary ...............................................................................................108 Benchmarking your organisation’s ability to conduct relationship analysis ...................................................................109

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CONDUCTING THE SWOT ANALYSIS

111

1. Introduction .........................................................................................112 2. The purpose of the SWOT analysis ......................................................112 3. Analysing strengths and weaknesses ....................................................114 4. Spotting external opportunities and threats ........................................117 5. The SWOT analysis ...............................................................................120 6. Summary ...............................................................................................122 Benchmarking your organisation’s ability to conduct SWOT analysis .............................................................................123

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PICTURING THE FUTURE

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1. Introduction .........................................................................................126 2. Developing a long-term vision .............................................................127 3. Setting account objectives ....................................................................128 4. Long-term objectives, goals and gap analysis .......................................142 5. Summary ...............................................................................................143 Benchmarking your organisation’s ability to develop good key account objectives ....................................................................145

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CREATING THE FUTURE

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1. Introduction .........................................................................................148 2. Characteristics of good strategies .........................................................149 3. Sources of competitive advantage ........................................................151 4. Competitive strategy development ......................................................152 5. Some examples of strategies ................................................................157 6. Tactical action planning .......................................................................178 7. Summary ...............................................................................................180 Benchmarking your organisation’s ability to develop good key account strategies and tactics ...................................................182

CONTENTS

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IMPLEMENTING THE KEY ACCOUNT PLAN

183

1. Introduction .........................................................................................184 2. Gaining internal commitment ..............................................................185 3. Gaining customer commitment ...........................................................191 4. Achieving excellence in implementation .............................................193 5. Implementing effective monitoring and control ..................................206 6. Summary ...............................................................................................209 Benchmarking your organisation’s ability to implement the account plan ....................................................................211

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ACCOUNT PLANNING FORMATS

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1. Introduction .........................................................................................214 2. An example of a completed account plan ............................................214 3. Account planning formats ....................................................................228 4. Summary ...............................................................................................248 Conclusion ................................................................................................249 Bibliography .............................................................................................250

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Introduction DEFINING THE TERMS USED IN THIS REPORT THE ROLE OF THE ACCOUNT MANAGER T H E M A J O R C H A L L E N G E S O F S T R AT E G I C A C C O U N T P L A N N I N G S T R AT E G I C A C C O U N T P L A N N I N G – T H E K E Y S U C C E S S C R I T E R I A HOW TO USE THIS REPORT USING THE ACCOUNT DEVELOPMENT MODEL TO GET THE MOST FROM THIS REPORT

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Chapter 1: Introduction The purpose of this Report is quite simply to explain and demonstrate ‘how to prepare and use a key account plan’ as an important step towards achieving ‘High Performance Account Management’. Industrial, consumer products and service companies face different challenges. This Report addresses these. Each chapter looks at one part of the planning process, explaining the methodology and planning techniques and structures, giving examples and providing formats and checklists to help the reader implement the key account planning process. Over eighty practical tools are provided.

This is a ‘how to’ Report. After reading those parts that are relevant to your business you will be able to compile a powerful, implementable customer plan that will work within your particular organisation for you.

The reader is encouraged to select his/her own personalised reading path through the material depending on the level of existing knowledge and the stage of development of key account processes within their organisation (see figure 4 in this introduction). By the end of the Report you will be able to compile a key account plan that will work in your organisation. The content is based on over 25 years of research and experience with key account practices in many companies, across different industries and geographic regions. This has revealed that key account planning is often conducted in an ad-hoc manner. Some companies only draw up revenue budgets and action plans for their key accounts, calling this process key account planning. Others will adopt a sophisticated process devoting considerable time and effort. Some companies’ key account planning processes can be described as ‘excellent’ and their experience and successful methods are included in this Report as exemplars of best practice. In this Report we examine the various steps of the key account planning process and look at ways of implementing each in a logical and structured manner. There are, of course, many different ways of planning for key accounts, but the virtue of the approach recommended herein is that it provides a template that systematically enables the account manager, and each member of the key account team, to share a common approach. This approach has been proved with many clients and is now the standard content for many public and in-company training programmes. In the first of the nine chapters the structure of the key account planning process is examined. The value it contributes to the business, the key steps in its implementation and their structures are also reviewed. Chapters 2 to 7 detail the various steps of the process. Starting in Chapter 2, with the collection and collation of

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INTRODUCTION

data in the customer fact file; then Chapter 3 moves to the analysis of sales, cost, and activity performance data. This leads to Chapter 4 which looks at the detailed analysis of customer relationships making use of the customer base map and relationship model; providing the inputs to the SWOT analysis discussed in Chapter 5. In Chapter 6 the account vision and objectives are discussed; which provides the direction for developing the account strategies, tactics and action plan covered in Chapter 7. Chapter 8 looks at the challenges of implementing the strategic account plan and gaining internal and external commitment to it. Finally, Chapter 9 gives a number of examples of customer plans demonstrating the methods and principles discussed in earlier chapters.

Defining the terms used in this Report There are many expressions used in this Report that some readers will be more familiar with than others. To avoid misunderstandings, ambiguities and frustrations the main terms are defined below: Customer The organisation that buys from the supplier. The customer may use what they purchase themselves or add value and resell it to their customers. Customers are also referred to as accounts. Key account Customers who by reason of their size, their purchases, or for other reasons are important to the supplying company and whose loss would have a noticeable, negative effect on the supplying company in the short, medium or long-term. End user The individual or organisation that uses or consumes the product or service. This may be the customer, the customer’s customer, the customer’s customer’s customer and so on. Decision making unit (DMU) The DMU is the group of people within the customer who together have an influence on and make the buying decision. Buying point The location that places orders on suppliers.

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Lifetime customer value The streams of revenue/profit and other value received from the customer over the period that the customer and supplier do business together. Lifetime supplier value The value of the streams of products and services received from the supplier that generate profit/revenue, reduce costs, improve efficiency or generate other benefits for the customer over the period that the customer and supplier do business together. Account manager An individual who holds primary responsibility for his/her company’s performance and results achieved with specific, named customers. The individual may be responsible for only a single customer or for several. Their performance will be assessed on the results achieved with the customer(s) for whom they hold responsibility. These results will depend not only on their own performance but also on how others in their organisation respond to and deal with the customer(s). In this Report the term ‘account manager’ is used synonymously for the different types of account manager job titles below. Account co-ordinator An individual who co-ordinates the efforts of a number of individuals in different parts of their company, often geographically dispersed, towards the customer with the objective of ensuring consistency of policy and service. They may or may not be held responsible for the results achieved with the customer. Key account manager Deals with the local buying/influencing points of large customers having several locations within a single country or a region in the country. National account manager Deals with the head office of a customer having several locations in one country. Regional account manager Deals with the regional head office of a customer located in several countries – a multinational or international company Global account manager Deals with the global head office of an international company. Strategic account manager Works in partnership with an important customer to develop and implement mutually beneficial strategies.

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The role of the account manager The job performed by the account manager varies between organisations. The objective, typically, is to work with the nominated customer to maximise its lifetime value to his/her company and to maximise the lifetime value of his/her company to the customer. To do so he/she will carry out a number of activities, including: •

Establishing and maintaining relationships throughout the customer’s organisation

•

Co-ordinating his/her firm’s activities and work with customer contacts to ensure that the trading process works smoothly

•

Understanding and communicating the customer’s needs, priorities and key initiatives within his/her organisation

•

Negotiating and obtaining orders/contracts

•

Preparing and implementing the account plan.

The major challenges of strategic account planning Preparing the strategic account plan is a non-trivial exercise. It is both challenging and time consuming. When done well it substantially enhances the power and impact of the key account management process with both the customer and internally within the supplier’s organisation, generating high returns on the time and energy invested. Amongst the main inhibitors and challenges to effective implementation of successful planning are: •

Collecting reliable information about the position of competitors in the individual customer account.

Example: One company achieved a significant

General competitor information is usually readily available but only of limited use. What is needed is detail about how each specific competitor is doing in the customer, what they have done historically and what they plan to do in the future. This needs both finely tuned antennae to detect productive sources of information and detective reasoning and deduction skills. We will examine these issues in detail in Chapter 2. •

Selecting the most appropriate strategy based on one’s own strengths and the competitor’s vulnerabilities.

improvement (20 per cent+) in profitability following the implementation of a systematic key account planning process. Most organisations that implement a key account planning system do not even bother to measure the results.

Developing the best strategy is partly the product of good analysis and systematic processes but equally of creative insight and innovation. In Chapter 7 both dimensions are examined and practical approaches are laid down.

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Getting the support of internal colleagues to implement the plan. The account manager will spend as much time as possible gaining internal support and resources to implement the account plan, as external customer support. Without it the plan remains an interesting, but ineffectual document, not warranting the time invested in it. Chapter 8 looks at this challenge and how to deal with it

•

Moving to joint planning with the customer. The key account planning process provides a valuable tool that, amongst other benefits delivered, helps to link the customer closer to the supplier. Only by helping the customer to achieve its objectives and implement its strategies in its marketplace will the supplier create real value. Chapter 7 identifies how to develop winning customer strategies and Chapter 8 discusses how to get the customer involved and how to obtain customer commitment.

Strategic account planning – the key success criteria At the end of the day how should the quality of the strategic account plan be judged and the success of the strategic account planning process be evaluated? Answering the following questions in figure 1 gives a good measure. A grand total score above 21 suggests that the organisation gains at least some benefit from the plan and the process that develops it.

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INTRODUCTION

Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

OCCASIONALLY

RARELY/ NEVER

4

3

2

1

1. Does the plan motivate and excite? 2. Does it generate internal commitment? 3. Does it generate customer commitment? 4. Does the plan generate greater confidence? 5. Is the plan regularly reviewed and the action refined? 6. Does the plan provide the focus for activity? 7. Does the plan enable more to be achieved than without it? Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column GRAND TOTAL

Figure 1: Assessing the benefits of the key account planning process

How to use this Report Do not read this Report from beginning to end. Rather, select those sections that are of most use to you. It is important to appreciate that the adoption of customer or account management is a journey, not merely an organisational arrangement that treats important customers differently to the others. Some companies will have progressed further in their journey than others. The intention is to focus the reader on those parts of this Report that are capable of being implemented at the stage of development that their organisation has reached. To help the reader to identify how far their organisation has travelled along its account management journey, the following development model is used.

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Key account development model Typically, organisations adopt account management in a number of steps, evolving through four stages, as shown in figure 2. Stage 2: Account management

Stage 3: Category management

Stage 4: Total customer management

•

Reliance on personal relationships

•

•

•

Integrated systems with customer

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Transactional, shortterm deal focused

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Many joint projects being implemented

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Features and benefits selling

•

•

Focus on brands/ individual products

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Many small customers

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Joint acceptance that customer and supplier have shared interests and can achieve more together

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A senior manager on each side heads relationship

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All the resources needed to deal with the customer are brought together in one function

•

•

•

Negotiation is a core constituent of the relationships

Customer focusing on categories in preference to individual product/ service purchases

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Prices come under pressure

Long-term horizon to customer relationships

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Account profitability is beginning to be used and understood

Supplier performance measured and standards set

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Increasing individualisation of offers

A few joint projects to enhance mutual benefits

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Consultative selling becomes more important

Account manager role becomes more senior

•

Individual customer strategies developed

Maximising sales to the customer

Helping the customer to obtain maximum benefit

Developing long-term strategic partnership

Figure 2: Stages of development of key account management – the road map The main features of the relationship are described together with the main supplier objectives for each stage. Stage 1: Sales management When markets/industries are young and growing, they will generally be made up of a relatively large number of companies, none of whom will be very large or powerful. No single customer will be sufficiently important that its loss to a competitor would do significant harm to the supplier. At this first stage, a company’s typical approach to its customers will be to operate a geographically dispersed, area based, field sales structure. In time, this will evolve as some accounts become more important and a local key account approach will emerge. Stage 2: Account management At this stage, typically, large customers will be purchasing at a number of locations around the country. As these customers grow and generate an ever-increasing proportion of total revenue, together they will reach 20 per cent plus of total

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Supplier objectives

Selling the product

Top 10 customers account for in the region of 20%+ of revenue

Features of the relationship

Stage 1: Sales management

INTRODUCTION

sales, and responsibility for them will move higher in the supplying organisation to regional and national level. It is at this stage that more formal account management structures are created. Typically, large customers will be the responsibility of national account managers. Initially, an account manager may look after several important customers, but as the workload increases, the number of customers will reduce until the account manager is solely responsible for a single customer. At the same time multinational customers begin to leverage their international power to more efficiently source products and services. In response, regional and global account management structures are created by suppliers to co-ordinate the offerings across all the customer’s operating and purchasing locations.

Example: Category management – Consumer goods company For a retail customer this might mean looking at the whole canned vegetable category and

Stage 3: Category management Over time relationships between customer and supplier broaden and deepen. The challenge is to ensure that increasing benefits accrue to both sides from the trading relationship. Customers will begin to take a category management approach focusing on a whole group of related products and services, rather than looking at each in isolation.

seeking to increase sales and

For suppliers it means that they must move beyond managing brands and products to managing related sets of products, category rather than an services and brands that comprise a category. The challenge is individual brand or variety. to present an integrated category offer to the customer rather than a number of, apparently, unrelated brand/product offers. Working with the customer, the account manager aims to increase the value obtained by the customer. For a supplier, the category management approach goes beyond considering merely their own offerings to include also those of competitors or other third parties. This becomes increasingly complex as the quantity of data and the depth of analysis increases. average margins on the whole

Stage 4: Total customer management As additional resources are needed to manage the relationship from both sides, more and more dedicated staff are allocated to it. Increasingly a total customer management approach is adopted as these resources are brought together in one function. Headed by an account/customer director, the function can include regional account managers, operations, finance, marketing, research and HR staff and may even have it’s own dedicated product supply and manufacturing resource.

Example: Category management – Industrial goods company For an industrial raw material buyer this may mean looking at a mix of raw materials and optimising the mix depending on price, quality and availability rather than doing the best deal on any particular ingredient. It will also mean considering potential economies in the supply chain and increasing the efficiency of product usage.

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Using the account development model to get the most from this Report To use this Report most effectively a three-step approach should be taken. Step 1: Identify the stage reached by your company on the key account road map The above descriptions may be sufficient for the reader to identify the stage of development of their organisation along the roadmap. However, for those who wish to adopt a more rigorous approach, the benchmarking checklist shown in figure 3 should be used. The result indicates how far along a particular stage the company has travelled. For instance, a score of 25 would suggest that the company is coming towards the end of Stage 2 – Account management and is ready to begin to move into Stage 3 – Category management. Step 2: Check the sections of each chapter most relevant to your organisation’s stage of key account development Once the score and therefore the stage of development is established, reference should be made to figure 4, the account planning road map. This shows the numbered sections of each chapter that are most relevant to that stage. For example, if a score of 20 is obtained on the benchmarking checklist (figure 3), a line should be drawn down from that point on the score line at the top of figure 4. This is shown as a dashed line. The sections of this Report that should be read are the ones that the dashed line touches. In chapter 1 these are Section 2.3 – Improving negotiation outcomes; Section 2.7 – Inputs to the company plan; Section 2.4 – Thinking out of the box; and Section 3 – The steps of key account planning. The same process is used to determine which sections to read in chapters 2 to 8. It is also wise to check that the sections from previous stage(s) of the road map are well understood and implemented. The reader should not however, feel constrained to just refer to the specified sections. Use the personal reading path form shown in figure 5 to determine how you will cover the material in this Report. Step 3: Benchmarking your company Chapters 1 to 8 discuss each step of the planning process. At the end of each, the reader can benchmark her/his own organisation by means of a checklist. This will indicate how well the organisation is progressing on that particular aspect of customer planning. The scores are split into four bands. Each band is indicative of one of the development stages, from Sales management (lowest scores) to Total customer management (highest scores). If, for your own organisation, it appears that the individual section score is lower than the overall position of your company on the road map would suggest then, as a priority, performance needs to improve in this area. Conversely, if a partic-

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ular aspect scores more highly than your company’s overall position on the road map would suggest, then it may be too good, and perhaps your company is devoting too much resource to it. A case can be made to reduce the amount of effort put in, until the remainder of the account planning process catches up. Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

TO SOME EXTENT

RARELY/ NEVER

4

3

2

1

1. All the resources needed to deal with key accounts are dedicated to this task and are responsible to the account manager 2. A broad relationship involving many people on both sides exists between my company and its key accounts 3. The customer management functions operate smoothly with the operational, marketing and other functions in my company 4. Each function has a clear understanding of their objectives for individual key customers and how it fits into the overall strategy 5. A category approach is adopted in my company and in dealing with the customer 6. There are many joint projects operating with key accounts 7. Our information systems provide regular, detailed and accurate information on all dealings/interactions with each key account, on our and their competitors and on our and their markets 8. Costs and revenues attributable to each key account are established and allocated and account profitability is a key tool in managing key accounts 9. My company’s systems are integrated with those of the customer and vice versa 10. The account manager position is regarded as a very senior one in my company that carries weight Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column SCORING:

GRAND TOTAL

34 – 40 points

Your company is adopting a Stage 4 – Total customer management approach

26 – 33 points

Your company is adopting a Stage 3 – Category management approach

18 – 25 points

Your company is adopting a Stage 2 – Account management approach

10 – 17 points

Your company is adopting a Stage 1 – Sales management approach

Figure 3: Benchmarking your company’s stage of account management

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Chapter 8 Implementing the key account plan

Chapter 7 Creating the future

Chapter 6 Picturing the future

Chapter 5 Conducting the SWOT analysis

Chapter 4 Customer relationship analysis

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3.3 Customer health check

5.4 Controlling the plan

4.2 Team working

4.1 Project management

3 Gaining customer commitment

2 Gaining internal commitment 5.1 Reporting systems

3.5 Customer’s competitors

5.2 Supplier positioning strategy

4 Long-term objectives, goals and gap analysis

40

Figure 4: Key account roadmap

5.2 Project reporting

5.3 Reviewing the team

4.4 Training and development

4.3 Leadership and motivation

5.1 Category and product strategy

5.6 Customer information strategy

4.2 Generating creative strategic ideas

4.1 The strategy development process

5.5 Communication and contact strategy

6 Tactical action planning

5.3 Pricing policy

3 Sources of competitive advantage

Stage 4: Total customer management

3.4 Business environment

3.1.2 Tracking customer priorities

3.3 Customer’s market and customers

5.4 Service strategy

5.5 Communication and contact strategy

2 Characteristics of good strategies

34

4 Storing and accessing data 2.1.7 Customer’s competitors

3.4 Determining profit objectives

3.5 Setting supporting objectives

3.3 Setting sales objectives

2 Developing a long-term vision

4 Spotting external opportunities and threats

3 Analysing strengths and weaknesses

3.1 Major and supporting objectives 3.2 SMART objectives

4 Bonding mechanisms

3 Analysing customer relationships

2 Customer base map

3.2 Competitor analysis

3.1 Customer analysis

33

2.6 Really understanding the customer

2.6 Service performance analysis

2.5 Cost and profit analysis

6 The account profile

2.3 Contact base and buying process analysis

2.4 Activity analysis

2.2 Payment analysis

2.1.3 In-customer activity

26

2.1.6 Customer’s customer and market

2.1.5 Competitors in customer

2.1.4 Customer profile

25

Stage 3: Category management

2.5 Co-ordinating the account team 2.8 Long-term consistency

3 The steps of key account planning

2.4 Thinking out of the box

2.7 Inputs to the company plan

2 The purpose of the SWOT analysis

2.1 Sales data

3 Data capture

2.1.2 Trading history

2.1.1 Internal data

17 2.3 Improving negotiation outcomes

4 Plan structure

2.2 Claiming resources

2.1 Monitoring progress

Stage 2: Account management

CUSTOMER

Chapter 3 Analysing performance data

Chapter 2 Customer fact file

Chapter 1 Account planning process

Score 10

Stage 1: Sales management

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INTRODUCTION

Use figure 5 below, entering your company’s benchmark score and account development stage from figure 3 and the sections of each chapter identified in figure 4, the account development road map, to develop your personal reading path through this Report.

Benchmark score:

Account development stage:

Priority sections to read:

Previous sections to check:

Subsequent sections that may be of interest:

Your notes:

Figure 5: Your personal reading path I hope that you find this Report both useful and interesting. It includes material that has not been put into print before. If putting it into practice proves problematic then please contact me at: [email protected] and I will be only too happy to help if I can. You can download copies of the many forms and tools contained in this Report at: www.marketingdynamics.co.uk

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The key account planning process 1. INTRODUCTION 2. THE PURPOSE AND BENEFITS OF THE KEY ACCOUNT PLAN 3. THE STEPS OF KEY ACCOUNT PLANNING 4. KEY ACCOUNT VS. MARKETING PLANNING 5. USING THE KEY ACCOUNT PLAN 6. THE STRUCTURE OF THE KEY ACCOUNT PLAN 7. THE ROLE OF THE CUSTOMER 8. SUMMARY B E N C H M A R K I N G T H E B E N E F I T S O B TA I N E D F R O M T H E KEY ACCOUNT PLANNING PROCESS

chapter

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Chapter 1: The key account planning process

1. Introduction There are many phrases that organisations use to describe their most important customers including strategic accounts, priority accounts, national accounts, regional accounts, international accounts and global accounts. Here we refer to them all as simply key accounts or key customers. All firms using this method to manage their customer base have made the important strategic decision to put individual customers at the core of their business; although the extent to which this is implemented in practice will vary widely. Whilst acknowledging that there are differences in scale, scope, complexity and organisational commitment to the different types of customer management approach, the core planning challenge has significant commonalties. A recent survey1 showed that the single most important issue where companies lacked confidence in the account management system is that of account planning. The responsibility for instilling confidence and for grasping the planning challenge lies with the account manager. For many companies key accounts represent a considerable proportion of their total sales and hopefully, also their profit. Success with them is fundamental to the company’s overall success in the marketplace. Yet many approach planning for these important customers in a manner that does not go beyond the setting of sales targets and the pencilling-in of short-term promotional and sales activity. Whereas this approach is acceptable for non-strategic accounts, it leaves a supplier vulnerable to competitive encroachment with its most important customers. In practice, the overall success of the company is linked directly to its success with its major customers. For these key customers, the supplier must develop a long-term strategic perspective. Indeed, for many suppliers, their ability to develop and maintain sustainable long-term competitive advantage in the marketplace boils down to their ability to do so with their major customers. Key account planning therefore, requires as powerful a set of tools and as incisive a degree of analysis as the strategic corporate and marketing planning processes, if not more so.

1 Benchmarking Strategic Account Management Effectiveness, Strategic Account Management Association, 2000

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Some of the key issues that senior management must address include: •

How frequently should the account plan be compiled?

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What process is best suited to my company?

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Who should be included in the process from the supplier’s side?

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Who, from the customer, should be included?

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How much of the process should be bottom-up, and how much top-down?

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Who should lead the process?

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What approval/review process should be adopted?

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How should account plans link to operating and strategic plans – should they precede or succeed them?

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Should a common format be used for the plan or should it reflect the uniqueness of each customer and their market?

It is almost trite to say that companies who truly take marketing as their guiding philosophy put the customer at the centre of their business. Since key accounts are the most important customers, there can therefore be no more important task than the development and implementation of strategic and tactical key account plans.

2. The purpose and benefits of the key account plan The main reason for compiling key account plans is that they should produce better results in terms of sales and profit for the company. However, a number of additional benefits are described below. Guidance is provided to enable the reader to assess his/her own organisation’s present performance and the extent to which it is fully obtaining each benefit in practice. These outputs can be brought together in figure 1.5, which will then provide the basis for improving the use of the key account plan. 2.1 Monitoring progress Key account planning is about deciding what should happen, by when, by whom and to what result. This sets up a number of milestones, usually on a monthly/period basis that facilitate the tracking of progress throughout the implementation period, providing the starting point for feedback and control which is discussed fully in Chapter 8. Nevertheless, there are a number of process issues shown in figure 1.1 that need to be considered at this early stage.

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ISSUE

SCOPE FOR IMPROVEMENT

How precisely are milestones identified in the plan? How well are milestones integrated into the progress monitoring process? How effectively is data on progress obtained? How accountable are individuals for the achievement of milestones?

Figure 1.1: Progress measurement issues A judgement should be made on how well each issue is addressed by the company and an assessment made of the scope for further improvement, if any. 2.2 Claiming resources The planning process, through the requirement to get the plan signed off by senior management, provides the platform for the key account manager to stake his/her claim on the resources, people and budget, needed to achieve the account objectives. This is critical because it is unlikely, except in organisations that are well down the path of implementing an integrated strategic account management organisation, that the account manager will have direct control over the key resources needed. Particularly important will be the time inputs needed from other people. This may include time from development engineers, IT system software programmers, product managers and so on who may need to contribute to implement the account strategy.

Example: Having gained acceptance and sign-off to the key account plan at senior level, the account manager found that the agreed product development resource was not forthcoming. The fact that the development director had committed himself to the plan allowed the account manager to go back to him and remind the individual of their earlier commitment.

The plan itself will identify the resources required. There are a number of ways in which this commitment might be obtained, including:

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The line authority of the senior managers involved in the plan approval process will legitimise the requirements for their inputs

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Their involvement in developing the plan will encourage them to provide the time

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Informal networking with key individuals to make them aware of the contribution required.

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2.3 Example: Having understood the customer’s priority need to reduce their headcount, the account manager was able to offer, as a significant concession, ‘conduct of acceptance testing procedures in line with the ISO 9001 requirements’. This saved the customer the equivalent of one full time quality assurance person. Fortunately, it did not significantly increase the supplier’s costs as this was a normal part of their offering.

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Improving negotiation outcomes

The planning process requires a broad understanding of the customer’s situation. As a result the account manager is in a much better position to work towards win-win outcomes during negotiations. With the total picture in mind, it will be easier to broaden the issues comprising a negotiation beyond that of price to include concessions that will facilitate progress across a number of fronts.

One preparatory activity that the account manager might undertake before going into a negotiation with the customer, over and above the normal negotiation planning, is to review the plan. This will help identify any other requirements, not directly associated with the negotiation issues, that might be obtained as concessions from the customer or given in return. For example, obtaining information in an area where the account plan is weak, or gaining an introduction to a new contact in another part of the customer. 2.4 Thinking out of the box Used badly the account planning process merely records activity which would have, in any case, been carried out. Used well, it provides the opportunity for the account manager to stand back and take an objective look at all the aspects of the customer and competitors and to develop strategies that use the supplier’s unique competencies to gain competitive advantage with the customer. This often requires that creative new solutions be developed necessitating new thinking and getting ideas from the members of the account team. Creative ideas can be generated in a variety of different ways. figure 1.2 highlights some of the main ones and provides a checklist for identifying the extent to which they are used. None of these methods are guaranteed to generate good ideas but they do increase the likelihood of so doing and some also provide a good way of getting others involved. The extent to which each method is used needs to be identified and the degree to which it would be worthwhile using it more can be assessed.

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METHOD

EXTENT OF USAGE

WORTHWHILE USING MORE?

Brainstorming Questioning assumptions Mind mapping Finding analogies Using analytical techniques SOURCES OF IDEAS Colleagues and other employees Customers (buyers/users) Competitors Suppliers Journals, newspapers, books Consultants/academics Seminars, conferences Employee suggestion schemes

Figure 1.2: Methods and sources of new ideas

2.5 Co-ordinating and leading the account management team Effective key account management requires inputs from many different functions within the supplying organisation. As well as the key account manager, development, operations, training, presales, marketing, finance, post sales, quality control and other staff are likely to be involved. The planning process provides a means for getting inputs from the team, including them in its development and gaining their commitment to the resulting customer strategy and approach. This should both increase motivation and provide a common direction and focus of effort. Figure 1.3 provides a format for identifying whom, on the supplier side, is involved and the degree to which they impact on the customer. This impact is assessed specifically in relation to the development and implementation of the overall policy towards the customer, setting service standards, generating

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Example: A supplier of speciality and commodity chemicals identified that their business unit marketing personnel were not involved in the customer planning process. Rather, they handed down their requirements and then left it up to the account managers to meet their needs. This put the account managers at a significant disadvantage that impacted negatively on their company’s success. The analysis (Figure 1.3) highlighted the importance of the marketing function and the need to get them involved in a more substantive manner.

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Name of individuals involved with the customer

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Identify the degree to which each individual impacts (Imp) on the key account and the extent of their involvement (Inv) in planning High = H, Medium = M, Low = L Policy Imp

Inv

Service Imp

Inv

Revenues Imp

Inv

Costs Imp

Inv

Other Imp

Inv

Sales/customer management function:

Marketing function:

Pre-sales functions:

Post sales functions:

Operations:

Logistics/supply chain:

Research/innovation:

Figure 1.3: Identifying who is involved and their impact on the customer

revenues, or incurring costs. The last column headed ‘Other’ captures impacts that do not fit into the other columns. The extent to which each individual or their boss is involved in the planning process can then be assessed and a judgement can then be made as to whether this level of involvement is appropriate in relation to their impact. Attention needs to be focused on those individuals who have a high impact on the key account but low involvement in the planning process.

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The vision provided by a good account plan enables the account manager to provide an additional motivational dimension that is able, if used well, to galvanise and excite people. The extent to which the account plan is used to provide direction and leadership must be carefully planned. 2.6 Really understanding the customer The thorough analysis that provides the bedrock for the development of a sound key account plan will improve the understanding of the customer and should give additional perspectives into the issues the customer faces. This starts by identifying the primary customer contacts and, as the relationship develops, building a network of secondary contacts. Greater insight should be obtained of the customer’s perception of the category in which the supplier operates and the total solution they require. A category being the class of purchases as perceived by the customer that addresses the problem that the supplier’s offerings fit into. It should give a deeper comprehension of the key account’s customers, markets, objectives and strategies and the particular combination of values they require from a supplier in the category.

Example: A supplier of flexible packaging material saw no reason to try and understand his customer’s market until one day he was asked by them to develop a more flexible, soluble material that was to be used as a part of the product itself. The customer was attempting to develop a product to take advantage of changing consumer requirements and lifestyles. Had the supplier understood this better, his own development processes would have been further advanced and he would have been able to prevent a new competitor gaining a foothold.

Naturally, customer needs and requirements evolve and change. In Chapter 2 the various sources of data that give an insight into needs and requirements are discussed. However, the data will not be very helpful until it is reviewed and analysed, turning it into information that allows conclusions to be drawn. The ultimate objective is to gain increasing insight into the customer. The extent to which the process of development of the key account plan is really used to generate these insights can be assessed using figure 1.4 where the depth on insight obtained (High, Moderate, Low) and any scope for improvement are identified. ISSUE

DEPTH OF INSIGHT GENERATED (H, M, L)

SCOPE FOR IMPROVEMENT

The amount of analysis carried out The analysis frameworks used The amount of customer involvement The use of mechanisms to enhance creativity

Figure 1.4: Depth of customer understanding

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2.7 Inputs to the company plan Senior management sets the overall top-down objectives and strategies for the company. The key account plan provides bottom-up inputs to the company plan. Since key accounts are so important, their needs and requirements will have a significant influence on the company plan. The total of their sales and profit contribution will be a significant proportion of the company’s planned total and will provide a reality check on them. 2.8 Long-term consistency of approach With the natural turnover of staff dealing with the key account, the account plan provides a means of ensuring a consistency of approach. It allows new people joining the account team to quickly build up an understanding of the customer and the issues being faced. A common view is communicated of the account objectives and the direction in which the account is being taken. Without an account plan being in place, the customer will have the advantage when there is change in the supplier’s staff and there will often be a tendency to ‘reinvent the wheel’. 2.9 Improving the use of the key account plan To improve the worthwhileness and the resulting benefits obtained from the development of the key account plan, the eight issues considered above, in sections 2.1 to 2.8, need to be reviewed together. Figure 1.5 gives a suitable template to enable this to be done and to identify specific actions that should be taken to improve it.

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KEY ACCOUNT PLANNING ISSUES

HOW WELL IS THE PLAN USED TO:

IMPLICATION FOR IMPROVING THE ACCOUNT PLANNING PROCESS

Co-ordinate the account management team

Stake a claim on the resources needed

Encourage creative, ‘out of the box’ thinking

Provide the basis for tracking performance

Really understand the customer

Improve negotiation outcomes

Show leadership by the key account manager

Provide inputs to the company plan

Ensure long-term consistency of approach

Figure 1.5: Benchmarking and improving the key account planning process

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3. The steps of key account planning Although it should be regularly updated, compiling the key account plan is an annual process. It is one part of the total planning cycle as shown in figure 1.6.

Compiling the plan

Controlling the plan

Agreeing the plan

Implementing the plan Monitoring the plan

Figure 1.6: The key account planning cycle Once compiled and brought together, the plan needs to be agreed with senior management. This may be a straightforward process just involving the account manager’s boss, but often it is more complex. The plan should be presented to those managers who have control of the resources that are needed to implement the plan. Once agreed, the plan is implemented and results monitored against the plan. Where there are significant variances between planned and actual performance, control is exercised. In particular, do additional/different activities need to be implemented to bring results achieved back on plan or have significant underlying assumptions changed so much that the plan is no longer valid? These practical issues will be discussed in greater depth in Chapter 8. In embarking on the key account planning process, it is useful for the account manager to draw up a small project plan, such as that shown in figure 1.7 overleaf.

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ACTIVITY

COMPLETED BY

1. Receive planning guidelines 2. Hold first planning meeting 3. Conduct situation analysis 4. Hold second team meeting, review analysis, develop account vision 5. Develop objectives, strategies and activity plans 6. Hold third team meeting and finalise plans 7. Present plan to management board 8. Plan approved and signed off 9. Internal launch of plan

Figure 1.7: Example of planning timetable

The seven steps to create the account plan are shown in figure 1.8. Although the process is apparently linear and sequential, it tends in practice to be an iterative one. The first step is to access and update information about the customer in the customer fact file. Maintaining this information is an ongoing process feeding off many sources of data. It requires an efficient data capture system and an easy to access database for storing the information. Steps 2 and 3 are concerned with analysis of the customer data within the context of the overall planning guidelines provided by top management. These will include company objectives and key strategies. Step 4 brings Steps 2 and 3 together in the form of a Strengths, Weaknesses, Opportunities and Threats analysis (SWOT) which is the key to developing a good plan. As this part of the planning process is often poorly implemented a whole chapter (Chapter 5) is devoted to it. Next, account objectives need to be set. This is covered in Step 5, Picturing the future, whilst Step 6, Creating the future, is concerned with developing strategies and tactics. In practice, objective setting and strategy development go hand-in-hand, one influencing the other. It is therefore an iterative process. Finally, Step 7, Implementation, is the culmination of the planning process. Unless this is done well, much of the time and effort put into developing the plan will have been wasted. The key issues for the key account manager are shown for each step. These will be explored later in the relevant chapters.

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PLANNING STEPS STEP 1: The customer fact file Compile account profile Management plannng guidelines

STEP 2: Analyse performance data Internal assessment

External assessment

STEP 3: Analyse relationship data Prioritisation assessment

Relationship analysis

STEP 4: SWOT analysis

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KEY ISSUES • Sources of data • Keeping up-to-date • Accessing data • Confidentiality of data • Accuracy of data • Gathering data

• Computer skills • Data reduction skills • Use of analytic techniques • Drawing of valid conclusions • Time available • Separating the ‘important’ from the ‘interesting’

• Maintaining objectivity • Agree methodology for prioritisation assessment • Common model to describe relationships • Getting inputs from others

• Identifying real strengths and weaknesses • Spotting external opportunities • Doing it from a competitor and customer perspective also • Using it to develop objectives and strategies

STEP 5: Picturing the future

• Creating the vision and setting goals • Separating main and subsidiary objectives • Setting measurable qualitative objectives • Making them SMART

STEP 6: Creating the future

• Using the SWOT analysis to develop the strategies • Finding sustainable competitive advantage • Being creative • Maintaining focus

STEP 7: Implementation

PROCESS

• Action plans • Clear accountabilities and timescales • Gaining the commitment of the team • Monitoring and control

Figure 1.8: The seven steps of compiling the key account plan The relationship between the overall vision/goals for the account and the objectives, strategies and actions is shown in figure 1.9. The vision is a long-term view of where the supplier would like to be with the customer. The goals are the longterm objectives that need to be achieved to realise the vision and the objectives

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are the annual targets for the next year. Each goal/objective will be achieved through pursuing one or more strategies, which will be implemented through the tactics and action plans.

ACCOUNT VISION

Goal 1

Goal 2

Goal 3

Objectives 1, 2, 3

Objectives 4, 5, 6

Objectives 7, 8, 9

Strategy A

Strategy B

Strategy C

Strategy D

Strategy E

Strategy F

Strategy G

Strategy H

Tactics and action plans

Figure 1.9: Vision, goals, objectives, strategies, tactics and action plans

4. Key account vs. marketing planning The question might be asked as to the difference between marketing and key account planning, in so far as they both appear to go through similar steps. One key difference is in the consideration of the complexity of the relationships that exists between the key account and the supplier. Individuals need to be considered together with all the political and interpersonal implications. Whilst a marketing plan makes certain averaging assumptions about the needs of customers in each market segment and the impact of competitors, the key account plan is much more specific to an individual customer with its own set of distinctive needs and requirements and competitive situations. That an individual customer may contain many buying centres (decision making units) makes no difference. Each must be considered and analysed in detail. Naturally there are dependencies between the two. As shown in figure 1.10 the key account plan needs to take as inputs the strategies and tactics determined in the marketing plan. These may include the development of new products and markets, the repositioning of brands, pricing policy, the extension and development of services

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and programmes of advertising and promotion. However, these strategies and programmes may be determined, perhaps partially, perhaps wholly in response to the needs and requirements of the key customers. At the start of the annual planning round top management needs to communicate a set of planning guidelines including: •

Company/divisional objectives – revenue, profit and return on investment

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Key investments to be made

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Assessment of likely economic and market conditions

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Important market and supply issues

Marketing plan

• New product/service requirements • Service requirements • Product development schedule • Systems requirements • Communication programme

Competition

• Pre/post sales requirements

• Pricing policy • Pricing structure requirements • Distribution policy • Supply chain requirements

Key account plan

Figure 1.10: The interdependence of the marketing and key account plans Whilst the marketing plan considers the impact, strategies and resources of all the competitors in the market as a whole, the account plan only considers those competitors active in the customer.

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5. Using the key account plan In Section 2 of this chapter a number of benefits of planning for key accounts were identified. If these are to materialise then great care must be exercised, both during the account planning process and in how the plan document is subsequently used. Four core principles need to be adhered to: 1. The development of the plan should be an inclusive process. It is not the result of a sole effort, albeit a Herculean one on the part of the key account manager. Rather, it needs to involve all those who will have an impact on the customer. Some individuals, such as the credit controller or the delivery driver who impact on the customer in a limited, though important way, may have views on how their interactions with the customer could be improved. They should be consulted and their opinions and suggestions solicited. Others, including those servicing the account at local level such as development engineers, programme managers, installation engineers, who have more intimate contact need to be more deeply involved. Where there are local account managers involved then they will need to develop plans for their areas of responsibility, which must then be dovetailed into the overall plan. The key account planning process must incorporate team meetings (actual and virtual) lubricated through e-mail and the whole process must be project managed by the key account manager. 2. The plan, once formulated, must be communicated. As discussed in Section 2.2, the plan is one of the most important tools that the account manager has to hand to gain commitment to the resources needed to achieve the customer objectives. Further, it can be used to enthuse and motivate the people involved. Too often little thought is given to using the plan for this purpose. Typically copies are e-mailed by the key account manager to a few people perceived to be ‘important’ and a hard copy ‘put on the shelf’. A great opportunity is thereby missed. The launch of the key account plan is a unique opportunity for the account manager using his/her presentational and persuasive skills, to position the plan as:

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The vision forward

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The joint output of the whole team

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The roadmap to be followed during the year

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The way each person’s inputs build to reinforce the whole

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The specific outputs needed from each person.

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It may not be practical for all those impacting on the customer to be physically present at the plan launch meeting. Nevertheless, all involved should be contacted. Ideally this should be personally via the telephone or by e-mail. The entire plan need not be communicated to everyone. Only those parts which are relevant to them, plus the overall vision for the customer in words that are meaningful to them. Where individuals’ inputs/opinions have been sought then they must be given feedback on how they have been used. 3. The plan must provide a regular reference against which to monitor progress and reassess its feasibility. Whilst there should be individual project plans for the various initiatives being undertaken with the customer, progress against the entire plan should be reviewed monthly by the core account team. One way to review progress and foster communication is to set up an intranet chat line for each account so that all involved can comment and see what others have communicated. 4. This means that the plan must be a live document, not merely sat on a shelf or lying in a drawer. Further, it must not be a straight jacket. If it becomes apparent that certain underlying assumptions are not valid; or that key dependables have not materialised; or that one aspect is significantly more difficult to implement or to achieve; or if something significant has been overlooked or misunderstood, then there is no point in ignoring these events and continuing regardless. This will have a deleterious effect on motivation and credibility. The plan needs to be refined to take into account changed circumstances. However, this does not mean the original plan is forgotten about. As the next planning cycle is initiated the causes for the changes must be identified and the lessons learned incorporated into the new plan.

6. The structure of the key account plan The account plan can take many formats and there is no single layout that is ideal. The plan format should reflect the four steps of the planning process: •

Where are we now (and how did we get here) – situation analysis

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Where do we want to be – vision, goals and objectives

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How do we get there – strategies and action plans

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How will we know we have got there – monitoring and control.

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However, the plan document does not have to be in this order. A typical outline structure for the plan is shown below in figure 1.11. More layouts are shown in Chapter 9.

1. Brief description of the customer • Nature of business and ownership

6. Key assumption/dependencies 7. Budgets

• Key individuals 8. Summary of the situation analysis including:

• Key issues

• Trading history – sales/share/profit trends

2. Management summary 3. Account objectives • Account vision and customer objectives • Units, revenue, share, margin/profit – twelve months detailed, three to five year outline

• Customer information – highlight trends • Position in their market(s) • Objectives and strategies • Financial health

• Relationship objectives

• Main competitors

• Bonding objectives

• Their customers

4. Strategies and action plans

• Competitor analysis

• Statement of key strategies – to gain/maintain sustainable competitive advantage

• Contact matrix

• Contact plan

• Position on customer base map

• SWOT analysis • Relationship analysis

• Key customer projects • Timed activity plan

Figure 1.11: Major headings for a key account plan The plan document incorporates the thinking, analysis, direction and activity for the key account. However, it does not need to include all the detail. The plan document is as much a selling instrument as it is a proposal or report. The importance of this cannot be overstated and it is vital to keep the needs and requirements of the target reader firmly in mind. Details should be kept in appendices. The most important points should be few in number and made boldly. Diagrams and graphs should be used to help dramatise issues and increase impact. Figure 1.12 gives a checklist against which to judge the impact of the plan format.

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Comment

• Identify WIIFM (what’s in it for me) from the target readers’ perspective? • Specify your objectives for the plan document? • Highlight the three most important points it aims to make?

TIPS AND SUGGESTIONS • Put your three most important points on the first two pages of the plan after the title page and contents • Replace as many of the tables of figures with graphs/bar/pie charts as you can • Relegate any data which is not vital to making your case to an appendix • Use colour to increase interest • Use large and bold font to highlight the key points for the reader on each page

Figure 1.12: Improving the impact of your key account plan

7. The role of the customer Having identified that the planning process should be an inclusive one it is natural to assume that this should include the customer. This is in fact the case. However, the extent to which the customer can be involved depends on the health of the relationship. Where the relationship is good with considerable openness and trust on both sides then the customer’s inputs will be of paramount importance. For it to be truly successful, confidential information must be shared and future objectives and strategies mutually developed and agreed. Where however, relationships are less healthy and more adversarial then only limited involvement may be possible and it is unlikely that either side will be ready to share confidential information. However, no matter how good or poor the relationship is, something will be gained by attempting to get at least some customer involvement. At best it will move the relationship forward productively. At worst it can do no harm. Example: A key account manager in an industrial services market reported that a particularly adversarial buyer, on hearing that a plan was being drawn up specifically for his company, became much more accommodating and forthcoming.

At its most basic the key account manager should attempt to get the customer to communicate its requirements and plans over the forthcoming twelve months. This may be limited to trying to estimate the customer’s likely demand or be a little broader in terms of gaining an understanding of the customer’s priorities over the planning period.

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Where relationships are very good, then joint planning is seen as a way of ensuring that the supplier is able to make available the resources the customer needs and vice versa. Both sides sit down together, including all members from the customer and supplier teams who will impact on results. Past performance is reviewed objectively and particular issues that need to be addressed highlighted. The customer and supplier share future strategies and long-term plans and the implications of these for both sides are identified. A long-term perspective is taken. The activities and projects that need to be implemented in the forthcoming 12 to 24 month period are agreed and performance targets set for both sides. As a trigger to initiate this type of partnership behaviour consider using an outside facilitator to set up, structure and progress partnering meetings. In practice, observation suggests that most attempts by suppliers to get customers involved in the planning process are symbolic rather than substantive. This not only produces plans that are not so good but also misses an opportunity to move the relationship positively forward.

8. Summary In this first chapter we have covered the following points and drawn a number of conclusions: 1. Key account planning is a systematic process, which, whilst having similarities to the marketing planning process, is distinctly different from it. 2. The account plan is one of the most important tools that the account manager has to influence and motivate those within his/her own organisation to contribute their effort to the achievement of the account goals. 3. The account plan yields significant organisational and individual benefits for the key account manager. To obtain these the planning process must be inclusive, the plan must be launched with maximum impact and it must be used as a live document throughout the year. 4. Inclusion of the customer in the process is always beneficial, with the extent of this involvement determined by the health of the relationship.

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Benchmarking the benefits obtained from the key account planning process Read each statement below and tick the column that most reflects the extent of your agreement

FULLY

MOSTLY

PARTLY

HARDLY/ DO NOT

4

3

2

1

1. The customer planning process in my company is thought through 2. The benefits of account planning are realised 3. A systematic process of account planning with clear steps and timings has been developed 4. Senior management planning guidelines are communicated 5. The account planning process includes customer inputs 6. Throughout the implementation period the plan document is used 7. The plan is launched to the team 8. Milestones and project plans are developed Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column GRAND TOTAL SCORING: 27 – 32 points:

Your company has a leading edge customer planning system

21 – 25 points:

Your company’s customer planning system is well formed and should be maintained. Although further improvement is possible, the same effort applied to other, less good parts of the key account planning process will probably yield higher returns

15 – 20 points:

There are significant deficiencies in the customer planning process. Focus on those elements that have the lowest score

14 or less points: The customer planning system is not working well and requires fundamental review and restructuring

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The customer fact file 1. INTRODUCTION 2 . S T R U C T U R I N G T H E FA C T F I L E 3 . D ATA C A P T U R E 4 . S T O R I N G A N D A C C E S S I N G T H E D ATA 5 . M A N A G I N G I N F O R M AT I O N 6. THE ACCOUNT PROFILE 7. SUMMARY B E N C H M A R K I N G T H E C U S T O M E R FA C T F I L E

chapter

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Chapter 2: The customer fact file

1. Introduction Generally, organisations will possess significant amounts of data about their key customers. Unfortunately, much of it resides in the heads of the individuals who deal with the account, often in a somewhat unstructured manner. Also it is prone to distortion over time as memory fades and important things can, and often are, forgotten. Any plan built on such data is unlikely to be very robust. Good data is the engine that drives the key account planning process. Whilst obtaining reliable data is often difficult, storing it in a way that makes it easily accessible poses no less a challenge. Customer relationship management systems (CRM) can help do a part of the job, but they are not the whole answer. These types of systems, when implemented effectively are good at tracking the interactions with customers. However, they are not designed to provide information on competitors, or about the key customer’s plans and strategies, nor about their competitors. Bringing all this data together in a convenient, easily accessible format is achieved through the key account or customer fact file. There are three main uses for the customer fact file: 1. Analysis that generates information to compile the key account plan. This is discussed further in subsequent chapters of this Report. 2. Planning of short-term campaigns and activities. The fact file will contain data on sales response achieved from previous campaigns and the associated costs. 3. Support in meetings and responding to questions. In some ways the customer fact file is the key account manager’s ‘bible’. It provides the depth and breadth of information about the key account that enables the manager to be the objective source of information about his/her customer. It helps them to make their case effectively and convincingly and to respond professionally to the enquiries of colleagues and bosses.

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2. Structuring the fact file When asked what they want to know about their key account, most managers have little problem in identifying a long list of requirements; in effect a wish list of data that might somehow, at some time be useful. What is needed is a framework that structures the account data gathering process. There are seven main areas in which data needs to be gathered and updated: 1. Supplier’s internal data This includes company objectives, strategies and plans, contacts dealing with the customer and organisation structure. 2. The trading history between the supplier and the key account This includes historic sales, share and profit data broken down by product/service, by purchase point, by delivery point and by period, with associated price/incentive data. 3. Activity by the supplier with the customer This includes the contact pattern with the customer, specific marketing and promotional activity, projects implemented with the customer and so on. 4. The customer profile This includes details of the affiliates, locations, size, assets, organisation structure, their sales revenues and market share, key contacts, internal processes and financial performance of each operating unit. Personal profiles of the main contacts could also be included. 5. Your competitors in the customer This includes identification of whom they are, their historic sales and share data broken down by product/service, by purchase point, by delivery point and by period, with associated price/incentive data, customer specific marketing activity and joint projects. Further, it includes data on the nature of their relationship with the key account, their offerings, their contacts and their service levels. 6. The customer’s customers and market This includes identifying their most important customers and their needs and requirements, and the market trends, factors impacting on the market and economic factors.

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7. The customer’s competitors This includes the identification of who they are, their market share and the basis on which they compete. Figure 2.1 gives a checklist that allows existing, stored customer data to be reviewed and gaps identified. The list is only a guide. It is not possible to compile a comprehensive list of data requirements for all companies; each must establish its own and refine the headings in figure 2.1 accordingly. Each of the headings should be further broken down into sub-headings and even sub-sub headings. For example 3.1 – Customer specific marketing activity, might comprise: 3.1.1.

Promotions

3.1.2.

Advertising

3.1.3.

Public relations

And 3.1.1. – Promotions might be further broken down into: 3.1.1.1.

Price promotions

3.1.1.2.

Value added promotions

3.1.1.3.

Free stock promotions

It is important, however, ‘not to let perfection be the enemy of the good’. Spending time developing the perfect data classification system is unlikely to be time well spent. It must also be recognised that it is not necessary to wait for perfect data before the plan is started. All account plans are drawn up on the basis of incomplete data. Over time the degree of incompleteness reduces and the proportion that is fact based increases. The first three columns in figure 2.1 establish whether the data is available, whether it is already on file and if so, when it was entered. For example, the most recent Annual Report of the customer may be on file and be two years old. The next column then shows whether it is available but not on file, or if it is not currently available but would be of value. For example, if data on competitor market share trends in the customer are not known then this is data that is of value, but not available. Completing figure 2.1 will show what data needs to be gathered and what data needs to be updated to build a more complete, up-to-date customer fact file. Based on the importance of the data and the ease/cost with which it can be collected, a priority can be attached to each element of data. This then determines the data collection strategy. Individual responsibility can then be allocated to collect the data.

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FACT

FILE

Responsibility of

CUSTOMER

Priority action

THE

Not on file but of value

2:

Date entered

Data available and on file

Data requirement

Data available

CHAPTER

1. Internal data in supplying company 1.1 Company objectives 1.2 Company strategy 1.3 Company marketing and sales plan 1.4 Company product/service development plan 1.5 Organisation structure 1.6 Key contacts dealing with the customer 2. Trading history (recent) 2.1 Sales and share by period: – Product/service – Purchase point – Delivery point – At regular or discounted prices 2.2 Pricing, terms and incentives 2.3 Payment history 2.4 Problems/complaints/issues 2.5 Additional/new products/services purchased 2.6 Customer’s image/perception of supplier 3. In-customer activity 3.1 Customer specific marketing activity 3.2 Projects implemented for customer 3.3 Joint projects implemented with customer 3.4 Members of the project teams 3.5 Contact pattern – who and how often 3.6 Problem resolution procedures 4. Customer profile 4.1 Web site and Annual Report 4.2 Affiliates – buying group/web exchange 4.3 Location of head office 4.4 Size – sales revenues and market share 4.5 Assets and key investments 4.6 Organisation structure 4.7 Buying structure and process, sourcing policy 4.8 Key contacts and job descriptions 4.9 Internal processes/value chain 4.10 Financial performance of each operating unit 4.11 Key challenges being faced 4.12 Recent events/changes 4.13 Objectives and strategies 4.14 Corporate plan

continued over

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Responsibility of

Priority action

Not on file but of value

Data requirement

Date entered

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Data available and on file

CUSTOMER

Data available

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5. The competitors in the customer 5.1 Who they are, size and share – Product/service – Purchase point – Delivery point – At regular or discounted prices 5.2 Locations, ownership 5.3 Organisation structures 5.4 Key account managers and organisational structures to handle key accounts 5.5 Pricing policy and structures 5.6 Market strategies 5.7 Positioning in customer 5.8 Product/service advantages and weaknesses 5.9 Relationship, contacts 5.10 Service levels 5.11 Developments 5.12 Customer perception of competitors 6. The customer’s customers and market 6.1 The key customers 6.2 Their importance to the customer 6.3 Their requirements 6.4 Market size, shares and trends 7. The customer’s competitors 7.1 Who they are, size and share 7.2 Web site/Annual Report 7.3 Key personnel 7.4 Strengths and weaknesses 7.5 Newsworthy events 7.6 Recent changes

Figure 2.1: Data collection checklist

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3. Data capture It is clear that obtaining data for planning purposes is not a once off, or once a year activity. If an account manager sits down around planning time and thinks what data is needed then it is too late. Rather, streams of data must be regularly harvested. Initially, little of real value may be known about the customer. Over time, the quality and depth of this information will improve and the database will grow both in size and in value. Three streams of data need to be accessed. •

Generally available public information. Typical sources include the customer’s Annual Report, brochures, advertisements, web site, press releases, business press, trade press, government publications and so on. Generally this data will be available at little or no cost.

•

Restricted public information. Typical sources include stockbroker reports, industry surveys and reports, and company watcher’s reports that bring together data and analysis on particular firms. This type of data will be more expensive, although easier to obtain and available through subscription or single purchase. Naturally, both restricted and generally available public information are equally accessible to one’s competitors, should they wish to do so. Where their account management and key account planning processes are not well developed, or perceived merely as super selling opportunities, then they may very well fail to avail themselves of this type of information. Figure 2.2 shows some sources of online company information.

Hemington Scott

www.hemscott.net

Sharescope

www.sharescope.com

FT MarketWatch

www.ftmarketwatch.com

UK Invest

www.uk-invest.com

ADVFN

www.advfn.co.uk

Multex Investor

www.multexinvestor.co.uk

Source: FT Research

Figure 2.2: Online sources of analyst research on companies and markets

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Private information. This information is obtained directly from people. Usually, these will be employees of the key customer who communicate with the supplier’s personnel working with them. The importance for the supplier of building up a strong, and broad personal network cannot be understated. There are also other sources including ex-employees of the customer, other non directly competitive suppliers to the key account, other customers with whom the supplier trades, the key account’s customers, industry specialists, consultants, friends and acquaintances. The direct monetary cost of obtaining this information will generally be minimal, perhaps the price of a lunch. However, the time cost will be high since significant efforts have to be expended over time to build up mutual trust and respect between the individuals involved. It can only be achieved where relationships are good. Sometimes the data that is obtained in this manner will be particularly valuable, shedding light on the customer’s strategy, buying process, main priorities or the activities of particular competitors servicing the account. Where such data is not made available to competitors then its value will at least double. This information is obtained by a variety of people in contact with the various individuals within and outside the customer. To capture it a contact reporting system must operate enabling all information relevant to the customer, no matter who receives it, to be copied to the account manager. This requires that formal processes be set up (possible using the company’s intranet), that all individuals are aware of their intelligence gathering responsibility and that they are motivated to obtain good information and feed it back. Getting them involved in the planning process will help achieve this. Much of this type of information will be sensitive and should be treated carefully. Confidences must be respected and accesses restricted. If the customer’s competitors get to know such information then trust will be broken with significant negative repercussions for the relationship. However, consider sharing some of it with key contacts in the customer both to inform them and where they are already in possession of the information, to validate its accuracy.

The sources of data tool shown in the checklist in figure 2.3 show the extent to which they are used, identifying any specific action to use them more effectively together with the individual responsible for implementation. Although the key account manager will generally hold overall responsibility for ensuring the information is in the customer fact file, other individuals will almost certainly also be involved in collecting it. These could include market researchers, project managers, project team members, distribution managers, members of the legal department, company directors and many others. Getting these individuals

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to capture and communicate the necessary data requires considerable skill on the part of the account manager. Not only have these individuals to be aware of and accept their responsibility in this area, they also need to be influenced, reminded and motivated to carry out their responsibility. They need to feel part of the account team. Their inputs must be recognised and appreciated and the use and conclusions reached from their information should be fed back to them. They must be included in ‘the loop’. Entering data in to the fact file and keeping it up-to-date is amongst the most significant challenges facing the account manager.

Extent of usage

Action and responsibility

Recorded (includes) • Annual Reports • Published data – newspapers, trade journals, business programmes • Credit reports • Trade press • Analysts’ reports • Surveys • Market research • Government reports • Internet Opportunistic (includes) • Customer contacts • Ex-customer employees • Trade shows • Seminars • Social contacts • Distributors • Customer entertainment Observable (includes) • Advertising • Promotions • Pricing • Distribution • Planning applications • Patent applications

Figure 2.3: Possible sources of data

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4. Storing and accessing the data Historically, most of this information was kept in hard copy form in filing drawers. Now significant amounts are kept in electronic form on relational databases. This has made it easier to obtain accurate information on the trading history between the company and the key account. Internet technology has facilitated remote access to and entry of data. The technology also enables discussions to take place and views to be exchanged. This is particularly useful with regional/global accounts where different account managers will be servicing the customer in different countries/continents. Careful regulation of access permissions should ensure that only information of relevance to each individual user is seen, maintaining security. CRM systems from suppliers like Siebel Systems, IBM and Chordiant can also provide additional information on contact history, service standards and problems. However, significant amounts of information are still kept in hard copy form including competitor information, newsworthy events, financial analysts’ reports and so on. To facilitate easy access to the data, thought must be given to the structure of the database. A useful framework is given in figure 2.4. In practice, some data may fit into more than one section. For example, the company’s market share in the customer might be included in the trading data section, the competitor data in the customer section or even the customer data section. Likewise some data could be either semi permanent or variable. As long as it is consistently stored in the same place and clearly signposted so that it can be easily located its precise location is a matter of individual company choice.

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Supplier data • Permanent or semi permanent data • Variable data

The customer plan

Customer data

• The plan document • Supporting analysis

• Permanent or semi permanent data • Variable data

Competitor data in customer • Permanent or semi permanent data • Variable data

Customer market data • Permanent or semi permanent data • Variable data

Customer fact file

Trading & activity information • Permanent or semi permanent data • Variable data

Customer competitors’ data • Permanent or semi permanent data • Variable data

Figure 2.4: Customer fact file structure

5. Managing information The amount of information with which all executives are bombarded is huge and the account manager is no exception. Often it seems impossible to keep up with the flow of paper and e-mails. The same holds true for the customer. To help screen the vast amounts of data a number of quick tests can be applied. Does the information add to the understanding of: •

The customer’s business and their problems/constraints and strategies?

•

The customer market and competitors and how they impact on the customer’s business?

•

Our competitors, their strengths and weaknesses?

•

Our dealings and relationship with the customer, the trends, opportunities and threats?

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Much of the data accumulated is of interest and has a short shelf life. For example, the customer may appoint a new chief executive (CEO) or may launch a new product. At the time these events are topical, newsworthy and seem important. With the benefit of hindsight they may be of only minor importance. What is of more significance is how they impact on the customer’s strengths or weaknesses, or how they generate opportunities or threats. Are they part of a trend? Is the product launch part of an accelerated product development programme? Will the new CEO radically change the customer’s strategy?

6. The account profile A significant amount of an account manager’s time is spent on internal communication, persuading colleagues and bosses and resolving issues and problems. Compiling an account profile can help this internal marketing role. It is an easy to read summary of the customer giving the most important facts and issues about them. Usually, it resides on the company’s intranet and it needs to be clear, interesting and up-to-date. The main task of the account profile is to generate interest and a common view internally and to enable individuals to gain a basic understanding of the customer. This is helped by inserting pictures, copies of articles, news clips and so on to enliven the document. It would be wrong to constrain the account profile to a rigid format. Usually it contains only public and non-sensitive private information and typically it will incorporate the information shown in figure 2.5.

• Customer location, size, ownership and affiliates

• Supplier performance/successes with the customer

• Recent customer trends and news

• Supplier long-term objectives and customer strategy

• Customer’s long-term objectives • Exciting opportunities that the customer represents for the supplier

• Outstanding issues with the customer

Figure 2.5: Contents of the account profile

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7. Summary In this chapter we have covered the following points and drawn a number of conclusions: 1. Good data is the engine that drives the account planning process. 2. The account fact file is the repository of all the information relevant to the key account. 3. There are three main uses for the fact file: •

Account planning

•

Short-term campaign planning

•

The key account manager’s bible.

4. Seven main types of information need to be gathered: •

Internal data in the supplying company

•

Trading history

•

In-customer activity

•

Customer profile

•

The competitors in the customer

•

The customer’s customers and market

•

The customer’s competitors.

5. Each organisation must determine its own detailed data requirements. 6. There are broadly three streams of data: •

General available public information

•

Restricted public information

•

Private information.

7. Possible sources of data include: •

Recorded data

•

Opportunistic data

•

Observable data.

8. The Internet/intranet provides a good medium to enter and access customer data and exchange information and views. 9. Customer relationship management systems can provide useful inputs, particularly on trading history and customer activity. 10. The account profile is a useful device to assist the account manager with internal marketing.

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Benchmarking the customer fact file Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

OCCASIONALLY

RARELY/ NEVER

4

3

2

1

1. My company has a clear structure for the customer fact file with common headings 2. There are many sources of data for the fact file which are all used systematically 3. The cost of gathering data is included as part of the customer development budget 4. Others are actively aware of their responsibility to obtain and communicate customer data 5. Others are motivated to communicate the data they obtain 6. The quality of the data in the fact file is continually improving 7. The fact file is used as the key account manager’s bible 8. It is easy to access key account data 9. The system for storing the data is continually being reviewed and improved 10. There is a clear data gathering strategy Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column GRAND TOTAL SCORING: 34 – 40 points

Your company has a leading edge customer fact file system

26 – 33 points

Your company’s processes are well formed and should be maintained. Although further improvement is possible, the same effort applied to other parts of the key account planning process will probably yield higher returns

18 – 25 points

There are significant deficiencies in the customer fact file system. Focus on those elements that have the lowest score

17 or less points The customer fact file system is not working well and requires fundamental review and restructuring

50

Analysing performance data 1. INTRODUCTION 2. INTERNAL ASSESSMENT 3. EXTERNAL ASSESSMENT 4. SUMMARY B E N C H M A R K I N G Y O U R O R G A N I S A T I O N ’ S A B I L I T Y T O A N A LY S E P E R F O R M A N C E D ATA

chapter

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Chapter 3: Analysing performance data

1. Introduction The four key planning questions are: 1. Where are we now (and how have we got here)? 2. Where do we want to go? 3. How do we get there? 4. How do we know we have got there? The next three chapters are concerned with answering the first question – where are we now? This chapter deals with establishing the supplier’s performance with the customer and the issues facing the customer. In the next chapter we review the two further dimensions, allowing a deeper understanding to be gained of the relationship. Then in Chapter 5, SWOT analysis is discussed. The logic is shown in figure 3.1. The internal analysis allows strengths and weaknesses to be identified, whilst the external analysis helps in the identification of opportunities and threats.

Key account performance analysis

Internal assessment

External assessment

Sales Payment Contact base

Customer Prioritisation assessment

Customer market

Activity Costs Service performance

Strengths and weaknesses

Competitors

Relationship analysis

Business environment Customer’s competitors

Opportunities and threats

Figure 3.1: The performance analysis process

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DATA

2. Internal assessment First the supplier must determine how it is performing with the customer. To do so the results being achieved and the interactions that are taking place must be assessed. 2.1 Sales data A complete picture needs to be built up of current and historic sales in value and volume to the key account. It is useful to break sales down by product/service, by decision-making unit (DMU) and location. A DMU is made up of the group of individuals who input to and make the buying decision. For some suppliers it may also be useful to identify the proportion of sales at regular vs. discounted prices. The total annual purchases by each DMU of the category can also be included showing its importance to the supplier. Figure 3.2 shows a suitable format for three DMUs that can be extended if required. Hopefully, the customer fact file contains the basic information and the database in which it is stored facilitates the analysis. If not, the data can be imported into a spreadsheet like Microsoft Excel. This will also facilitate year on year comparisons.

Sales in each decision making unit – year:

Customer total

Val share %

Vol. share %

Category vol.

Category val. €m

Volume

Value €m

Vol. share

Val share

Category vol.

Category val. €m

Volume

Value €m

Vol. share

Val share

Category vol.

DMU 3: Category val. €m

Volume

Value €m

Vol. share

Val share

Category vol.

Volume

Value €m

Product/ service

DMU 2: Category val. €m

DMU 1:

Total

Figure 3.2: Sales analysis format

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Some questions that should be considered on examining the data: •

In the most recent years is volume and value share of the category in line with overall market share, that is, is the product/service over or under represented?

•

For the last three to five years: –

What is the value and volume share trend?

–

What is the value and volume trend for customer category purchases?

–

What is the value and volume sales trend?

–

How can any difference in value and volume share/sales trend be explained?

The above should be performed for the customer in total and for each DMU. Review of the individual products/services will give further insight into explaining the total figures. This analysis can be taken one stage further by including considerations on price as shown in figure 3.3. Again it is hoped that this data will be in the customer fact file and can be readily produced by the database. Examination of the value and volume shares will show if the supplier is managing to get higher or lower average prices than competitors. One explanation may be the amount sold at less than full price i.e. at discounted prices. Again a review of the most recent years will show how average prices have moved and on which products/services discounting is becoming more or less important.

Sales in each decision making unit – year: Customer total Proportion at less than full price

Value €m

Average price €k

Volume ‘000

Proportion at less than full price

Value €m

Average price €k

Volume ‘000

DMU 3 Proportion at less than full price

Value €m

Average price €k

Volume ‘000

DMU 2 Proportion at less than full price

Value €m

Average price €k

Product/ service

Volume ‘000

DMU 1

Total

Figure 3.3: Sales analysis format

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Ideally the data in figure 3.3 could be included in figure 3.2 but it is probably complex enough without two more columns being added to each DMU section. If the data is not stored on a database then the detailed analysis will probably not be possible. At a minimum the information should be collated for the key account as a whole and if possible by product over at least a two to three year period. Where total customer category purchases are not known then they should be estimated. Examples of some conclusions that may be drawn from this type of analysis are shown in the example below. Example Sales in each decision making unit – last 3 years: Customer total

Category vol.

Val share %

142

32

30

87

30

28

49 44 159

153

31

29

Val share %

Vol. share %

Category val. €m

49 43 153

Volume ‘000

33

Value €m

35

Vol. share %

85

Category vol.

Category val. €m

Volume ‘000

Vol. share %

Value €m

Val share %

Category val. €m

DMU 3:

Category vol.

Value €m

Volume ‘000

Vol. share %

Val share %

Category vol.

Volume ‘000

Value €m

Product/ service

DMU 2:

Category val. €m

DMU 1:

3 Years ago (Total value market share 35%; Total volume market share 33%) Product X

12

10

34

30

35

33

6

5

30

27

20

19

31

28

89

2 Years ago (Total value market share 36%; Total volume market share 34%) Product X

16

14

40

38

40

37

7

6

31

28

23

21

26

24

88

Last year (Total value market share 36%; Total volume market share 35%) Product X

18

16

42

40

43

40

8

7

36

33

22

21

21

20

83

85

26

24

47 43 161

158

29

27

15

19

9

11

5

5

-17

-15

-3

0

-14

-15

-2

6

-5

-5

Average annual percentage change Product X

24

28

11

15

11

10

0

3

Sales in each decision making unit – last 3 years: Customer total

Proportion at less than full price

Value €m

Average price €k

Volume ‘000

Proportion at less than full price

Value €m

Average price €k

Volume ‘000

Proportion at less than full price

DMU 3:

Value €m

Average price €k

Volume ‘000

Proportion at less than full price

DMU 2:

Value €m

Volume ‘000

Product/ service

Average price €k

DMU 1:

3 years ago Product X

10

1.20

12

39

5

1.20

6

38

28

1.11

31

52

43

1.14

49

47

14

1.14

16

38

6

1.17

7

40

24

1.09

26

58

44

1.12

49

49

16

1.13

18

37

7

1.14

8

39

20

1.07

21

63

43

1.10

47

49

2 years ago Product X

Last year Product X

Average annual percentage change Product X

-3

-2

-3

1

-2

10

-2

2

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•

Over the last three years total sales of product X to this customer have declined slightly in value terms (-2 per cent p.a.) but have stayed fairly constant in volume terms.

•

DMU 3 is the major contributor to sales of product X to this customer. However, its share of the total sales to this customer has fallen from over 60 per cent to less than 45 per cent over the last three years.

•

Volume share of product X in the customer is below its overall market share and has been falling at an average of 5 per cent per annum over this last three years. This is due mainly to large reductions in share in DMU 3 (-15 per cent p.a. average over the last 3 years) whilst there have been share gains in the other DMUs. There is clearly an issue with the relationship in DMU 3.

•

The average price paid for product X is 5 per cent lower in DMU 3 than in the rest of the customer and a higher proportion (63 per cent) of sales are at discounted prices compared to an average of 38 per cent for the other DMUs.

•

Average prices in the customer have fallen by about 2 per cent p.a. but slightly more in DMUs 1 and 2 at about 3 per cent.

•

The value share is higher than the volume share across all the DMUs indicating that competitors are selling at lower average prices despite the reduction in product X’s average price.

•

Whilst the customer’s purchases of the category of products that product X competes with are rising at about 3 per cent p.a. in value terms and 6 per cent p.a. in volume terms, they are declining at 3 per cent in value terms and are static in volume terms in DMU 3.

2.2 Payment analysis The amount of time taken by the customer to pay should continually be reviewed. Of particular note is whether this is changing. Any increase in the payment period is of particular concern. This may be due to: •

Pressures on the customer’s cash flow position

•

Quality/delivery problems leading to the customer disputing more invoices

•

Changes in the customer’s payment system or the supplier’s invoicing system

•

Deterioration of the relationship.

2.3 Contact base and buying process analysis There are likely to be a multiplicity of contacts between supplier and customer. Who is in contact with whom and for what purpose needs to be identified. The various roles played by the customer contacts in the decision making unit need to be identified. Figure 3.4 lists these buying roles, with a brief descriptor of each. A set of acronyms is shown which can be used in some of the analysis tools discussed later in this Report, when referring to the buying roles.

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Buying role

Description

Ultimate decision maker (UDM)

Budget holder who signs off/agrees to the purchase

End user (EU)

Person(s) who will use/consume the product or service

Economic/commercial buyer (Bu)

Co-ordinates specification and compares proposals/offers against it

Technical buyer/specifier (Sp)

Develops the technical specification, identifies what is required

Champion/coach (Ch)

Individual who favours a particular supplier and may promote it to colleagues.

• Information champion (ICh)

– supplies information

• Mentor champion (MCh)

– gives advice

• Advocate champion (ACh)

– recommends supplier

• Action champion (ActCh)

– gets things done for supplier

Gatekeeper/influencer/competitive sponsors (In)

Individuals with limited involvement who can add to, or more often, prevent a supplier’s progress

DATA

Figures 3.4: Roles performed in the decision making unit It should be born in mind that one individual may perform several roles and a number of individuals could perform a single role.

Comment: Opening up a new account or moving into another part of a key account can be very difficult without the assistance of a champion or coach.

The contact matrix in figure 3.5 is a mechanism for identifying whom, on the supplier’s side is in contact with whom in the particular customer decision making unit (DMU). The role performed by the customer contact in the DMU is noted using the suggested abbreviations shown in figure 3.4.

The initials of the customer contact and their role in the DMU is entered at the top of each column. The supplier contacts are entered on the left of each row. The approximate contact frequency is recorded in the intersecting cell. The matrix shows: •

Whether the level of the contact person on the supplier side is appropriate to that on the customer side

•

Who, within the buying organisation, is receiving insufficient attention?

•

Conversely it will show who is getting too much

•

It will help identify if there are gaps in the supplier’s knowledge about who performs particular buying roles.

The membership of the customer DMU and the contacts on the supplier’s side will change over time. The contact base matrix should therefore be completed regularly, at least once a year.

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DMU_____________________ Customer contacts


 
  

S u p p l i e r

C o n t a c t s

Figure 3.5: The customer contact matrix Not only is it necessary to understand the customer’s decision making unit but also the buying process through which they go. The major steps are shown below in figure 3.6. For repeat purchases, supplier selection is almost automatic and the earlier steps are not carried out. However, purchases, which the customer has not made before, will involve more extensive considerations, as they will need to take into account many aspects that are new. Periodically the customer may choose to reconsider a repeat purchase more deeply to check whether it is still good value for money and go through a more extended buying process, starting with rechecking the specification and soliciting additional offers from other suppliers, checking price and quality.

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Problem identification

3:

ANALYSING

DATA

Usage experience

Post purchase evaluation

Problem definition

Solution specification

PERFORMANCE

Purchase activity

Supplier search

Offer assessment

Supplier selection

Figure 3.6: The buying process The buying process provides a useful framework to analyse the steps the buying organisation goes through. Figure 3.7 provides a format to conduct the analysis which should be carried out for each customer decision making unit. For each stage the following needs to assessed: •

The individuals involved at each stage must be identified

•

Their particular needs, requirements and how their performance is assessed by their manager must be listed

•

The current/historic methods used to influence them must be recorded

•

Finally an assessment is required on the effectiveness of these methods in helping the customer move through the buying process. This will be a matter of individual judgement.

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DMU: Individuals involved

Buying needs/requirements/ performance assessment

How influenced

Effectiveness? Low/medium/high

Problem identification

Problem definition

Solution specification

Supplier search

Offer assessment

Supplier selection

Purchase activity

Usage experience

Post purchase evaluation

Figure 3.7: Buying process analysis

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DATA

The analysis shows what is currently being done to influence the customer and how effective it is. The following issues should be considered: •

Which stages do we have insufficient knowledge about?

•

Are there any stages where we are not influencing at all?

•

Where does the effectiveness of the influence we bring need to be improved?

•

Where are the influencing methods not aligned well with customer needs?

2.4 Activity analysis As well as those activities carried out to directly influence the purchasing decision it is likely that there will be significant additional interactions between buying and selling organisations. Typically this may include entertainment, problem resolution, joint planning and specific revenue enhancing or cost saving projects. Depending on the breadth of involvement as revealed by the contact matrix (figure 3.5) there might be a large number of such interactions. Figure 3.8 shows a way of recording these activities. It shows: •

Who from the supplier and customer’s side are involved

•

The importance or priority of each activity

•

The amount of resource allocated. Too much time should not be spent doing this as a qualitative assessment of high, medium or low will be sufficient

•

A judgement is made on how well, from a customer’s perspective, the activities are being implemented

•

Finally, an assessment is made on the benefit the supplier derives from the activity.

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Who is involved

Priority/ importance

Resource High/med/low

How well implemented

Benefit obtained

Entertainment

Problem resolution

Cost reduction projects

Revenue enhancement projects Joint planning

Customer training

Other activity

Figure 3.8: Activity analysis The activity analysis gives a picture of the total activity with the customer, and provides a way of assessing whether the level of resource applied is commensurate with the priority/importance of the activity, the benefit derived from it and whether scope exists for improving its implementation. 2.5 Cost and profit analysis The extent to which firms measure their costs of doing business with individual key accounts varies. Most will be able to identify the discounts that they give. Some will know their variable or standard product and distribution costs. Many fewer will be able to identify and allocate other direct customer costs such as credit, distribution, sales and service costs. Functional expenses such as administration, HR, marketing, purchasing, rent and so on need also to be taken into account. An example of a contribution and trading profit statement is shown in figure 3.9 for three DMUs and for the customer as a whole. In practice the information might also be broken down by product group/category. The statement should be prepared on a regular basis, usually quarterly, showing quarterly and year to date performance making comparison with the same period last year and/or budget.

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Date

ANALYSING

DMU 2

1

Sales volume (tonnes) Gross revenue

3:

%

DATA

Customer total

3 %

PERFORMANCE

%

%

Less: Discounts: • Off invoice • Credits (returns/allowances) Net sales

Less: Manufacturing costs Direct distribution costs Customer net margin

Less: Direct promotional costs • Sales allowances • Marketing allowances • End user deals • Distribution allowances Customer gross profit

Less: Relationship/sales costs Cost of credit Customer contribution

Less: Overhead allocation • Marketing • General and administration Customer net contribution

Figure 3.9: Key account contribution and trading profit statement The data will show the percentage breakdown of costs and their historical evolution over previous quarters. The data should be analysed to give information on issues such as: •

How do the levels of margin and contribution compare with similar customers?

•

What costs, if any, are out of line and why?

•

What are the trends in contribution and margin?

•

How can these trends be explained?

•

How do costs vary between the DMU/product groups and why?

•

Is there scope for reducing costs without affecting revenues adversely?

•

Is there scope for increasing revenues without increasing costs proportionally?

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It should be noted that it is usually inappropriate to conclude that customers making a negative net contribution are not worth having. This is because they are still contributing towards overhead recovery. The challenge is to identify ways of turning the negative net contribution into a positive one. 2.6 Service performance analysis Customer satisfaction can be measured in a number of ways. Monitoring and analysis of customer complaints is an essential, albeit fairly gross method. Another is by identifying the reasons behind lost orders and for customers going to competitors. Perhaps the most effective method is to measure customer satisfaction through soliciting customers’ views and perceptions. It is important to understand the customers’ perception of the factors that they look at to determine the quality of service performance and their perceptions of the relative importance of these factors. Customers can then assess the supplier’s performance against these factors. This produces some useful insights that can be further enhanced by the consideration of the supplier’s competitors. (Although this aspect should logically be considered in the next section – External assessment – for convenience and to save unnecessary repetition it is covered here). To illustrate this point a supplier may not perform very well against a particular service factor such as ‘handling returns’. However, the competitors may be perceived by the customer as being even less good on this factor. The supplier’s perceived relative performance, relative to competition that is, becomes better. This does not mean the supplier should feel complacent, as there will still be scope for improvement. In figure 3.10(a & b) an example is shown of the output from a customer satisfaction survey. Figure 3.10a shows a graphical presentation of the service levels, as perceived by the customer for three competitive suppliers (A, B, C) on a 1(poor) to 5(excellent) scale. Weight Logistics

20

Customer interface (account manager)

10

Customer interface (administration)

5

Business development

15

5 Better A

Worse 1 B A

B

C C

B A

C A

C

B

Figure 3.10a: Customer satisfaction

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Weight

ANALYSING

Supplier A

PERFORMANCE

Supplier B

Supplier C

Score

Value

Score

Value

Score

Value

Logistics

20

4.17

83.4

3.65

73.1

2.66

53.2

Customer interface (account manager)

10

3.90

39.0

2.70

27.0

3.40

34.0

Customer interface (administration)

5

2.68

13.4

4.12

20.6

2.52

12.6

Business development

15

3.58

53.7

1.94

29.1

3.70

55.5

Total customer service satisfaction

100

189.5

149.8

DATA

155.3

Figure 3.10b: Customer satisfaction Figure 3.10b shows the actual figures and their weighted value scores. Adding these gives the customer service satisfaction score. Supplier A scores significantly higher than the other two suppliers, although each performs well in some areas. B scores well in customer interface (administration) whilst C scores well for business development in comparison to A & B. Unfortunately for B, the customer interface (administration) factor is weighted lower than the other two, meaning that its contribution to customer satisfaction is less. Further improvements in this area therefore offer less return for the effort and expenditure than in the others. To identify where effort might be effectively and efficiently concentrated it is necessary to better understand the constituents of each of the service factors. These are shown below in figure 3.10c in graphical form. Each constituent factor is weighted to reflect the customer’s perception of its importance.

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Weight Logistics

20

• Deliveries made on time

6

• Orders completed first time

4

• Arrive in good condition

5

• Acceptable lead time

1

• Easy to handle

3

• Good secondary packaging

1

Customer interface (account manager)

10

• Understands customer needs

2

• Has required authority

1

• Works in partnership

2

• Solves problems

4

• Organises multifunctional contacts

1

Customer interface (administration)

5

• Logistics information availability

1

• Complaints handling

1.5

• Invoicing accuracy

1

• Payment conditions

1

• Credit handling

0.5

Business development

15

• Effective promotions

3

• Sales incentives

1

• Joint revenue generation projects

3

• Joint cost saving projects

4

• New product development

2

• Joint market communication

1

• Training given

1

5 Better

Worse 1

B

A

A

C

C B

B

C

A

C

A

B

Figure 3.10c: Customer satisfaction From this more detailed analysis, whilst supplier A is overall the best performer, supplier B performs particularly well on the single, most important factor – ‘deliveries made on time’ which get a weighting of 6. Interestingly, even if B were to improve its performance with respect to its ’Customer interface (account manager)’, where it is the worst performer, to the level of the best performer A,

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PERFORMANCE

DATA

its overall customer satisfaction score would still be less than A’s. Concentrating on the higher weighted factors in ‘business development’ such as ‘joint cost saving projects’ will yield a bigger pay off. Examination of the relative position and the particular factor’s importance will begin to identify what a supplier is doing especially well or not so well. This provides an important input into the strengths and weakness analysis.

3. External assessment 3.1 Customer analysis 3.1.1 The customer’s value chain It helps to understand how the customer’s business operates. This will show how and where the supplier’s offering provides, or could provide, value for the customer. The value chain is a useful framework against which to examine how the customer actually functions. The classic value chain concept is shown in figure 3.11 as developed by Professor Michael Porter1.

Firm infrastructure

Support activities

Margin

Human resource management Technology development Procurement

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Service

Margin

Primary activities

Figure 3.11: The value chain The primary activities show how bought in goods or services enter the organisation (inbound logistics) and then move through the company to operations, outbound logistics (distribution), marketing and sales and customer service. At each stage the customer adds value to their offering for their customers. Above these primary activities are organisational support services such as procurement,

1 Porter E. M., Competitive Advantage, The Free Press, McMillan, 1985

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technology management, human resource management and the company’s infrastructure. These functions do not in themselves add customer value but they assist the primary functions in doing so. The additional value created by the company for its customers, less the cost of creating this value allows it to earn a profit margin. The account manager needs an in-depth understanding of the customer’s detailed business processes and how they add value to the customer’s offering to its customers. The purpose is to gain insight into the customer’s issues and problems so as to identify ways of resolving them through product/service improvements and innovations. Professor Porter’s general model is perhaps a little difficult to work with on a dayto-day basis. A more practical structure is given in figure 3.12. The typical constituents of each part of the value chain have been identified. Naturally, the specifics will vary depending on the customer and the industry. The final column assesses the priority level of each part for the customer. There are four main ways in which the supplier can add value. It can help the customer increase revenue, reduce costs, eliminate costs or provide less tangible benefits. Eliminating costs might be achieved through quality improvements or eliminating the need for holding stock. An example of less tangible benefits might be the value of the supplier’s brand name as evidenced from the famous quote ‘no one ever got fired for buying IBM’, or the relative ease of dealing with a supplier. Customers will regard some elements of their value chain as more important than others. Improving these aspects will be a higher priority. Each element of the customer’s value chain and its priority needs to be understood and examined to identify if there are possibilities for the supplier to add value. This is a difficult process and it is unlikely that there will initially be enough knowledge about the customer to complete it accurately. The account manager should not be put off by what may appear to be a daunting task. It is important not to let ‘perfection be the enemy of the good’. The account manager should start with those parts of the customer’s business where there are good contacts. This will almost certainly include procurement and probably the functions that use the product/service of his/her company.

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Example: In working with IBM Storage Division, the 3M’s account manager began to understand that their significant product reject rates on the production line greatly increased their costs and that cost reduction was a high priority. This led to a project team being created which delivered a 10 per cent saving.

CHAPTER

Customer’s value chain

3:

Revenue Cost enhancement reduction

ANALYSING

Cost elimination

PERFORMANCE

Intangible benefit

DATA

Customer priority

Company infrastructure • Corporate strategy development • Innovation • Company image • Planning/budgeting processes • Facilities management • Information systems • Capital project assessment • Top management support Human resource management • Recruitment and selection • Remuneration processes • Training and development • Career planning Technology development • Product/service technologies • Software development tools • Manufacturing technologies • Innovation management tools Procurement • Forecasting system • Purchasing process • Supplier management

Inbound logistics • Delivery handling • Quality control • Storage

continued over

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Customer’s value chain

Revenue Cost enhancement reduction

Cost elimination

Intangible benefit

Customer priority

Operations • Operations planning • Operations management • Quality control • Maintenance • Process improvement • Waste management

Outbound logistics • Order processing • Finished goods storage • Despatch • Customer delivery • Customer billing Marketing and sales • Marketing management • Customer needs identification • Advertising/ communication • Sales force administration • Sales force operations • Distributor management Service • Pre sales • Sales • Post sales • Complaints handling

Figure 3.12: Customer value chain analysis Gaining an understanding of the goals/objectives of these functions and how their performance is measured will give some insight into whether cost, revenue or intangible benefits will be relevant as a means of adding value.

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Over time the process will stimulate the collection of relevant information and enable more of figure 3.12 to be completed. It is important to note that although this exercise will identify possible ways in which the supplier might add value, no decisions should be made at this stage on what, if anything, to do about them. 3.1.2 Tracking customer priorities Customers’ priorities will change over time. Although they will continually be striving to increase profit, return on investment and revenue, the strategies and tactics that they adopt will change depending on their internal and external circumstances. Understanding the customer’s strategy is therefore important, but as important are the reasons behind it. In order to do so it helps to keep track of changes taking place in the customer. These could include: •

Reorganisations

•

Market development

•

Internal efficiencies

•

Staff movement

•

Acquisitions/mergers

•

Market positioning

•

Information provision

•

Staff development

•

Investments

•

Budget realignment

•

Outsourcing/insourcing

•

Strategic thrusts

•

Divestments

•

Financial performance

All these changes are within the decision making scope of the customer, driven, at least in part, by trends in sales, costs, market share, return on investment, and share price. Figures 3.13 a and b provide a structure to focus attention on these drivers, the changes they generate and their implications.

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Factor

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Value

Three year trend

Priority Implication for customer for customer

Implications for supplier

Revenue Profit Return on capital employed (%) Net margin (%) Asset turnover Stockturn Gearing (%) Supplier credit as % of shareholder funds Quick ratio (acid test) Share price Market share (%)

Figure 3.13a: Customer priorities – financial assessment Figure 3.13a shows the financial drivers. These are derived from the financial statements produced by the customer such as their annual report and accounts. The terms are defined as follows: Revenue:

Turnover excluding taxes

Profit:

Net profit before tax and after interest

Return on capital employed (%):

Profit

x 100

(Total assets – current liabilities) Net margin (%):

(Profit/Revenue) x 100

Asset turnover:

Revenue/capital employed

Stockturn p.a.:

Cost of sales/stock

Gearing (%):

(Long term debt + short term borrowings) Total shareholder funds (debt + equity)

Supplier credit as % of

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shareholder funds:

(Creditors/total shareholder funds) x 100

Quick ratio (acid test):

(Current assets – stock)/Current liabilities

Share price:

At beginning and end of reporting period

Market share (%):

At beginning and end of reporting period

x 100

CHAPTER

Internal and external changes occurring or planned

Priority for customer

3:

ANALYSING

Implication for customer

PERFORMANCE

DATA

Implications for supplier

Figure 3.13b: Customer priorities – qualitative assessment Figure 3.13b allows customer priorities determined by more qualitative factors to be recorded. It must be recognised that some factors may be more powerful in driving management thinking than others. For example, a large public company with a proclaimed policy of delivering shareholder value and where management has stock options, is likely to have share price and profit as high priorities. A private company, on the other hand, may be driven more by revenue growth and return on investment. Understanding these priorities will help to identify their relative importance. The trend will indicate whether a problem exists and whether specific action is needed to address it. The implications of the various trends for the customer can then be assessed and, in turn, what this might mean for the supplier can be reviewed. This analysis will help to identify the priority of the various changes occurring within the customer, and indeed may on occasion enable the supplier to predict changes before they occur. For example, if revenues have reached a plateau or consistently fail to achieve management forecast, then there may be increased focus on new product development and possibly on the acquisition of other companies. However, for the latter to be viable the share price will need to be relatively high or at least moving upwards. Again it is important to identify how high a priority each of the changes is for the customer. The challenge facing a supplier is to align their offerings and inputs with the priority changes taking place, thereby helping to build value, relationships and supplier revenues.

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3.2 Competitor analysis The supplier’s competitors holding a share of the customer’s business, as well as those attempting to do business, will impact on the strategies that the supplier adopts. Some important questions that need to be addressed include: •

Which competitors are increasing their share?

•

Which competitors are losing out?

•

Who is attacking?

•

What are the main weapons being used by each supplier?

To make a balanced assessment the competitor performance scorecard can be used. This allows various aspects of performance to be reviewed, identifying the main sources of competitive threat and opportunity.

Your company

Competitors

Share of customer purchases % Relative share Share trend ± % p.a. Strike/success rate New products introduced Number of joint projects undertaken Main basis on which they compete

Figure 3.14: Competitor performance scorecard The relative share is the suppliers’ share relative to that of its largest competitor. An example is shown in figure 3.15 where your company is not the largest supplier, whilst figure 3.16 shows the situation where your company is the leader.

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Your company

3:

ANALYSING

PERFORMANCE

Competitors A

B

C

Share of customer purchases

25%

15%

40%

20%

Relative share

0.63

0.38

1.6

0.5

+10%

-5%

-2%

-2%

Share trend ± % p.a.

DATA

Figure 3.15: Relative market share In this example the leader is competitor B. Therefore, your company’s relative share is 25 per cent ÷ 40 per cent = 0.63. A similar calculation is done for competitors A and C. For the leader B, the largest competitor is your company. Its relative market share is therefore 40 per cent ÷ 25 per cent = 1.6. This gives an indication of B’s competitive strength in the customer. The higher the leader’s relative share the more advantage it has over its nearest competitor. However, relative share is not the only factor. Change in share is also important. In the example, B’s share is falling, although not as fast as competitor A’s. The main beneficiary is your company. Fortunately, for B so far, the main loser is A. Light should be shed on the reasons underlying

Your company

Competitors A

B

C

50%

25%

10%

15%

2

0.5

0.2

0.3

Share trend ± % p.a.

-5%

0%

+20%

+5%

Strike/success rate

35%

30%

75%

45%

New products introduced

0

1

5

2

Number of joint projects undertaken

3

0

2

1

Service

Service

New products

Price

Share of customer purchases Relative share

Main basis on which they compete

Figure 3.16: Competitor performance scorecard

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the success or otherwise of each competitor by examination of the other measures in the competitor scorecard. The second example in figure 3.16 shows that your company is twice as large in the customer as the nearest competitor A. However, your company is losing share, being attacked primarily by competitor B, who although small, has increased its share significantly at your expense. Competitor C is also attacking you but with relatively less success. Further examination shows that Competitor B’s strike rate is significantly higher. The strike rate shows the proportion of offers presented to the customer, over a 12 month period, that have been turned into orders. For a service or industrial products company this could be the proportion of proposals or quotes accepted. For repeat purchase industrial, business or consumer products this could be the proportion of promotions presented that have been taken up. Competitor B has a strike rate of 75 per cent, showing that three out of every four offers are being turned into a sale, compared to one in three for your company. The new products introduced successfully by B, over the previous twelve months, are also significantly higher. New products are usually defined as those that are new to the customer, whether or not they are new to the supplier. The number of joint projects undertaken gives an indication of the effort being put into the relationship by both customer and supplier and is a reflection of the quality of the relationship. Competitor B has a significant number of joint projects in relationship to its share. Your company has the most, as would be expected from its share of the account purchases. The scorecard gives a number of insights from which conclusions might be drawn. Your company’s reducing share is due to significant new product introductions by competitor B and a much higher strike/success rate. Both your company and competitor A compete mainly on service which appears less attractive to the customer than either new products (competitor B) or price (competitor C). Although your company has the most joint projects with the customer, they do not appear to be impacting as effectively on the relationship as those with competitor B. Further insight can be gained by systematically reviewing the changes occurring with the competitors as shown in figure 3.17. This provides for analysis of four competitors. Of particular interest is what they are doing differently, or more effectively.

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ANALYSING

PERFORMANCE

DATA

Competitors

Activities/changes A

B

C

D

Products Technology Service Quality Communication Customer interface Pricing Channels Other

Figure 3.17: Competitor activity tracking It is tempting at this stage to begin to form a view of what needs to be done to improve performance with this customer. This should be resisted until all the analysis is completed. 3.3 The customer’s market and the customer’s customers

Example: Deutsche Bank spends a lot of time understanding its strategic corporate customers’ markets. Led by a senior investment banker, the account team brings together their industry expertise with the particular situation being faced by the customer in order to understand the customer better and also to bring additional insight and value to the relationship.

The competitive situation in the customer’s market will have a significant impact on the customer’s strategy and actions. Of particular interest are the size, trend and concentration of the market. In figure 3.18 these are reviewed and their implications assessed.

The concentration of the customer’s market is the proportion of total market demand accounted for by the largest customers. In a highly concentrated market the top few customers will account for the bulk of purchases. In non-concentrated markets there will be many purchasers of roughly equal size. Where concentration is high then these customers are likely to be powerful and have a significant impact on the products/services supplied by the customer. The changes, pressures and trends will all have an impact and a supplier that can help the customer cope with these and gain advantage over its competitors in its market will be viewed favourably.

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Customer’s market factors

Implications for customer

Implications for supplier

Market size – value:

% Overall market growth/decline:

% Market share:

% Market share trend ± p.a.:

% Market concentration (top 5):

Other changes occurring

Figure 3:18: Customer market analysis

3.4 Business environment This covers the economic, fiscal, political, legal, social, cultural and technological factors that impact on the customer. Figure 3.19 gives a checklist of factors, which is by no means exhaustive. The factors will vary in individual circumstances depending on the product offerings and the industries/market segments to which they are sold. Business environment

Factors included

Economic, fiscal

Inflation, unemployment, energy costs, price volatility, raw materials availability, skilled labour availability, taxation, subsidies/grants, import/export duties, takeovers/mergers, alliances etc.

Political, legal

Privatisation/nationalisation, labour legislation, environmental legislation, product/packaging legislation, regulatory constraints, regulatory bodies, government review/investigation etc.

Social, cultural

Education, immigration, emigration, religion, demographics, life style, public opinion, fashion etc.

Technology, innovation

Microelectronics, biotechnology, communications, Internet, new materials, new processes, new distribution channels etc.

Figure 3.19: Business environment checklist

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Example: A supplier of cleaning services to a key account in the television broadcasting industry found that their customer was under pressure to employ a culturally diverse workforce roughly representative of the local general population. Also, the increasing technological sophistication and cost of their recording and transmission equipment required faster, more sensitive handling and cleaning to minimise downtime. For the supplier this had implications both for the cultural mix of the cleaning staff in their team and also for the level of training needed to clean high tech equipment.

Business environment factors

3:

ANALYSING

PERFORMANCE

DATA

The business environment factors should be explicitly considered and their implications/impact on the customer and the supplier assessed as shown in figure 3.20. Generally, only those factors that are changing need to be taken into account as these are the ones that are more likely to give rise to opportunities or threats for the customer and hence possibly for the supplier also.

Implications for customer

Implications for supplier

Economic, fiscal:

Political, legal:

Social/cultural:

Technology, innovation:

Figure 3.20: Business environment analysis

3.5 Customer’s competitors The main considerations in this section are the customer’s competitors, who is gaining and who is losing and how they are choosing to compete. This will impact on the customer’s strategy and activities. An analysis format is shown in figure 3.21 that can be used to systematically review these issues.

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Customer

Competitors

Revenues p.a. Revenue trend ±% p.a. Market share % Share trend ±% p.a. Main basis on which they compete

Changes occurring

Figure 3.21: Customer competitor analysis

4. Summary In this chapter we have covered the following: 1. The performance analysis process. 2. Conducting the internal assessment covering:

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•

Analysing sales data using the sales analysis format to review historic trading performance

•

Reviewing cost and profit data by means of the key account contribution and trading profit statement

•

Payment analysis tracking the payment period taken by the customer

•

Service performance analysis using the outputs from customer satisfaction surveys

•

Contact base mapping by means of the contact base matrix

•

Understanding the buying process and analysing the supplier impact

•

Activity analysis tracking the key interactions between supplier and key customer.

CHAPTER

3:

ANALYSING

PERFORMANCE

DATA

3. Conducting the external assessment covering: •

Review of the customer’s value chain with a view to identifying possible opportunities

•

Tracking customer priorities through assessment of the changes taking place in the customer

•

Competitor analysis using the competitor performance scorecard

•

Understanding the customer market and customer’s customers

•

Reviewing the impact of the business environment including economic, fiscal, political, legal, social, cultural, technological and innovation factors that impact on the customer

•

Analysing the customer’s competitors.

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Benchmarking your organisation’s ability to analyse performance data Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

OCCASIONALLY

RARELY/ NEVER

4

3

2

1

1. It is easy to get detailed sales data in both volume and value terms and to measure trends 2. Our share of the customer’s total purchases is known 3. Trading statements are compiled showing the profit made in dealing with the customer and allowing trends to be assessed 4. The customer’s perception of the service received from us and our competitors is monitored and analysed 5. A clear picture exists of staffing of each customer decision making unit and the scope of our interactions with it 6. The buying process is well understood and our impact on it analysed 7. All significant activities taking place with the customer are monitored and managed 8. The customer’s value chain is well understood 9. The customer’s priorities are well understood and the customer’s key financial and performance measures monitored 10. The performance of our competitors in the customer is monitored and analysed 11. The main trends in the customer’s market are monitored and the impact of their customers well understood 12. Changes in the business environment are explicitly monitored and their impact assessed 13. The performance of the customer’s competitors are reviewed Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column SCORING:

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44 – 52 points

Your company’s process for analysing customer performance data is leading edge

35 – 43 points

Your company’s processes are well formed and should be maintained. Although further improvement is possible, the same effort applied to other parts of the key account planning process will probably yield higher returns

24 – 34 points

There are significant deficiencies in the analysis process. Focus on those elements that have the lowest score

24 or less points

The customer analysis process is not working well and requires fundamental review and restructuring

Customer relationship analysis 1. INTRODUCTION 2. THE CUSTOMER BASE MAP 3 . A N A LY S I N G C U S T O M E R R E L A T I O N S H I P S 4. USING BONDING MECHANISMS 5 . R E L AT I N G T H E C U S T O M E R B A S E M A P T O T H E C U S T O M E R R E L AT I O N S H I P M O D E L 6. SUMMARY B E N C H M A R K I N G Y O U R O R G A N I S AT I O N ’ S A B I L I T Y T O C O N D U C T R E L A T I O N S H I P A N A LY S I S

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Chapter 4: Customer relationship analysis

1. Introduction The analysis described in Chapter 3 gives a good understanding of the issues in dealing with a key account. However, even greater insight can be obtained through analysing the relationship between supplier and customer using a couple of wellproven frameworks – the customer base map and the customer relationship model. In this chapter both these frameworks are explored and their value discussed.

2. The customer base map In deciding on its key accounts a company is making a strategic decision as to where it allocates its resources. It is therefore vital that it does not make mistakes. First, it is looking for ‘winners’, customers who are going to contribute increasing value over time and customers that are ‘attractive’. What it does not want are ‘losers’ whose lifetime value will be low. The assessment of lifetime value is a complex problem. Obviously likely future revenue and cost streams will be important factors. However, other factors will also be relevant. The second important consideration is the amount of effort or resources that the company needs to put into the customer to reap the benefits. This is related to the advantages that company enjoys over its competitors in the customer, its ‘competitive position’. These two factors – customer attractiveness and competitive position are considered in more detail in the next two sections. 2.1 Customer attractiveness As well as contributing streams of revenue and profit, attractive customers generate considerable additional benefit for the supplier. Essentially, attractive customers are good for the supplier. The converse is also true – unattractive customers can be bad for the supplier and will absorb more resources than the returns warrant. Surprisingly, lots of companies do not know (or perhaps care) which of their customers is the most profitable now and likely to stay that way. This knowledge is vital to both customer retention and growth.

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Each company must decide for itself what makes customers attractive. Usually, all suppliers are interested in revenue and profit generated through trading with the customer. However, there may also be other important considerations. For example, likely future growth of revenue, the total potential in the customer, the customer’s ability to help the company innovate, their financial stability and so on. The factors that are important will be determined by the company’s strategy. For example, if a company’s strategy is to generate a positive cash flow (cash cow), then the financial stability and credit period taken by the customer become key considerations. On the other hand if the company is going for a high price, and high service position in the market then those customers that have high service requirements will be attractive. Of course they must also be prepared to pay the associated high price. Assessing the criteria for customer attractiveness is not a task that account managers can do on their own. It requires co-ordinated inputs from all the functions within the company. This aspect will be discussed more fully in Chapter 8. In addition, each factor will not be equally important. Some will make a bigger contribution to the implementation of the company strategy and the achievement of company objectives. They therefore need to be weighted to reflect their importance. By doing so a degree of objectivity is brought to bear on what otherwise would be a subjective decision. However, it is not a science but a tool for arriving at better conclusions and making better decisions. Figure 4.1 shows a working format to list and weight the attractiveness factors. The factors are weighted by allocating a number of points amongst them in relation to their importance. In the example 50 points have been used.

Factor

Weighting

Customer geographic coverage (global, regional, local)

12

Potential available within the customer

10

Average supplier revenue growth over last three years

8

Supplier revenue generated in last full year

6

Net contribution in last full year

5

Customer innovativeness

4

Centralised decision making in customer

3

Customer reputation

2 TOTAL

50

Figure 4.1: Customer attractiveness factors – example

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A guideline to selecting the ‘weights’ is helpful so that each person involved knows what they mean. For example: Weight 12 – 15

Guideline Vital. Aligns with supplier’s strategic direction and positioning

8 –12

Important. Will contribute with other elements to the overall success of the strategy

4–8

Beneficial. Not a particularly important factor, but one that could be of some benefit to the supplier

3 or less

Not important

Each factor must be precisely defined to be of use in practice. For example, the factor ‘potential available within the customer’ could mean: •

The total value purchased last year, of those product/services supplied by your company and its direct competitors, by the customer.

•

The total amount purchased last year, of all products in the category, including those your company does not supply, from your company and its direct competitors, by the customer.

•

The total value purchased last year, of all products in the category, including those your company does not supply, from your company and its direct competitors, plus total purchases of those products/services that indirectly compete with yours and are substitutable, by the customer.

Further alternatives include a different time period – forecast this year, or forecast over the next year, or perhaps the next three years. Instead of value purchased, it could be volume, or the trend of total value/volume purchases over the last/next three years. Unless the definition is clear and unambiguous it will lead different people to interpret the meaning of each factor in different ways and make the results of the analysis questionable. In figure 4.2 a format is shown to establish the customer attractiveness factors, encouraging clear definitions to be entered. One way of testing for clarity is to ‘bounce’ the definition off a number of people within the business and ask them what it means. Any ambiguities will be quickly uncovered.

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Unambiguous definition

Figure 4.2: Customer attractiveness factors The number of factors should be restricted to less than a dozen and usually half that number is sufficient. Factors with low weightings will have hardly any impact on the overall attractiveness of the account but can impact on the total amount of work required to complete the analysis. They should be discarded. Some typical factors affecting customer attractiveness are show in figure 4.3. This is not an exhaustive list. Customer innovation • Technology used

Actual purchases • Actual amount purchased – volume or value

Customer culture • Entrepreneurial/ bureaucratic/authoritarian

• Total category amounts purchased – volume or value

• Leader/follower

• Radical/next generation/incremental

• Innovator/laggard

• Reputation

• Power structure

• Patents

• Growth rate of purchases • Cyclical nature of purchases • Seasonality of purchases

• Success measures • Expansion orientation • Influence in industry

• Centralisation of purchasing

Customer finances • Credit rating

• Customer’s market share

• Credit period taken

Potential purchases • Forecast amount to be purchased • Future growth forecast • Likely acquisition/takeover of competitors • Customer plans

Customer demographics • Local/continental/ regional/global • Number of DMUs (decision making units)

• Internal cost of capital

• Centralisation of purchasing decision making

• Relative share price trend vs. sector average

• Age profile of top management

• Relative price/earnings ratio vs. sector average • Cash flow • Return on investment

Figure 4.3: Factors affecting customer attractiveness

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2.2 Competitive position If a supplier holds a strong position in a customer then they will have a number of advantages over weaker competitors including: •

Having a bigger influence over the customer

•

Being more able to lead the customer

•

Holding a more secure footing

•

Having more knowledge of the customer.

Identifying the strength of a supplier’s position in the customer is done in a similar way to identifying the customer attractiveness. Typical factors that impact on competitive position are shown in figure 4.4. Again, this is not an exhaustive list. As with customer attractiveness factors, the total number should be less than a dozen, and more usually around six.

Supplier share of customer • Actual share

Technical strength • Patent protection on offerings

• Relative share

• Advantage of offerings to customer over competitive offerings

• Share trend Relationships • Contacts known • Age of relationship • Accessibility of contacts • Strength of relationship • Mutual obligations • Contracts/sourcing agreements • Period of credit taken

• Superior functionality of offerings vs. competition Competitive pressure • Aggressiveness of competitors • Price pressure • Priority of customer for competitors • Resources devoted by competitors • Agreements with competitors • Ownership structure

Figure 4.4: Factors affecting a supplier’s position in the customer As with attractiveness factors, a clear, unambiguous definition of each factor is required. The format in figure 4.2 can be easily adapted to facilitate this. 2.3 Scoring customer attractiveness and competitive position Having identified the factors showing a customer’s attractiveness and the supplier’s competitive position, individual customers can be assessed. To do so each factor needs to be calibrated so that a customer can be rated as either good, average or poor against each. For example, taking the attractiveness factor of ‘supplier revenue generated last year’, a customer that bought more than €50m may be considered a very good

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customer and given a rating of 3; one that purchased between €20m and €50m an average one and given a rating of 2; whilst one that bought €20m or less as a poor one and given a rating of 1. In the same way as there is no absolute set of attractiveness or position factors, so each supplier must develop its own calibration and rating scale appropriate to the size and capability of its business. The number of rating points used is not critical and a five, ten or fifteen rather than three-point scale is equally appropriate. Negative ratings can also be used. The only proviso is that the rating scale should not vary between factors. Figure 4.5 shows an example of a calibration with a three point rating scale. To assess how much any particular customer scores for each factor the definitions shown should be referred to. Ratings

Factor Weighting

High 3

12

Potential available within the customer

10

> €75m

€25 – €75

< € 25m

Average supplier revenue growth over last three years

8

>25% p.a.

10% – 25% p.a.

<10%

Supplier revenue generated in last full year

6

>€50m

€20m – €50m

< € 20m

Net contribution in last full year

5

>€15m

€3m – €15m

<€3m

Customer innovativeness

4

Customer reputation

3

2

TOTAL

Represented in 2+ countries

Low 1

Customer geographic coverage (global, regional, local)

Centralised decision making in customer

Represented in 2+ continents

Medium 2

Represented in only 1 country

First to bring Usually follows product innovations leader within to market one year

Usually follows leader after one year

All purchasing authority and activity at one central point

Central authorisation required but purchasing conducted locally

All purchasing authorisation and activity is carried out locally

Used as reference for excellence by others in the industry

Highly regarded by most others in the industry

Regarded as average or less by others in the industry

50

Figure 4.5: Customer attractiveness factors – calibration example

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The ratings on the competitive position factors should be established in the same manner. Individual customers can then be assessed and their attractiveness and competitive position scores established. An example is shown in figure 4.6 for the attractiveness factors. The score is obtained by multiplying the weighting by the rating and then the scores are added to obtain the total attractiveness score. The process is exactly the same for the competitive position factors.

Factor

Weighting

Rating

Score

Customer geographic coverage (global, regional, local)

12

2

24

Potential available within the customer

10

3

30

Average supplier revenue growth over last three years

8

3

24

Supplier revenue generated in last full year

6

2

12

Net contribution in last full year

5

1

5

Customer innovativeness

4

3

12

Centralised decision making in customer

3

3

9

Customer reputation

2

3

6

Total attractiveness score

122

Figure 4.6: Evaluating customer attractiveness – example In the example shown in figure 4.6 the customer’s attractiveness score is 122. This compares with a maximum possible score of 150 (if a customer scores 3 against each criteria) and a minimum possible score of 50 (if the customer scores 1 against each criteria). In percentage terms this customer scores 72 per cent. This is evaluated using the following formula. Percentage attractiveness = Total attractiveness score – minimum attractiveness score Maximum attractiveness score – minimum attractiveness score = 122 – 50 150 – 50

X 100

X 100 = 72%

Having worked out the customer attractiveness and competitive position scores, conclusions need to be drawn on priorities and how resources should be allocated. This is greatly helped by the customer base map.

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2.4 Customer base map The customer base map is a specific application of a general marketing analysis tool known as the General Electric/McKinsey Matrix or the Directional Policy Matrix. It is called the Account Policy Matrix or Customer Base Map when applied to individual customers. The Customer Base Map relates the total customer attractiveness and competitive position scores together. Figure 4.7 shows an example. A circle is drawn representing each customer; the size of which can represent revenue or volume purchases, potential or profit, depending on the issues one wishes to highlight. The segments show the share held by each competitor of the customer’s total category purchases.

Customer attractiveness High

67%

Medium

33%

Low

0%

Strong

100%

Moderate

Competitor B Your Company Competitor A

33%

Weak

Competitive position

67%

0%

Figure 4.7: The customer base map In figure 4.7, the circle represents the potential for the customer, and the segments show the customer shares of your company and the two competitors. The analysis can be completed for each customer so as to populate the matrix. This is also known as a ‘bubble chart’. In turn the generic strategies appropriate to each customer will be defined. Figure 4.8 shows these strategies for each cell of the matrix. Customers falling in cells 1, 2 and 4 are the priority customers (as shown by an asterisk* ). Cell 1, with three asterisks is the top priority, followed by those in 2 and 4.

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Customer attractiveness

Strong

100%

67%

High 1. Invest for growth and profit***

Medium

2. Invest for profit** Attack/defend strategy

33%

Low

0%

3. Maintain for profit Defend strategy

Attack strategy

Moderate

4. Invest for growth**

5. Maintain for profit

Attack strategy

Defend strategy

6. Maintain for profit Defend/delegate strategy

33%

Weak

Competitive position

67%

7. Invest selectively for growth or delegate/ maintain Attack/defend strategy

8. Select to optimise for profit or to delegate

9. Select to resign or to delegate to save cost

Defend/delegate/ withdraw strategy

Withdraw/ delegate strategy

0%

Figure 4.8: The customer base map – generic strategies Accounts falling in cells 1,4 or 7 all have potential for growth. Cell 1 customers can also produce cash and profits but usually at the cost of faster growth. Accounts in cells 2, 3, 5 and 6 have the potential to generate profit, although if not well managed can absorb more cash than they generate. Accounts in cells 8 and 9 will absorb cash unless less costly ways, such as using distributors, can be found to service them. A generalised framework for evaluating the attractiveness and competitive position scores is shown in figure 4.9. This format lends itself to the use of a spreadsheet such as Microsoft Excel and the matrix can be constructed with graphics packages such as Microsoft Graph. Specific software packages are also available to draw the bubble chart.

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Factor

Weight

Customers A

B

C

D

E

F

Score Total Score Total Score Total Score Total Score Total Score Total

Total

Figure 4.9: Calculating customer attractiveness/competitive position scores

2.5 Prioritising key accounts The priority customers are those in cells 1, 2 and 4 of the customer base map. These are the key/strategic customers requiring detailed account plans. Next come those in cells 5, 3, and 6 requiring less in-depth planning. If there are sufficient resources left then those in cell 7 who have been selected become a priority. Finally, those in cells 6, 8 and 9 are tackled. Four types of generic strategies are suggested depending on the location of the customer on the customer base map. Attack strategies are characterised by: •

Taking the initiative, anticipating issues and market drivers and offering solutions

•

Pre-empting the competitors

•

Using superior force

Whilst defence strategies are characterised by: •

Observing the competitors

•

Assessing the most appropriate response

•

Using blocking moves

The third strategic option, delegate is characterised by: •

Retaining some customer presence at minimum level of contact

•

Not countering competitive attack

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•

Maintaining a limited amount of key personal relationships

•

Developing alternative contact and service methods

Finally, withdraw strategies, are characterised by: •

Complete disengagement from the customer

•

Allowing competitors to gain the business

•

Not making any response

Each strategy has direct implications for the level of resource, mainly people and money that the supplier needs to harness to implement it successfully. Figure 4.10 indicates the resources required to successfully implement each strategy. Starting with a single resource unit for a withdraw strategy, then a delegate/maintain strategy requires two units, a defend strategy six units and an attack strategy a minimum of eighteen units. One of the greatest failures in implementing account plans is the lack of vision to identify and to harness sufficient resources to implement an effective attack strategy.

Strategy

Resources

Example of activity

Withdraw

1 unit

Manage exit. Increase price, provide customer with alternative.

Delegate

2 units

Keep contact. Use less costly resources. Do not account manage. Consider telephone selling, direct/Internet marketing, handing over to distributors. Sell standard offerings. Provide standard service.

Defend

6 units

Maintain share of customer’s business. Maintain/expand and actively work the contact base. Sell standard offerings. Provide standard service. Defend against competitor attack.

18+ units

Increase share. Account manage, develop and use account plans. Priority service. Actively work and expand the contact base. Stimulate joint projects. Use price selectively and aggressively. Develop individual offerings to suit customer needs and requirements. Develop long-term joint planning horizons.

Attack

Figure 4.10: Minimum resources needed to implement each strategy

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3. Analysing customer relationships One of the key dynamics impacting on the success, or otherwise, of the interactions between purchasing and supplying organisations is the relationship between the two. This relationship is multifaceted and its health is determined by interpersonal interactions, trading exchanges, power balance, trust and many other quantitative and qualitative factors. Since relationships are so important, it is necessary to have an understanding of them that goes beyond the rather shallow descriptions of ‘good’, ‘bad’ or ‘indifferent’ if they are to be planned well and with a degree of insight. Typically both experience and research 2 suggests that account managers tend to be a little over optimistic about relationships, perceiving what they would like to believe, rather than the cold harsh reality. This means that the relationship has to be put under the microscope and examined in detail. 3.1 The relationship model To some extent, customer relationships, like personal ones, evolve in a predictable manner. A useful model is shown in figure 4.11.

Courtship (Transactional)

Engagement (Proving)

Honeymoon (Deepening)

Wedlock (Managing)

• Starts with initial contact • Supplier attempts to gain customer’s business through presenting an attractive offers • Buyer keeps supplier at a distance • Transactional relationship • Ends when customer/supplier signals desire to upgrade relationship • Customer tests actual vs. promised experience • Interaction broadens and customer issues and problems are revealed in discussion • Finishes when preferred/strategic supplier status achieved • • • • •

Business partnership develops Become favoured supplier High level of mutual trust Large amount of mutual benefit and gain Ends when repetition sets in

• Complacency sets in • Customer can show interest in ‘exciting’ competitors • Can revert to engagement if significant probems occur and even ‘divorce’

Figure 4.11: How key account relationships revolve

2

McDonald and Woodburn, 1999

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This suggests that there are four main stages through which customer relationships evolve, which are labelled courtship, engagement, honeymoon and wedlock. Some organisations are not comfortable with these labels, in which case they should choose ones which are more in line with their culture. Although there are similarities between organisational and interpersonal relationships, they are not the same. Care must be taken therefore, not to apply the analogy too literally. During courtship the supplier is often very active incurring costs initially without, as yet, receiving any revenue. During engagement, the customer/supplier looks for a deeper relationship that involves a greater exchange of information and assisting the customer to address specific issues and problems. The customer evaluates the product/service and the purchase experience against what was promised/ expected. If it is in line then further purchases occur, the relationship deepens as trust builds. If this experience continues to be a good one for the customer the relationship becomes more significant and the supplier will account for an everincreasing share of the customer’s purchases in the category. At some point the customer appreciating the benefits of a strong partnership will allow themselves to become dependent on the supplier, when the relationship moves into the honeymoon stage. This is likely to occur when the supplier begins to account for 40 per cent+ of the customer’s purchases in the category. Here the supplier is much favoured by the customer and vice versa and the relationship can become extremely productive. Sometimes, however, neither side is sensitive enough to recognise this stage and it goes by unnoticed. One reason for this is that other, more problematic relationships grab the attention and energy of the individuals concerned leaving the fertile, unproblematic honeymoon relationships unattended. The wedlock stage is much more taxing with varying levels of trust. Price becomes very important again and negotiation is a key dimension of the relationship. Relationships can move both ways. Sometimes, if significant problems are present then wedlock relationships can move directly back to engagement, as the supplier looses share and influence. Conversely, if the relationship is well managed then it may move from wedlock back into a second honeymoon. Separation and divorce may also occur. 3.2 Assessing the relationship stage and state The model is fairly intuitive but a degree of objectivity is needed to recognise which stage a particular customer relationship is at. Some guidelines are given in figure 4.12, outlining the major characteristics of each stage.

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Relationship stage Customer characteristics

Courtship

Engagement

Honeymoon

Wedlock

Sales

None, low

Low, growing

Growing, high

Plateauing, declining, growing slowly

Sales share

None, low

Low, growing

Greater than 40% growing

Greater than 40%

Price sensitivity

High

Growing less

Low

High

Profit potential

None, limited

Low, increasing

High

High, fluctuating

Contact base

Few

Few, growing

Many

Many

Supplier status

Low

Low and increasing

High, partner

Fluctuating, partner

Mutual dependence

Low

Low and growing

High

High

Trust

Little

Growing

High level

Varying

Tolerance of supplier errors

Low

Low but increasing

More forgiving

Moderate

Figure 4.12: Relationship stage characteristics The analysis can be made more insightful by recognising that each stage comprises a number of states. In the same way as there are good and bad marriages in human relationships, so some states are better than others in organisational relationships. The states are listed in figure 4.13 together with a brief summary description of each. The interpersonal relationship analogy is continued although again, if the organisation is not comfortable with these labels, others more in line with their culture should be chosen.

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STAGE

STATE

SUMMARY DESCRIPTION

COURTSHIP

Whirlwind romance

Customer has very strong need and is eager to purchase quickly

Third time lucky

Customer has existing supplier but may be willing to change if convinced of additional benefits

Long shot suitor

Customer has good relationship with existing supplier and is doing a ‘reality check’ to ensure their offer is competitive

Too good to be true

Customer is very eager to order and is selling the supplier on the benefits of dealing with their organisation

Distant

Transactional relationship with limited contact base and few if any significant interactions

Second time around

Following earlier separation or divorce

Early evaluation

Follows delivery of first orders when customer evaluates experience vs. promise

Middle, moving closer

Supplier’s share of trade is increasing and broader issues are being discussed

Middle, stable

Supplier’s share is static, little progress is being made and competitive pressure is increasing

Regressing

Supplier’s share is decreasing and there is a strong possibility of separation

Long-term accommodation

Supplier has a low, but relatively stable share for several years

Newly-wed

Supplier has a high share of customer’s purchases and there is a lot of openness

Long and loving

The best relationship in terms of sharing information, future orientation and strategic partnership

Weekend

Short period of openness with relatively few members of the DMU

Unnoticed

Where honeymoon conditions are present but no effort is being put in by either side

No trading is taking place between customer and supplier

ENGAGEMENT Supplier has a small share of customer’s available business

HONEYMOON Significant mutual dependency and very high levels of trust

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WEDLOCK

Post honeymoon

Mutual dependency with fluctuating trust and significant competitive pressure

Openness and trust high but decreasing a little. Strong commitment to the future

Growing together

Share of customer’s purchasing is high and increasing

Roller coaster

Confrontational relationship on the surface but underlying trading relative high and stable

Growing apart

Share decreasing and significant trading problems are present

Crumbling

Share falling quickly and interpersonal as well as trading problems are apparent

Stable

Relative static share and little innovation in relationship

Seven year itch

Relationship has existed for some time and there are few problems, customer shows signs of wanting to change

Figure 4.13: The relationship states The value of the model is that it provides a language to describe customer/supplier relationships in a more detailed and specific way than the broad descriptors ‘good’, ‘bad’ or ‘indifferent’. Relationships can now be analysed to assess where they are – their stage and state. In addition it provides a useful structure to enable the account manager to review the customer performance with his/her boss. This can be done using the format in figure 4.14. Relationships are complex and their analysis is not an exact science. However, the more objective the analysis, the more realistic will be the judgement on the true state of the relationship. The analysis can be related back to the specific stages and states on a judgemental basis. For example, having identified the customer as being in the wedlock stage, then if the relationship is co-operative, but becoming less so, the attitudes are business like, sales are plateauing and share is decreasing and so on, then it may be concluded that the relationship is at the ‘moving apart’ state.

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Customers Relationship assessment criteria

A

B

C

D

E

Nature of relationship Choose from transactional/co-operative/interdependent Customer attitude/language used Choose from confrontational/business like/collaborative Age of relationship Choose from short/medium/long

Sales trend/growth/decline Choose from falling/static/increasing /n/a 1 Share trend growth/decline Choose from falling/static/increasing/n/a 1 Product range penetration Choose from narrow/average/wide/n/a 1 Contact base – supplier/customer Choose from narrow/average/broad Frequency of interaction with key contacts Choose from occasionally/average/often Openness of information exchange Choose from secretive/average/open Frequency and severity of problems Choose from many/average/few/n/a 1 Tolerance to supplier errors Choose from low /average/high Intensity of competitive activity Choose from high/medium/low Price pressure Choose from high/medium/low Period of credit taken (relative to normal) Choose from long /average/ short /n/a 1 Short vs. long-term time horizon Choose from short/average/long Formal partnership agreement Choose from none/discussing/in place Knowledge of customer’s business Choose from low/average/high Possibility to grow customer’s business Choose from none/limited/significant Present relationship Stage State

Note: (1) n/a = not applicable

100

Figure 4.14: Relationship analysis sheet

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Another way is to allocate a score of 1, 2 or 3 to each answer. For example, if the nature of the relationship is transactional it scores 1, if it is co-operative it scores 2 and if interdependent it scores 3. Score 0 if N/A. Totalling the scores gives an indication of the state of the relationship as shown in figure 4.15. For example, courtship – whirlwind romance might be indicated by a score of 17 to 19; engagement – early evaluation by a score of 27 to 33. Sometimes a score may suggest a number of possible stages and states. A score of 21, for example, could indicate courtship – too good to be true; courtship – second time around; engagement, regressing; or wedlock – crumbling. It must be emphasised that this is an inexact science and judgement and experience need to be applied in reaching conclusions.

Scores Stage

State

10

Courtship

Whirlwind romance

18

26

34

42

50 54

Third time lucky Long shot suitor Too good to be true Distant Second time around Engagement

Early evaluation Middle, moving closer Middle, stable Regressing Long-term accommodation

Honeymoon

Newly-wed Long and loving Weekend Unnoticed

Wedlock

Post honeymoon Growing together Roller coaster Growing apart Crumbling Stable Seven year itch

Figure 4.15: Initial assessment of relationship states

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3.3 The customer health check The relationship analysis can be further enhanced by a systematic consideration of the major issues impacting on it. A format for this supplementary health check is shown in figure 4.16. Issue

Implications

People issues • Personal relationships • Trust • Boredom • Culture • Work rate • Responsiveness • Organisational pressures • Reorganisation Trading issues • Quality issues • Price issues • Service issues

Figure 4.16: Customer health check

4. Using bonding mechanisms Bonds tie customer and supplier together to make the relationship stronger. The implementation of bonds is the main way in which suppliers can steer from one stage and state to another, thereby improving relationships. For bonds to be of high value something must be contributed by both customer and supplier, even if the latter is just giving their time. There are many different bonds that a supplier can apply. They will all fall into one of four categories as shown in figure 4.17.

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Competence trust

Entry barriers

Basic activities that build customer trust and minimise risk of purchase

Advantages received from the incumbent supplier that make it difficult for competitors to gain business

Exit barriers

Contributors to customer objectives

Lock-ins making it difficult for the customer to go to competitors

Inputs by the supplier that directly and positively impact on the customer’s objectives

ANALYSIS

Figure 4.17: The four categories of bonding mechanisms A list of some of the bonds that might be included in each category is shown below. This list is by no means exhaustive. The bonds that organisations use are only limited by their creativity. Competence/trust bonds • Providing the specified offering, at the promised time, at the price agreed, in the condition required •

Customer entertainment

•

Customer events

•

Factory visits

•

Top management involvement

•

Sales visits

•

Complaints handling processes

•

Bending the system

•

Honesty when problems occur

Entry barriers • Low price •

Product superiority

•

Electronic links with customer

•

Joint scenario planning

•

Joint long-term planning

•

Performance based pricing structures

•

Joint innovation

•

Problem resolution procedures

•

Supplier provided training

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Exit barriers • Habit/customer inertia •

Personal relationships

•

Technical support

•

Specialist knowledge related to using a supplier’s offering

•

Long-term agreements and contracts

•

Long-term discounts and overriders

•

Key customer club

•

Free loan equipment

•

Financial support

•

IT systems

Contributors to customer objectives • Supplier’s staff working for/with customer •

Joint marketing communication

•

Joint project teams

•

Jointly funded ventures

•

Management support systems for customer’s business

•

Key account and planning

A review of the actual bonds being used with a key account should take place using the format in figure 4.18. The value of the bond from the customer’s perspective should be assessed. There may be research such as a customer satisfaction survey available, which can shed light on this area or the customer’s opinion can be directly obtained. How well the bond is implemented should be assessed using judgement and the implications of any differences between bond value and effectiveness of implementation identified.

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Bonds

Value to customer 1 low – 10 high

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ANALYSIS

Implications

Competence/trust

Barriers to entry

Barriers to exit

Contribution to customer objectives

Figure 4.18: Bonding audit The bonding audit will reveal the different bonds being used with a particular customer. This will sometimes show many more than the key account manager might initially think. The value and effectiveness of each of the bonds can be assessed in relation to the resources applied to it, using the bond portfolio matrix in figure 4.19.

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Resources required to implement bond Low

High

Bond value/effectiveness

High 1. Use more

2. Continue to use, seek to lower cost

3. Selectively eliminate to reduce complexity, or try to increase perceived value

4. Eliminate or reduce costs/increase perceived value quickly

Low

Figure 4.19: Bond portfolio matrix The most useful bonds are those in quadrant 1 which require low resources to implement but have high value/effectiveness for the customer. These should be used more extensively and if required, given more resources to enable this to happen. In quadrant 2, the bonds are likely to be significant to both supplier and customer and they are likely to be a key focus in the relationship. They need to be maintained, but if possible, ways need to be sought to tr y and reduce their costs without decreasing their effectiveness.

Example: The managing director of a Dutch building products company developed a low cost, high value bond with his top five customers. Twice a year he would invite them together to discuss his proposed investments in new production facilities such as new machinery, increasing line capacity, new products and building new plant. Their advice proved most useful and they felt that they were having a serious impact on the products and services that were needed to meet their future requirements.

Bonds with low value to the customer and low cost to the supplier, in quadrant 3, should be questioned. Although they will cost relatively little, they will have hidden costs in terms of adding to the complexity of the relationship and associated opportunity costs, in the sense that the resources may be used elsewhere more effectively. These bonds should therefore be eliminated unless there are strong reasons for keeping them. If this is the case then attempts should be made to increase their perceived value. There are many ways of doing this. For example, reminding the customer of the benefits derived from the bond, or letting the customer know that the activity may be discontinued.

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In quadrant 4, bonds of high cost but low value should be eliminated quickly. In some cases they may be worth keeping if ways can be found to reduce their cost and/or increase their perceived value quickly.

5. Relating the customer base map to the customer relationship model The customer base map and the relationship model are closely related, in the sense that customers at particular relationship stages will tend to be clustered in particular parts of the map. For example, with honeymoon customers, the supplier is likely to have a strong competitive position and the customer is likely to be highly attractive. Figure 4.20 shows the relationship. Customer attractiveness

Strong

100%

High

67%

Medium

33%

Low

0%

Honeymoon

Wedlock

Moderate 33%

Engagement

Weak

Competitive position

67%

Courtship 0%

Figure 4.20: Relating the relationship model to the customer base map If any customers on the customer base map fall significantly outside the area indicated by their relationship then they should be reviewed. Most likely, the relationship analysis needs to be re-examined as the supplier’s perceptions are often more optimistic and positive than the reality. Finally, although relationship analysis is scored and viewed at a corporate level, it is important to remember that relationships develop through the willingness and collaboration of people from both parties. Individuals and how they interact are critical. Assess the risk of key individuals leaving and have a contingency plan to mitigate the circumstances.

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6. Summary In this chapter we have covered the following: 1. The customer base map •

Identifying and assessing customer attractiveness factors

•

Determining the factors and assessing a supplier’s competitive position in the customer

•

Scoring customer attractiveness and competitive position

•

Drawing the customer base map.

2. Prioritising customers •

Highest priority customer in cells 1, 2 and 4

•

Next priority cells 5, 3 and 6

•

Next priority cell 7

•

Lowest priority cells 8 and 9

•

There are four generic strategies – attack, defend, delegate, withdraw.

3. Analysing customer relationships •

The relationship model of four stages – courtship, engagement, honeymoon and wedlock

•

Each stage consists of a number of states

•

Relationships should be analysed systematically to assess where they currently are

•

Carrying out the customer health check will highlight particular important issues.

4. Bonding mechanisms •

Classifying the variety of bonds used as either competence/trust, barriers to entry, barriers to exit or contribution to customer objectives

•

Conducting a bonding audit

•

Assessing bonding effectiveness vs. costs to assess the worthwhile bonds that should be used more.

5. Relating the customer base map and the customer relationship model.

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Benchmarking your organisation’s ability to conduct relationship analysis Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

OCCASIONALLY

RARELY/ NEVER

4

3

2

1

1. A process involving all functions within the business is used to agree a set of customer attractiveness criteria 2. A process involving all functions within the business is used to agree a set of competitive position criteria 3. All criteria and their ratings are unambiguously defined 4. Data is collected to establish the value of each of the criteria 5. The customer base map is used to prioritise customers periodically 6. The customer base map is used to determine the generic customer strategy 7. A well understood and accepted customer relationship model is used in the business 8. Customer relationships are systematically analysed using the relationship model 9. Bonding mechanisms are well understood and reviewed systematically 10. Bonding mechanisms are regularly realigned to increase their effectiveness or reduce their number and/or cost. Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column GRAND TOTAL SCORING: 34 – 40 points

Your company’s process for relationship analysis is leading edge

26 – 33 points

Your company’s processes are well formed and should be maintained. Although further improvement is possible, the same effort applied to other parts of the key account planning process will probably yield higher returns

18 – 25 points

There are significant deficiencies in the relationship analysis process. Focus on those elements that have the lowest score

17 or less points The customer relationship analysis process is not working well and requires fundamental review and restructuring

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Conducting the SWOT analysis 1. INTRODUCTION 2 . T H E P U R P O S E O F T H E S W O T A N A LY S I S 3 . A N A LY S I N G S T R E N G T H S A N D W E A K N E S S E S 4 . S P O T T I N G E X T E R N A L O P P O RT U N I T I E S A N D T H R E AT S 5 . T H E S W O T A N A LY S I S 6. SUMMARY B E N C H M A R K I N G Y O U R O R G A N I S AT I O N ’ S A B I L I T Y T O C O N D U C T S W O T A N A LY S I S

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Chapter 5: Conducting the SWOT analysis

1. Introduction Reviews of many account plans suggest that there are few tools used as often as the SWOT analysis that are so poorly applied. Observation indicates that a SWOT analysis tends to consist of a long list that seems to have little to do with any of the analysis that preceded it or with the proposed account objectives and strategies that succeeds it. For the most part it is completed because the particular plan format being used requires it to be done. This is unfortunate because the SWOT analysis is the bridge that links the detailed analysis described in the preceding two chapters with the account objectives, strategies and tactics discussed in subsequent ones.

2. The purpose of the SWOT analysis The SWOT analysis serves two main purposes: 1. It provides a one-page summary of the most important outputs from the analysis stages. 2. It allows the strategic focus for the account to be identified. The one-page summary is valuable because it helps to focus attention on what is most important in the complex situation between the supplier and the customer. The number of entries into the SWOT should be not be too large. There is no merit and no point in having long lists. The second purpose for the SWOT, and its most important, is to provide strategic focus, as shown in figure 5.1. Once completed, it reveals the possibility of a supplier using, or leveraging a strength to capitalise on a customer opportunity. If this is possible then the supplier will be able to implement an attack strategy that leverages a core competence (strength) to deliver a better, more attractive relationship to the customer than competitors. Conversely, if there is a threat that will undermine the supplier’s position because it impacts on a weakness, then a defence strategy will need to be implemented to block its impact.

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Weaknesses (Internal)

Strengths (Internal)

Will threats undermine strengths?

Need to eliminate weaknesses to block threat

Scope to leverage strength to capitalise on opportunity

Will weaknesses prohibit opportunity being capitalised on?

Opportunities (External)

Threats (External)

Figure 5.1: The strategic application of the SWOT analysis Sometimes it may not be possible to use a strength to take advantage of an opportunity because it is being undermined by a threat. If this is the case, the strength must be reinforced to block the threat. If this cannot be done, then the strength cannot be leveraged to capitalise on an opportunity. For example, a supplier may have a strength such as a patent on a product that is particularly important to a vital customer application. However, the customer may be developing a replacement process that does not require the particular application – a threat. On other occasions it may be that a weakness makes it difficult to capitalise on an opportunity, despite the existence of a strength that can be leveraged. In this case, the weakness needs to neutralised if the opportunity is to be made the most of. For example, the supplier may have a very low share of the customer’s business – a weakness. In addition, it has a very good market research department that is very knowledgeable about the customer’s potential markets – a strength. The customer wishes to expand into new markets – an opportunity. However, the supplier will find it difficult to utilise its research strength because its weakness reduces its importance to the customer.

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3. Analysing strengths and weaknesses 3.1 Real strengths and weaknesses Strengths and weaknesses are related to the position of the supplier within the customer. They are internal to the supplier and its trading relationship with the customer. For a strength to be a genuine one, three tests need to be applied, each of which must be positive. 1. Is it important to the customer? Unless the strength possessed by the supplier is important to the particular customer then it cannot be a real strength. General strengths possessed by the supplier, such as say technically high trained sales engineers, may or may not be relevant to a particular customer depending on their own application and development requirement. 2. Are we better that the competitor(s)? Even if the strength is relevant to the customer, it still may not be a genuine strength because the competitor(s) has a similar strength that is of equal or superior quality. 3. Is it difficult for the competitor to emulate? Even if the competitor is not as good, the strength may not be a real one, if it is possible for the competitor(s) to catch up relatively easily. If they do so then test two becomes negative. Very similar sets of tests are applied to assess weaknesses. 1. Is it important to the customer? This is the same as for strengths 2. Are we worse that the competitor(s)? Our position is inferior to that of the competitor(s) 3. Is it difficult for us to emulate? It will require significant resources and time to catch up with the competitor. By applying these three tests many supposed strengths and weaknesses will fall by the wayside, and long lists can rapidly be reduced to a few core strengths. One way of doing this systematically is to give each positive answer to the three tests a score of 1 and negative answers 0. Only those strengths/weaknesses that score a total of 3 points are genuine.

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3.2 Sources of strengths and weaknesses The analysis in Chapters 3 and 4 provides the inputs to the SWOT analysis. Figure 5.2 shows the sources of the inputs, referencing the relevant figures in Chapters 3 and 4. Inevitably, there is some overlap between some of the information provided by some of these sources. For example, some of the factors reviewed in the activity analysis (figure 3.8) such as ‘joint planning’ may also show in the bonding audit (figure 4.18). However, as they are considered from different perspectives, they are complementary rather than merely repetitive.

Bonding audit Figure 4.18

Sales analysis Figures 3.2 & 3.3

Customer health check Intranet Figure 4.16

Cost and Computer profit telephony analysis integration Figure 3.9 Customer satisfaction Figure 3.10

STRENGTHS AND WEAKNESSES

Search Relationship engines/ analysis data-mining Figure 4.14

Activity analysis Internet Figure 3.8

Competitive position factors Figure 4.9

Buying process analysis Figure 3.7

Customer Business contact analysis andmatrix decision Figure 3.5 support

Figure 5.2: Sources of strengths and weaknesses

Relative share Your company’s share of the customer’s category purchases divided by that of the largest, for example: Your company’s share

Largest competitor share

Relative market share

10%

40%

0.25

30%

30%

1

60%

20%

3

A good starting point for the SWOT analysis is the ‘customer base map’ because one of the dimensions that it incorporates is ‘competitive position’; that is, the strength of the supplier in the customer, relative to its competitors. The main factors that impact on the supplier’s competitive position in the customer have been discussed in Section 2.2 of Chapter 4. To show the process of assessing whether a factor is a real strength or weakness, ‘share of the customer’s purchases’, which is nearly always a key dimension, will be used as an example. If the supplier’s relative share is significantly greater than 1 (at least 1.3) then this is usually a strength. (A

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relative share above 1.3 means the supplier’s share is a minimum of a third larger than its biggest competitor.) It therefore would get a positive answer to test two for strengths (are we better than competitors?) and also for test three (is it difficult for competitors to emulate us?). However, a supplier with a relative share of between 1 and 1.3 is probably not far enough ahead of its main competitor to make it difficult for them to catch up. Hence the answer to question 3 would be negative in this case. Conversely, once a supplier’s relative share reduces below 0.75 is it likely that its share is a weakness since the largest competitor is at least one third larger than it is. It would therefore get positive answers on tests two (are we worse than competitors?) and three (is it difficult for us to emulate?) for weaknesses. However, relative share on its own is not sufficient. Question 1, ‘is it important to the customer?’, also needs to be addressed. To do so it is necessary to look at actual share since this will indicate importance to the customer. If there are many suppliers and none have a share of the customer’s purchases in the category above 20 per cent then none are likely to be important to the customer. The answer then to question 1 is negative. Hence share, irrespective of the supplier’s relative share is neither a strength nor a weakness. Once shares exceed 20 per cent then the supplier or competitor becomes more important to the customer. The answer to question 1 is therefore positive and share of customer category purchases could become a source of strength or weakness. Using each of the tests and scoring 1 for a positive answer and zero for a negative answer and adding the result will give a score of 3 to indicate a real strength or weakness. Figure 5.3 provides a format for identifying real strengths and weaknesses. From the analysis described in Chapters 3 and 4, each factor is listed and an initial subjective assessment made on whether it is a strength or weakness. The three appropriate tests are applied and the results added. Only those scoring 3 are entered as real strengths or weaknesses in the final column. Some may feel that this approach excludes some moderately strong strengths, which in the absence of really powerful ones, need to be capitalised on. This can be accommodated by allocating a half point if the factor partially meets the test. For example, rather than scoring zero if the share of the customers business is less than 20 per cent, a half point may be allocated if it is between 10 per cent and 20 per cent. Strengths scoring 2 or 2.5 can also be included, provided that it is realised that a strategy based on it involves a higher degree of risk.

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Identify as a possible strength or weakness

Total score

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Specify as a real strength or weakness

Competitive position

Sales analysis

Cost/profit analysis

Customer satisfaction

Activity analysis

Customer contact matrix

Buying process analysis

Relationship analysis

Customer health check

Bonding audit

Figure 5.3: Strength and weakness analysis

4. Spotting external opportunities and threats 4.1 Real opportunities and threats In some ways the use of the word opportunity can be misleading. It is often interpreted as a potential action the supplier could take. For example, if it is due to launch a new product, then it may define as an opportunity, the possibility of selling the product to the key customer. Alternatively, an opportunity might be perceived as the chance to eliminate a weakness. These are not helpful ways of looking at opportunities.

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Rather, opportunities should be viewed as events over which the supplier has no, or minimal influence or control. They are external to their organisation. Opportunities are concerned with the customer or their environment. Actions – what the supplier might do – are not opportunities. Indeed actions have no part to play in the SWOT analysis. Deciding action (strategy) happens after the SWOT is completed. Whether an opportunity is exploited or not is a decision subsequently taken. Opportunities, if they happen, could be beneficial to the supplying organisation. It may benefit through increasing share of the customer’s purchases, obtaining the patents for a new product, learning new/special skills, improving its image and so on. Threats are generally far easier to identify. They are also external to the supplying company and could, if they materialise, do harm to the supplier. This harm may manifest itself in any number of ways including losing customer share, having to redevelop an offer, needing to reduce price, having to apply more resources, receiving negative publicity and so on. Both opportunities and threats therefore are external to the supplier organisation and its trading with the customer. They are to do with the customer itself, the supplier’s competitors, the customer’s competitors, the customer’s customers and the environment. Opportunities and threats are also concerned with what might happen. There is no absolute certainty that the impact of an opportunity or threat will ever actually materialise. For example, proposed legislation may be a threat but there is no guarantee that it will be enacted. Strengths and weaknesses, in contrast, are internal to the supplying company and its trading with the customer, and are concerned with what is, not what might be. 4.2 Sources of opportunities and threats One of the most significant sources of opportunities and threats is change. Anything that is changing creates a new set of circumstances that need to be dealt with. New legislation, technology or operating methods all have an impact and may open up opportunities or pose threats. Markets change, they grow or decline; customer needs and requirements evolve; ways of doing business together advance; reputations flourish or founder. Since many things are changing most of the time, the challenge is to spot the important changes that are likely to have a significant effect on the customer. Competitors are often a significant source of opportunity or threat. New entrants may reduce the available market for an incumbent supplier, whilst a withdrawal will have the opposite effect. Competitors can exert pressure through pricing, new product introductions, reaching agreements with customers and so on, which can be threats.

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Also, the customers themselves are continually changing, reorganising, implementing new strategies and priorities, embarking on new initiatives and abandoning existing ones, all creating possible opportunities and threats. The main sources of opportunities and threats are shown in figure 5.4 with the relevant references to the figures from the analysis conducted in Chapters 3 and 4 also shown. Each possible opportunity and threat must be examined and assessed against three tests: 1. Is it external to the supplier? 2. Will it benefit or harm the supplier if it continues/materialises? 3. Will its actual/potential impact be of significance?

Customer competitor Intranet analysis Figure 3.21

Business Search environment engines/ analysis data-mining Figure 3.20

Customer Computer potential and telephony trends integration Figure 3.2

Buying Computer process telephony analysis integration Figure 3.7

OPPORTUNITIES AND THREATS

Customer value chain analysis Figure 3.12

Customer priorities assessment Figure 3.13

Customer Work tracking market and work-flow analysis management Figure 3.18 Competitor activity Extranet tracking Figure 3.17

Competitor Business performance analysis scorecard and decision Figure 3.14 support

Figure 5.4: Sources of opportunities and threats A similar scoring system could be adopted as for assessing strengths and weaknesses, with a positive answer to each question scoring 1 point and a negative, 0 points. Only those factors scoring a total of 3 points are real opportunities or threats. Figure 5.5 shows a format for distilling the opportunities and threats. Again, as with strengths and weaknesess, a half point scoring system can be adopted if it is felt a zero or one point system is too black and white.

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Identify as a possible opportunity or threat

Total score

Specify as a real opportunity or threat

Customer potential/trends

Customer value chain analysis Customer priority assessment Competitor performance scorecard Competitor activity tracking

Customer market analysis

Business environment analysis Customer competitor analysis

Figure 5.5: Opportunities and threats analysis

5. The SWOT analysis The outputs from figures 5.3 and 5.5 are the constituents of the SWOT. This is usually presented in the form of a matrix as shown in figure 5.6

Strengths

Weaknesses

Opportunities

Threats

Figure 5.6: The SWOT analysis

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Example: From performing a SWOT analysis from a customer’s perspective, an account manager reasoned that they would be using a strength that they had in a particular technology to enter a new market. This became an opportunity in the SWOT analysis from the supplier’s perspective, which fortunately they could take advantage of by leveraging a strength they had in terms of knowledge and experience of the new market.

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The number of entries in each cell will probably be less than ten. If they exceed fifteen, then they should be carefully re-examined, as it is likely that there will be entries that are not true strengths, weaknesses, opportunities or threats. It is also helpful and insightful to complete an additional SWOT analysis from the perspective of the customer, considering its strengths and weaknesses and the opportunities and threats it faces in its market. This will give insight into the strategy being adopted by the customer, or the strategy it is likely to adopt given an objective analysis of its situation. This provides the supplier with two additional leverage points:

1. The customer’s weaknesses and opportunities can indicate opportunities in the supplier’s SWOT. 2. Understanding the customer’s strategy helps the supplier to better align their total offering in a way that adds customer value. The analysis structure already discussed can be used. To it should be added one additional dimension – suppliers. That is, consideration from the customer’s perspective of their strengths and weaknesses with regard to their suppliers, and any opportunities or threats inherent in the situation. This is achieved by looking at the relationship between supplier and customer (already discussed) from the other end of the telescope.

Example: From the customer’s perspective having one supplier in a particular category supplying them with over 70% of their total requirement was a weakness. As this supplier was also a major supplier to their larger competitors this was a threat as the dominant supplier could favour their competitors at its expense. Potentially, a weaker supplier to this customer might offer an advantageous agreement, giving them additional benefits not enjoyed by their competitors.

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6. Summary In this chapter we have considered the following: 1. The purpose of the SWOT analysis •

Provides a one-page summary of the most important outputs from the analysis

•

Allows the strategic focus for the account to be identified.

2. Identifying real strengths and weaknesses •

Applying the three tests

•

Sources of strengths and weaknesses.

3. Spotting external opportunities and threats •

Applying the three tests

•

Sources of real opportunities and threats.

4. The SWOT analysis

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The SWOT matrix

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Conducting the SWOT from the supplier’s and the customer’s perspectives.

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Benchmarking your organisation’s ability to conduct SWOT analysis Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

OCCASIONALLY

RARELY/ NEVER

4

3

2

1

1. The SWOT is a key constituent of the key account plan 2. The SWOT is completed from the perspective of your company in the particular customer 3. The SWOT analysis uses all the outputs from the analysis 4. Robust tests are applied to assess real strengths and weaknesses 5. Robust tests are applied to assess real opportunities and threats 6. The SWOT is also completed from the customer perspective 7. The number of entries in each cell of the SWOT is less than ten 8. The SWOT is the key tool that links the account analysis to the formulation of the account strategy Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column GRAND TOTAL SCORING: 27 – 32 points

Your company’s processes for SWOT analysis are leading edge

21 – 25 points

Your company’s SWOT analysis processes are well formed and should be maintained. Although further improvement is possible, the same effort applied to other parts of the key account planning process will probably yield higher returns

15 – 20 points

There are significant deficiencies in the SWOT analysis process. Focus on those elements that have the lowest score

14 or less points The SWOT analysis process is not working well and requires fundamental review and restructuring

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Chapter 6: Picturing the future

1. Introduction The work done so far in creating the customer fact file, analysing performance data, implementing the relationship analysis and conducting the SWOT analysis will have completed the first step of the planning process – where are we now? The next step is to determine where we want to get to. The process of setting long and short-term objectives for key customers is often, for a number of reasons, far from satisfactory. In particular:

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The performance of the key account manager and others involved with the key customer is judged, at least in part, by the extent of their achievement against their account objectives. In turn this will influence remuneration and career progression. It is less likely therefore that the key account manager will want to agree to highly ambitious objectives. Rather, the starting point may be the minimum amount that the account manager can realistically justify. Knowing this the manager may want to impose more challenging objectives. The difference is often bridged through a negotiation or haggle process.

•

The company will have overall growth and profit objectives that it wants to achieve. There will be pressure to ensure that each key account delivers at least this amount. Some accounts, with considerable potential and good relationships, may be able to generate significantly more, whilst others, where relationships are poor and significant problems exist, may be lucky to achieve any increase at all. Setting the overall company sales/profit increase objectives for every key account will be neither motivating nor match with the reality facing each account manager.

•

Simplistic formulae such as this year’s expected achievement plus a percentage increase, or the same increase as was achieved last year, may be used. This again ignores the reality of each account.

•

Actual results achieved may critically depend on a small number of events occurring such as, for example, obtaining a single large order. If this event does not occur, then it may be impossible to achieve the objective, which then becomes meaningless. Time spent in planning and in setting objectives will be felt to be wasteful and given scant thought.

•

The timescale for key account objectives is usually a year, fitting in with the company’s annual budgeting and planning cycle. However, for strategic customers this is insufficient and longer – three to five year objectives (goals) need to be set.

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Revenue and profit or margin objectives are, in many cases, the only objectives set. However, there will be many additional things that will need to be achieved with key accounts for which objectives are also needed.

•

Strategy and objectives – each impacts on the other. Rather than sequential, their development is an iterative process.

FUTURE

Creating a realistic and motivating picture of the future is a significant challenge. What is needed first is a long-term view of where we want to be with the account – a vision. This provides an overall direction that facilitates the development of short-term objectives.

2. Developing a long-term vision A vision is created by the imagination looking forward three to five years. How do we see the way the account’s organisation and our own will be working together? What is going to get the customer to show us preference, rather than our competitors? The vision statement should be simple, concrete, motivating and attractive. Some typical examples of visions for key accounts are: ‘Our vision is to be a strategic partner with Perfecto Corporation, outpacing our competitors by helping the customer to continually improve their usage efficiency of steel-based raw materials through jointly developing new formulations, better configurations, enhanced optimisation processes and simplified sourcing procedures.’ ‘Our vision is to become the category captain and leader with Super Stores for the five categories where we have a significant presence, through improving our market research and analysis capability so as to help the customer continually increase the profit return achieved on shelf space allocated and thereby we will become the preferred supplier in each category.’ These vision statements are a mixture of long-term objectives (goals) – where we want to be, and strategies – how it will be achieved. Initially, we can specify the goals, then add a very broad strategy statement. This can be done by referring back to the customer base map discussed in Chapter 4, Section 2, which identifies the overall priority of the account and the appropriate generic strategy – attack, defend, delegate, withdraw – that should be adopted. For key accounts it is almost certain that only attack or defend strategies will be appropriate. This then begins to determine some broad aspects of the vision – do we want to maintain what we have or do we want to gain at the expense of our competitors? Such phrases can be used to create a first cut vision statement.

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Later, as the key account strategies are fleshed out, the vision statement should be revised. It will be made clearer, describing the key elements of how the attack, or defend strategy will be implemented.

3. Setting account objectives The immediate priority is setting the objectives for the forthcoming twelve months. However, long-term objectives/goals are also needed (See Section 4 in this chapter). The vision, to the extent that it has been developed, needs to be made more specific. What does, for example, the term strategic partner mean in terms of revenue, share, and profitability? What does it imply in terms of the relationship required and the capabilities that the supplier must demonstrate? The short-term objectives need to show that we are moving towards the long-term ones at an appropriate pace. 3.1 Major and supporting objectives There are two broad categories of objectives. The main ones are to do with revenue, volume and profitability. The supporting objectives underpin the major objectives. Their achievement will lead to the achievement of the major objectives. Supporting objectives will be associated with the account strategies. For example, if a strategy is to strengthen technical customer support, then a short-term supporting objective associated with it may be ‘to achieve a technical support rating at least equal to the best competitor in the next customer satisfaction survey’. Typically, major objectives are hard, in the sense that they will be quantitative. Supporting objectives will tend to be soft, in that they will be more qualitative, although there may be some attempt to quantify them, as is the case with the customer satisfaction survey just referred to. The main areas in which major and supporting objectives are set is shown in figure 6.1. Usually the supporting objectives will be determined once the strategy has been more fully developed. Major objectives

Supporting objectives

• Sales value/volume

• Product introductions

• Growth

• Relationship

• Share of customer purchase (absolute/relative)

• Contact base

• Share growth

• Bonding activities

• Margin/profit (absolute/percentage)

• Image/reputation

• Service levels

Figure 6.1: Major and supporting objectives

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3.2 SMART objectives Some objectives are so vague and ill defined that they are almost meaningless. For example, each of the following objectives could be significantly strengthened: •

To become the preferred supplier

•

To remain the market leader

•

To become more profitable

•

To increase service levels.

These objectives are poor because it is almost impossible for different people to agree if they have been achieved or not. Good objectives are clear and when their achievement, or lack of achievement, takes place it is indisputable. Objectives should therefore be judged against five criteria, generally know by the mnemonic SMART: Specific, Measurable, Ambitious, Realistic, Timed. Specific What is expected to be achieved with the customer should be clearly stated. Sell in new products X and Y is preferable to introducing new products. Emotionally, we are sometimes reluctant to be too specific, as we often like to ‘hedge our bets’. However, this is poor business practice that leads to confusion and doubt. Measurable Unless it is clear that the objective has been achieved, it is not meaningful. This requires either quantification, setting of a standard or the occurrence of an event. For example: •

To remain the market leader will be measurable if it is rephrased as, to maintain a relative market share above 1.5

•

To increase service levels will be measurable if it is rephrased as, to achieve a delivery lead time of 36 hours with 95 per cent reliability

•

To create more senior relationships will be measurable if it is rephrased as, to hold two meetings between our CEO, Finance Director and Marketing Director and their opposite numbers in the customer.

Ambitious The objective should be stretching. If it is not then it will, in all probability, be achieved anyway. If this is the case then why bother to plan, since planning is supposed to help the company achieve what it otherwise would not. Naturally, there is a greater risk that ambitious objectives will not be achieved. This again makes many people reluctant to commit themselves to them. However, those companies and executives that set ambitious objectives tend, overall to achieve more that those that do not.

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Realistic Within the circumstances prevailing, the resources available and the timescales, the objectives should be achievable. Although ambition is laudable, excessively ambitious objectives, which stand little or no chance of achievement, are merely demotivating. Objectives therefore should stand a realistic chance of being attained. Timed Unless it is stated by when the objective will be achieved, then it is not clear when it should be measured. (Note – the SMART mnemonic was originally applied in project management and performance appraisal where it stands for Specific, Measurable, Attainable, Relevant and Timed. However, it is our view that replacing attainable and relevant by ambitious and realistic is more useful for key account planning.) 3.3 Setting the sales objectives A forecast will, all other Sales and profit objectives will nearly always be amongst the most things being equal, be important major short-term objectives. Much of the onerous ‘number achieved. Objectives are crunching’ work can be taken out of this task by using forecasting more than mere forecasts. software packages. However, a forecast is not an objective. A forecast projects past trends into the future, assuming past conditions continue. Forecasts will therefore, all other things being equal, be achieved. Objectives, however are more than mere forecasts, they are ambitious. It is helpful therefore to understand the way forecasts are arrived at, as a basis for setting objectives.

Typically, a supplier will face one of two different sales situations: 1. Direct sales to users or distributors of the product or service, who order frequently in relatively small amounts compared to the total amount purchased by them from the supplier. 2. Sales of capital goods or large projects where orders will be infrequent, but relatively large. Each of these situations will be discussed in turn. 3.3.1 Setting sales objectives for companies who supply many small orders direct to end user or distributors The forecast is compiled in five steps: 1. Tabulate historic sales figures 2. Estimate current year’s sales/out-turn 3. Identify share of customer’s total purchases 4. Estimate customer’s likely purchases next year and forecast sales 5. Set sales objectives

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Step 1: Tabulate past sales The customer fact file will contain information on past sales as shown in the example below: Sales volume (tonnes)

Total volume

Revenue €m

Product 1

Product 2

Product 3

3 years ago

50

10

4

64

1.24

2 years ago

55

15

14

84

2.01

Last year

52

17

30

99

2.90

Year to date – 9 months

43

9

30

82

2.54

Figure 6.2: Volume and value sales to customer An examination of figure 6.2 shows total tonnage sales have increased from 64 tonnes to 99 tonnes, an increase of nearly 55 per cent in volume over the last three years. Most of the increase is accounted for by product 3 and some by product 2. Product 1 has remained fairly static. Revenue, on the other hand, has increased dramatically by over 130 per cent in the same three years. This is due primarily to products 2 and 3 being respectively twice and three times the price per tonne of product 1. This suggests that the total revenue figure for the customer is of only limited use in making forecasts. Sales volume is a better indicator. Step 2: Estimate current year’s sales The forecast for next year will need to be made before the end of this year. The next stage, therefore, is to estimate the likely out-turn for this year. Analysing the proportion of sales occurring in each period can do this. For convenience quarters are shown in figure 6.3 for each of the products 1, 2 and 3. Equally, months or 4-week periods could be used depending on how the data is stored. Percentage volume in each quarter for each product % Quarter 1

Quarter 2

Quarter 3

Quarter 4

P1

P2

P3

P1

P2

P3

P1

P2

P3

P1

P2

P3

3 years ago 22

15

19

35

12

28

15

25

22

28

48

23

2 years ago 18

18

22

38

14

30

20

26

18

24

42

23

Last year

20

16

21

38

13

26

19

24

21

23

47

23

Average % 20

16

21

37

13

28

18

25

20

25

45

23

Figure 6.3: Percentage sales to customer per quarter The analysis shows that on average, 25 per cent of product 1’s sales fall in Quarter 4, 45 per cent of product 2’s and 23 per cent of product 3’s. Using these figures the estimated volume sales in Quarter 4 and for the whole of the current year are shown in figure 6.4.

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Sales volume (tonnes)

Total volume

Revenue €m

Product 1

Product 2

Product 3

Year to date – 9 months

43

9

30

82

2.54

Estimated sales in Quarter 4

14

7

9

30

0.92

Annual sales estimate

57

16

39

112

3.46

Figure 6.4: Estimated sales to customer in current year Step 3: Identify share of customer’s total purchases The total volume purchases by the customer for each product category (Cat. vol.) is shown in figure 6.5 together with your company’s sales and share. Product sales – volume (tonnes) Product 1 Cat. vol.

Product 2

Sales Share Cat. vol. % vol.

Product 3

Sales Share vol. %

Cat. vol.

Total

Sales Share vol. %

Cat. vol.

Sales Share vol. %

3 years ago

55

50

91

20

10

50

110

4

4

185

64

35

2 years ago

57

55

96

28

15

54

170

14

8

255

84

33

Last year

52

52

100

35

17

49

200

30

15

287

99

34

This year est.

59

57

97

40

16

40

220

39

18

319

112

35

Figure 6.5: Share of customer purchases Although overall sales are improving and sales and share in particular of product 3 is increasing, the picture is far from rosy. Total share is flat and that of product 2 is declining. Before proceeding to make next year’s forecast, the ways in which the customer’s total category purchases can be assessed will be discussed. There is no single best way. Information from different sources must be pieced together. These sources include:

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•

Asking the buyer and other customer contacts where the relationship is good

•

Identifying the customer’s sales of associated products. For example, if the supplier knows that his products are used as a component or raw material in a product produced by the customer, then an estimate of its production volume will suffice

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•

Making an estimate of the total purchases of the category by the customer and their main competitors and assessing the customer’s share in relation to their market share

•

Stock checks on the customer’s inventory

•

Observation of numbers of deliveries over a period of time.

FUTURE

Step 4: Estimate customer’s likely purchases next year and forecast sales The easiest way of doing this is to graph the sales of the total purchases of each category by the customer as shown in figure 6.6 either manually or using a spreadsheet/graphics package such as Microsoft Excel. Next year’s total customer purchases are estimated by drawing a trend line for each product.

300 250 Product 3

Tonnes

200 150 100 Product 1

50 Product 2

0 3 years ago

2 years ago

Last year

This year est.

Next year

Figure 6.6: Total customer category purchases Once total customer purchases have been estimated the forecast sales of each product are estimated based on the forecast share for each product. The latter is obtained by looking at the share trend over the last three years as shown in figure 6.7.

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120 Product 1

100

Percent

80 60 Product 2

40 20 Product 3

0 3 years ago

2 years ago

Last year

This year est.

Next year

Figure 6.7: Share of customer purchases The forecast for next year is shown in figure 6.8 based on the trend projections above. The total share of customer purchases remains at 35 per cent. Sales

Total

Product 1

Product 2

Product 3

Customer category purchases – tonnes

59

48

265

385

Share – %

100

40

24

37

Forecast sales – tonnes

59

19

64

142

1.00

0.65

3.26

4.91

Revenue €m

Figure 6.8: Forecast sales next year Step 5: Set sales objectives The forecast shows what should be achieved, all other things being equal. However, this is rarely the case. Where an attack strategy is being implemented, strategies and action plans will be devised that should enable an increase in share to be achieved. The impact of these strategies needs to be estimated. This is not an exact science but relies heavily on experience and judgement. Each strategy should be reviewed and its impact judged. For example, implementing a permanent price reduction should have a direct effect on increasing sales that can be assessed. Strategies aimed at improving the relationship, such as working together with the customer to develop better order forecasting procedures, will have less of a direct impact on sales but should still have some. Where a defence strategy is adopted then the sales objective will be to maintain the existing customer share in the face of competitor attack.

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The stage and state of the relationship will also have a significant impact on the sales/share objective. Where relationships are at a ‘honeymoon’ stage, then the conditions are right to facilitate significant increases in sales and share. Where however, relationships are difficult, perhaps at ‘wedlock’ stage and a ‘growing apart’ state, then it may be very challenging merely to stop further erosion of share. Figure 6.9 gives a format for assessing the impact of the strategies on the forecast. The account manager makes an estimate of the percentage increase that should be obtained by implementing the strategies. Also, some strategies/major activities implemented in the previous year may be terminated and could have a negative impact on sales. This also needs to be estimated. By totalling the estimates, a balanced view can be taken and a realistic, yet ambitious, objective set. Setting sales and share objectives are therefore not linear processes. Initial estimates are regularly revisited as the strategies are formulated and the details of the action plan determined. Estimate the percentage impact of each strategy

Product/services TOTAL

Forecast sales volume Strategies to be implemented

Strategies/major activities terminated

Total percentage change in forecast Sales objective

Figure 6.9: Assessing the impact of strategy

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3.3.2 Sales objectives for capital items or large projects These types of purchases are generally characterised by: •

Long lead times of months or even years between the initial possibility of a potential customer requirement and an order being received by the supplier

•

Relatively high order values

•

Relatively infrequent ordering patterns.

These factors make sales forecasting difficult since the supplier is attempting to predict single events, which either results in success or failure. It is all or nothing. Figure 6.10 shows a suitable forecasting method. Each actual and potential project is listed and an estimate of the likely probability of being successful is made. This probability estimate will be based on a number of factors including: •

The historical hit rate

•

The stage and state of the relationship

•

The position of competitors and the strength of their bonds

Project

Value

Probability %

Expected value

Comment

TOTAL

Figure 6.10: Forecasting sales of capital items/large projects The expected value is the result of multiplying the value of the project by the probability of being successful. Once the forecast has been made, then figure 6.9 should be used to assess the impact of the strategies and the sales objective. For this method to work a significant number of projects (more than about eight) should be considered. Where there are fewer then the ‘swings and roundabouts’ principle does not operate well. Similarly, if one or two projects are of significantly higher value than the others, then obtaining or losing them will significantly impact

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on the overall results achieved. If either of these conditions is present this method of forecasting cannot be relied on. Instead the forecast must be based on the key account manager’s reasoned judgement, with the factors, mentioned above, being taken into account in assessing the probabilities. In order to get some consistency in the estimated probabilities of success, it is useful to examine what has occurred in the past. A standard set of probabilities can then be defined, as shown by the example in figure 6.11. The probabilities and their definition will be different for different businesses and customers. Probability

Definition

5%

The customer has not yet written a formal specification for the project

10%

A specification is available but a budget has not yet been allocated

15%

Specification and budget are agreed in principle but still subject to change

20%

A firm budget and specification has been established

25%

We can meet the specification but require it to be modified to a limited extent

30%

We can meet the agreed specification entirely

35%

We have presented proposals

40%

The customer has agreed the proposal meets their specification

50%

The customer has discussed details of terms and conditions

75%

The terms of project are agreed

80%

We have verbal confirmation of the order

90%

A letter of intent received from the customer

100%

A signed contract has been received

Figure 6.11: Defining the likely success probabilities

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3.4 Determining profit objectives Once the sales objective is set it is then possible to determine the profit objective. A suitable format is shown in figure 6.12, which uses the data for products 1, 2, and 3 derived earlier. This year – actual

Next year – forecast

Next year – plan

Total €000’s

%

Total €000’s

%

Total €000’s

%

3460

93.1

4910

93.1

5370

93.1

208

5.6

295

5.6

335

5.8

48

1.3

69

1.3

63

1.1

3716

100.0

5274

100

5768

100

431

11.6

612

11.6

669

11.6

6. Net income

3285

88.4

4662

88.4

5099

88.4

7. Less: Cost of goods sold

1462

44.5

2015

38.2

2071

35.9

8. Customer gross profit

1823

49.1

2647

50.2

3028

52.5

26

0.7

37

0.7

40

0.7

1. Invoiced sales value 2. Service revenue 3. Other revenue 4. Total income 5. Less: Invoiced discounts

9. Less: Special price allowances 10.

Direct transport costs

439

11.8

506

11.8

524

9.1

11.

Trade-in allowance

290

7.8

411

7.8

311

5.4

12.

Direct sales force costs

457

12.3

432

8.2

542

9.4

13.

Direct service costs

223

6.0

316

6.0

346

6.0

14.

Direct training costs

145

3.9

190

3.6

190

3.3

15.

Direct promotion costs

37

1.0

53

1.0

58

1.0

16.

Direct entertainment costs

7

0.2

11

0.2

6.0

0.1

199

5.4

691

13.1

1010

17.5

18. Less: Outstanding payments

26

0.7

37

0.7

40

0.7

19.

41

1.1

58

1.1

63

1.1

132

3.6

596

11.3

906

15.7

17. Customer contribution

Inventory interest

20. Trading profit (loss) 21. Less: Overhead allocations 22.

Sales

242

6.5

169

3.2

185

3.2

23.

Marketing

123

3.3

100

1.9

110

1.9

24.

Service

212

5.7

301

5.7

329

5.7

25.

Distribution

164

4.4

232

4.4

254

4.4

26.

General and administration

41

1.1

58

1.1

63

1.1

-648

-17.4

-264

-5.0

-34

-0.6

27. Net profit

Figure 6.12: Contribution and trading profit forecast The forecasted volume of sales is converted into revenue and the impact of the increases/decreases on the costs is assessed. Some costs, like direct transport costs

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(line 10), will change in relation to volume whilst others, such as invoiced discounts (line 5), will vary in line with revenue. Costs will also be influenced by the strategy adopted and actions implemented. For example, direct training costs (line 14) which is dependent on the number of customer personnel trained, will decrease if it is planned to train fewer staff. As with the sales objective, setting the profit objective is an iterative process, involving the assessment of the impact of the various strategies. 3.5 Setting supporting objectives Objectives for product introductions, the relationship, the contact base, service levels, bonding activities and image/reputation should also be set as shown in figure 6.14. The issues that should be considered for each and sources of information are as follows: 1. Product introductions objective: The products/services that the customer will buy next year, which they have not previously bought. This covers both existing offerings in the supplier’s range and also, new products which are to be introduced during the year. In determining the objective, the following should be reviewed: •

Historical performance. See the customer fact file (Chapter 2)

•

Supplier’s new product launch programme as specified in the planning guidelines (Chapter 1, Section 4)

•

Joint customer/supplier development projects identified in the bonding analysis (Chapter 4, Section 4)

2. Relationship objective: As ‘honeymoon’ relationships are the ideal, it is tempting to specify this as the objective in every case. However, it is not usually appropriate. For example, if the present stage and state is ‘wedlock, crumbling’, then achieving anything close to ‘honeymoon’ is merely wishful thinking. In setting this objective it is first necessary to establish where the current relationship is. Next, the overall strategy for the account needs to be considered. If this is an attack strategy, then an objective of improving the relationship will be desirable. If a defence strategy is being implemented, then maintaining the present relationship may be appropriate. In figure 6.13, the objectives suitable for attack and defence strategies for each relationship stage and state are specified. Relationship analysis is discussed in Chapter 4, Section 3.

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Present Present relationship stage relationship state

Attack strategy

Courtship

Whirlwind romance

Engagement – early evaluation

Courtship – Distant

Third time lucky

Engagement – early evaluation

Courtship – Distant

Long shot suitor

Engagement – early evaluation

Courtship – Distant

Too good to be true

Courtship – whirlwind romance

Courtship – Distant

Distant

Engagement – early evaluation

Distant

Second time around

Engagement – early evaluation

Courtship – Distant

Early evaluation

Engagement – middle, moving closer

Engagement – middle, stable

Middle, moving closer

Honeymoon – newly wed

Engagement – middle, stable

Middle, stable

Engagement – middle, moving closer

Engagement – middle, stable

Regressing

Engagement – middle, stable

Engagement – middle, stable

Long-term accommodation

Engagement – middle, moving closer

Engagement – long-term accommodation

Newly-wed

Honeymoon – long and loving

Wedlock – stable

Long and loving

Honeymoon – long and loving

Wedlock – stable

Weekend

Honeymoon – long and loving

Wedlock – stable

Unnoticed

Honeymoon – newly wed

Wedlock – stable

Post honeymoon

Wedlock – growing together

Wedlock – stable

Growing together

Honeymoon – long and loving

Wedlock – stable

Roller coaster

Honeymoon – newly wed

Wedlock – roller coaster

Growing apart

Wedlock – stable

Wedlock – stable

Crumbling

Wedlock – growing apart

Wedlock – growing apart

Stable

Wedlock – growing together

Wedlock – stable

Seven year itch

Engagement – early evaluation

Engagement – early evaluation

Engagement

Honeymoon

Wedlock

Objective Defend strategy

Figure 6.13: Relationship stage and state objectives 3. Contact base objective: The existing contact base can be mapped (Chapter 3, Section 2.5) to establish the gaps and mismatches. Whether these gaps need to be plugged and the relationships realigned depends on whether an attack or defend strategy is to be adopted. If the former, then the answer is clearly, yes. If a defence strategy is in place, then the deficiencies only need to be addressed if they are inhibiting the achievement of the relationship objective. 4. Service level objectives: Service performance analysis (Chapter 3, Section 2.4) will reveal deficiencies. Specific objectives should be set for the customer satisfaction criteria. For attack strategies the objectives will be to show improvements to eliminate/reduce these deficiencies. Defence strategies will require improvements only if the service deficiencies will inhibit the achievement of the relationship objectives.

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5. Bonding activities: The bonding audit (Chapter 4, Section 4) will show which bonds are worthwhile. The objectives will specify new bonds to be adopted during the year, existing bonds to be enhanced to improve their contribution and those to be discontinued. 6. Image/reputation: The image/reputation the supplier wants to create in the customer’s mind is a reflection of the vision for the account (Chapter 6, Section 2). Words to describe the desired image like reliable, innovative, knowledgeable, flexible, helpful, professional, consultative and so on should be used. In figure 6.14 a format for developing the supporting objectives is given: This year-achievement

Next year-objective

New products

Number:

Number:

Relationship

Stage:

Stage:

State:

State:

Existing:

Existing:

New:

New:

Service levels

Rating:

Rating:

Bonding activities

New:

New:

Contact base

Improve: Drop

Image

Current:

Desired:

Figure 6.14: Supporting objectives

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4. Long-term objectives, goals and gap analysis The short-term objectives need to be compatible with the long-term ones derived from the vision statement. The supporting objectives can be specified, looking three to five years ahead using a template similar to that shown in figure 6.14. The major, quantitative sales, share and profit objectives should also be specified in relation to the vision. Having identified where we want to get to in the future, it is useful to assess the impact of our strategies over this period to ensure they are making the required contribution. Figure 6.16 shows how each strategy adds to the base line forecast to achieve the long-term objective for the account. If the combined strategies do not enable the long-term objective to be achieved, then additional strategies will be required, or the long-term objective reconsidered.

Long-term objective/goal

60

Strategy 1

50 Strategy 2

40 Sales

Strategy 3

30 Strategy 4

20

Strategy 5

10 0

Base line

This year

Year + 1

Year + 2

Year + 3

Year + 4

Year + 5

Figure 6.15: Long-term contribution of each strategy Typically, the base line, which assumes that the supplier continues with its current activity without change into the future, declines as these activities produce diminishing returns. Having assessed the initial impact of each strategy on sales (see figure 6.9), this can be extended to take a longer term, three to five year perspective as shown in figure 6.16.

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Year Current

+1

+2

+3

+4

+5

Base line sales volume Strategies to be implemented

Total percentage change in forecast Sales objective

Figure 6.16: Assessing the long-term strategic impact

5. Summary In this chapter we have covered the following: 1. Issues concerning the setting of objectives •

An individual manager’s performance is generally appraised against the objectives set for the account, leading to a conservative approach to setting objectives

•

Objectives and strategies are closely related with one impacting on the other. Setting objectives for key accounts is therefore an iterative process that starts with the overall vision and then assesses the impact of the various strategies as they are developed and refined.

2. Developing a long-term account vision •

Is required to give a consistent direction

•

Should be simple, concrete, motivating and attractive

•

Is a mixture of long-term objectives and strategies.

3. Setting account objectives •

Short and long-term objectives (goals) need to be determined

•

Major objectives are hard, quantitative objectives such as sales, share and profit

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•

Supporting objectives include new products, relationships, contact base, service levels, bonding activities and reputations/image and are more difficult to quantify. Their achievement underpins the achievement of the major objectives

•

Objectives should be judged against five criteria, generally known by the mnemonic SMART: Specific, Measurable, Ambitious, Realistic, Timed

•

For companies with direct sales to users or distributors, who order frequently in relatively small amounts compared to the total amount purchased from the supplier, the annual forecast is compiled in five steps: –

Tabulate historic sales figures

–

Estimate current year’s sales/out-turn

–

Identify share of customer’s total purchases

–

Estimate customer’s likely purchases next year and forecast sales

–

Set sales objectives

•

For companies who sell capital goods or large projects, where orders are infrequent, but relatively large, the forecast is made by listing each actual and potential project and making an estimate of the likely probability of being successful

•

The sales objective is determined by assessing the impact of each account strategy on the forecast

•

The annual profit objective is determined by assessing the costs that will be incurred by implementing the strategies to achieve the account revenue objectives.

4. Long-term objectives/goals •

144

The contribution made by each strategy towards the achievement of the long-term (three to five year) objective can be assessed using gap analysis. If the combined strategies do not enable the long-term objective to be achieved then additional strategies will be required, or the long-term objective must be reconsidered.

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Benchmarking your organisation’s ability to develop good key account objectives Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

OCCASIONALLY

RARELY/ NEVER

4

3

2

1

1. A vision statement is written for each key account 2. The vision statements are a mixture of long-term objectives – what we want to be, and strategies – how this will be achieved 3. All objectives are checked to make sure they are SMART 4. Annual and long-term objectives are set for key accounts 5. Major objectives are set for annual sales, share, and profit 6. Supporting objectives are set, the achievement of which underpins the main objectives 7. In setting annual objectives the impact of the account strategies on the forecast is assessed 8. In setting the profit objective the impact of the strategies on costs is assessed 9. A systematic process is adopted to forecast sales 10. The contribution of each strategy to the achievement of long-term objectives is assessed and any gap identified Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column GRAND TOTAL SCORING: 34 – 40 points

Your company’s process for developing key account objectives is leading edge

26 – 33 points

Your company’s processes are well formed and should be maintained. Although further improvement is possible, the same effort applied to other parts of the key account planning process will probably yield higher returns

18 – 25 points

There are significant deficiencies in the key account objective setting process. Focus on those elements that have the lowest score

17 or less points The key account objective setting process is not working well and requires fundamental review and restructuring

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Creating the future 1. INTRODUCTION 2 . C H A R A C T E R I S T I C S O F G O O D S T R AT E G I E S 3 . S O U R C E S O F C O M P E T I T I V E A D VA N TA G E 4 . C O M P E T I T I V E S T R AT E G Y D E V E L O P M E N T 5 . S O M E E X A M P L E S O F S T R AT E G I E S 6 . TA C T I C A L A C T I O N P L A N N I N G 7. SUMMARY B E N C H M A R K I N G Y O U R O R G A N I S AT I O N ’ S A B I L I T Y T O D E V E L O P G O O D K E Y A C C O U N T S T R AT E G I E S A N D TA C T I C S

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Chapter 7: Creating the future

1. Introduction The heart of the key account plan is the account strategy. It is the glue that binds the action plan to the objectives and it is the key to answering the third planning question – how do we get there? The driving principle behind strategy is the desire to obtain and maintain sustainable competitive advantage. In other words, a position where the customer prefers to do business with the supplier rather than with competitive suppliers over a significant period of time. Customer strategies should therefore be relatively long lasting. A strategy that needs to change every year is a poor strategy, since it is not sustainable. This implies that a good strategy must be difficult for the competition to emulate. Also, it must be in an area that is important to the customer. The starting point therefore, for the development of the customer strategy is the SWOT analysis. Chapter 5, Section 2 described the principle of using strengths to capitalise on opportunities and neutralising weaknesses that act as a barrier to these opportunities being exploited. A key customer plan with a good strategy is much more likely to be successful than one with a poor or non-existent one. Indeed, a good strategy can overcome some deficiencies in implementation of the plan. A plan with a good strategy, but only average implementation, is more likely to be successful than a plan with a poor or missing strategy, implemented well. In Chapter 6, the iterative relationship between strategy and objectives was highlighted and techniques were introduced to systematically set objectives, assessing the influence of strategy. In this chapter, a more detailed explanation of strategy will be given and techniques for its development introduced. However, strategy development is not just a mechanistic process. More than any other part of the account plan – creativity, insight and innovation must be brought to bear.

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2. Characteristics of good strategies Already discussed in Chapter 4, Section 2.5 are the generic strategies of attack and defence. In reviewing the actual strategies adopted and assessing whether they will work, seven tests should be applied. 1. Are we clear on what we are trying to do? Strategies with key accounts sometimes fall between ‘two stools’. They are partly attack and partly defend. Whilst this may be acceptable with two different decision making units (DMUs) it is not good practice with a single DMU. Just to recap, attack strategies involve: •

Taking the initiative

•

Pre-empting competitors

•

Using superior force.

Whilst defence strategies involve: •

Observing competitors

•

Assessing the most appropriate response

•

Using blocking moves.

2. Does it have enough focus? To be effective resources need to be used in a focused manner. This requires a concentration of resources, particularly when executing attack strategies (see Chapter 4, Section 2.5). Also, it is dangerous to spread resources too thinly across too many different strategies. One issue is how many strategies should be developed at one time? This depends on the resources that are available to develop the account, which is a function of the priority (Chapter 4, Section 2.4) allocated to it. However, as a broad generalisation, it is difficult with more than five strategies to provide the degree of focus needed to be successful. The usual number is between three and five. 3. Is it based on the SWOT? There must be a clear connection with the SWOT. For each strategy it must be clear which strength is to be leveraged to capitalise on which opportunity, or which threat is to be blocked to stop it undermining a particular strength or exposing a particular weakness.

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4. Is it different? Good strategies, particularly attack strategies, change the rules of the game. They change the dimensions of competition. For example, Intel entered into joint consumer advertising with selected PC manufacturers, something no chip supplier had ever done before. 5. Will it achieve the objectives? Specific objectives must be set for each strategy. When these are summed they should achieve the overall objective as discussed in Chapter 6, Section 4. 6. Is it cost effective? Whether it is an invest or harvest account, the investment required to implement the strategy should be within the resource budget available. 7. Does it give competitive advantage? If the strategy meets the previous six tests then it will certainly meet this one. Nevertheless, it is worthwhile checking. To test the strategies, the format in figure 7.1 should be used. For each ‘yes’ answer, score one point and for each ‘no’, score zero. Strategies scoring seven points are likely to be powerful and very successful.

For each account strategy assess whether it meets the following tests – Yes (1) or No (0)

Strategies 1

2

3

4

5

Is it clearly attack or defend? Does it have the required focus? Is it based on the SWOT? Is it different/creative? Will it achieve the objectives? Is it cost effective? Will it generate competitive advantage? TOTAL

Figure 7.1: The seven tests for account strategies

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3. Sources of competitive advantage The customer’s perception is the only one that counts in generating competitive advantage. It is what the customer perceives a supplier as doing better than competitive suppliers, in an area that is important to them. For example, a customer may be losing market share. This will be of importance to it. The suppliers, who can help to redress this situation by say, speeding up the customer’s product development cycle, will receive a good reception. If all suppliers can offer this benefit, then it is not a source of potential competitive advantage. However, if one is perceived as having a significantly better, proven track record, or has processes that match those of the customer better, or can implement their solutions in less time, then they have a competitive advantage. In other words they have a strength. This strength, linked with the opportunity, can form the pivot of an effective customer strategy. There are many potential sources of competitive advantage for suppliers. The most common are: 1. Better products incorporating features and benefits more suited to the customer’s needs Having a better product is always an advantage, albeit often a short lived one. Competitors have a habit of catching up. Patent protection helps but even this can be circumvented. 2. Lower prices, providing they are consistently less than the competition This option is only open to suppliers who are the lowest cost producers in their industry. It could be argued that this strategy requires a minimum of costs, including sales overhead. The requirement for a costly account management structure becomes questionable. This does not mean that a supplier cannot make tactical decisions to drop prices, but to do so consistently, whilst not being the lowest cost producer, will have a significant impact on profitability. 3. Better customer service along the dimensions considered important by the customer. Delivering good service consistently is a major challenge for any supplier. Any supplier that regularly measures its service performance and those of its competitors and manages to stay ahead of them, will gain advantage with the customer.

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4. Applying more resources to ‘outgun’ the competition Doing the same as the competitors but doing more of it can yield competitive advantage. For example, having a higher frequency of customer contact, making more technical staff available, spending more on joint promotions and so on. For this type of strategy to work well, the supplier must either have efficient methods for delivering the resources at lower costs than competitors or be able to charge higher prices, or a combination of the two. If these conditions do not hold then it results in lower profits. 5. Being innovative and doing things first Competitors can, and often do, catch up on the new products and services created by a leading supplier. However, if the supplier continues to innovate then there is the likelihood that as soon as the competitors have emulated one innovation, the next will already have been developed. This applies not just to products and services but to all aspects of the relationship. 6. Developing stronger bonds with the customer The bonding mechanisms discussed in Chapter 4, Section 4 are a good source of competitive advantage. This is particularly true for those that are barriers to exit, barriers to competitive entry and those that directly assist the customer to achieve their objectives.

4. Competitive strategy development 4.1 The strategy development process Having a process to follow in developing a strategy is useful provided it acts as a guide and not as a straight jacket. Figures 7.2 (a & b) show the strategy development process. It starts with identifying whether a generic attack or defence strategy is specified by the customer base map analysis (Chapter 4, Section 2).

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Attack

Does a strength allow an opportunity to be exploited?

Generic strategy?

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Defend (see figure 7.2b)

No No

THE

Don’t worry about it

Will a weakness prohibit an opportunity being capitalised on or an objective being achieved?

Yes

What is the size of the opportunity?

Yes

Can a strength be developed to take advantage of an opportunity?

Yes

What is the size of the threat?

No

Can weakness No be neutralised?

Generate strategy to capitalise on opportunity Reassess account objectives and priority Low score

Yes

Generate strategy to neutralise weakness

7

Apply seven tests for a good strategy

Low score

High score

Assess impact and costs of strategy in achieving account objectives

7

Apply seven tests for a good strategy

High score

Figure 7.2a: Process for strategy development (attack strategy) If attack (figure 7.2a), then the opportunities are examined and the strengths reviewed to identify if there is one or more that can be used to exploit an opportunity. If no suitable strength can be found, then a view must be taken on whether it is possible to develop one and if not, then it will not be possible to launch an effective attack strategy and the account objectives and its priority should be re-examined. If a strength is identified or one can be developed, then the size of the opportunity must be established. This is important since the amount of resource needed to implement the strategy should bear some relationship to it. This does not mean that each strategy must be profitable. Depending on the stage and state of the relationship (Chapter 4, Section 3), an investment policy may be appropriate. Some opportunities, such as customer growth, are easy to quantify. Others, like our champion contact moving and being promoted, are not. Nevertheless, some estimate should be made, albeit an approximate one.

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Next, the seven tests need to be applied to the strategy. Those scoring less than six points should be reformulated. The impact and likely costs of those scoring six or seven then need to be more precisely assessed. The objectives also need to be reviewed and refined. Having looked at the strengths, the weaknesses need to be reviewed. If there are any that prohibit an opportunity being capitalised on, then they need to be neutralised. For example, a lack of qualified personnel may mean the supplier cannot support the customer in a new market. Again, the size of the threat needs to be assessed and high scoring strategies developed to neutralise the weakness. Where a defence strategy is called for, the process is shown in figure 7.2b. Attack (see figure 7.2a)

Will threat undermine a strength?

Generic strategy?

Defend (see figure 7.2b)

No

No

Yes

Will a weakness be exposed by a threat? Yes

Don’t worry about it What is the size of the threat?

What is the size of the threat?

No

Can strength be reinforced?

Can weakness be neutralised?

No

No

Can a threat be blocked with strength?

Yes

Generate strategy to reinforce strength

Low score

7

Generate strategy to neutralise weakness/ block threat Reassess account objectives and priority

Apply seven tests for a good strategy

High score

Yes

Low score

Assess impact and costs of strategy in achieving account objectives

7

Apply seven tests for a good strategy

High score

Figure 7.2b: Process for strategy development (defence strategy)

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When defending, weaknesses need to be examined. If a threat will expose a weakness, then the weakness needs to be neutralised or the threat blocked by using a strength. For example, a focus on cost reduction by the customer (a threat) may expose the high price charged by a supplier (a weakness). The supplier could develop a lower price strategy, neutralising the threat. Alternatively it could try to use its strength in service to block the threat. If the threat can neither be neutralised nor blocked, then the account objectives and priorities need to be re-examined. Sometimes a threat will undermine a strength. For example, a competitor’s new product may possess significant advantage over an existing supplier’s product, which historically has been superior (a strength) at a similar price level. The supplier’s strength can be reinforced through strategies such as reducing price, introducing an upgraded product or providing additional linked services. Again, the possible strategies need to be tested against the seven criteria and their impact on the achievement of the account objectives assessed. If it is not found possible to reinforce the strength, then the account objectives and priority need to be reassessed. Applying the process described in figure 7.2 (a & b), strategies can be formulated using the format shown in figure 7.3. The generic strategy is written in the first column. The situation on which the strategy is based is put in the second, that is the particular strength that is to be used to capitalise on a particular opportunity, or the particular weakness that is exposed by a particular threat and so on. Alternative strategies are then devised and evaluated, using the seven tests for account strategies.

Attack/defend

Situation (SWOT)

Strategy

Score

Figure 7.3 Developing and evaluating the account strategies

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4.2 Generating creative strategic ideas Great strategies are often obvious with hindsight, but far from obvious at the time when they are first developed. The process described above in Section 4.1, helps in structuring thinking but is not guaranteed to come up with great ideas. To increase the probability of this occurring a couple of tools can be used. 1. Extreme strategies A strong inhibitor to creativity is the existing way in which a company operates. This imposes many constraints on the account manager who learns what can and cannot be done in the environment in which he/she operates. However, what if the account manager had as much resource to hand as was needed and had a free hand to change anything and everything he/she wanted to? By taking off the constraints there is more opportunity for the mind to roam freely and push at the limits. Usually the initial strategies that come to mind will be impractical but can then lead to some useful ideas. For example, one account manager in a multinational thought of having his operating board and the customer’s board meet regularly to try to integrate both companies strategies. Although this was impractical, it generated the idea of having regular partnering meetings between senior functional staff on both sides. 2. Strategic visualisation The principle: Based on the idea that a picture communicates in a different way to words, the purpose is to develop a visual representation of the key outputs from the SWOT. The preparation: This involves bringing together a cross-functional team. Depending on the stage and state of the relationship it can also include customer personnel. A summary of the outputs from the performance data, relationship and SWOT analyses should be provided as stimuli, together with a brief on the need to develop a common visual representation of the strategic ideas. The tools: Using the strategy development process described in the previous section, possible strategies are generated with the aid of idea generating tools such as brainstorming, Post-it® one minute idea creators, mind mapping, analogies, questioning and extreme strategies. Once all the ideas have been flip charted they are reviewed, built on and added to. The screening: Obviously impractical ones are eliminated and the remainder screened using the seven tests. Only those scoring six or seven are retained. A reality check is made to ensure that all threats that may undermine the generic strategy are being dealt with. If more than five strategies remain, their number should be reduced.

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The insight: Individual strategies that are linked and supportive will have a synergistic impact on results. The next step involves identifying commonalties and linkages between the strategies. A number of questions can assist in this process: •

What do the strategies have in common?

•

If a strategy were not implemented, what would be the effect on the others?

•

How would the customer perceive the strategies?

•

In what way do the strategies implemented together have a greater impact than if each were implemented on its own?

Sometimes it is particularly difficult to identify good commonalties and linkages. In these circumstances it can be useful to review again some of the discarded strategies and reintroduce them where they have a good fit. The outputs: A visual representation is developed of the strategies, highlighting the commonalties and linkages. This reinforces the strategic thinking, sometimes adding more insights in the process. It can also provide a good basis for communicating the strategy.

5. Some examples of strategies 5.1 Category and product strategy The product-market or Ansoff matrix gives a good framework against which to identify product strategies, as shown in figure 7.4. The products, services and solutions are related to the customer decision making units (DMU). This allows the basic product market foci to be identified.

Products, services, solutions Existing

New

Existing

1. Penetration programme

3. Product development programme

New

2. Customer development programme

4. New business development programme

DMU

Figure 7.4: The product – market matrix

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In judging the likelihood of the account plan being achieved, it is important to be clear on what policy is being adopted and the risks involved. Of the four possibilities, new business development is the riskiest since it involves new products and a new DMU, not previously dealt with. In contrast, the penetration programme is the least risky. Each of these programmes involve different strategies and activities. 1. Penetration programme This is likely to be the programme adopted for most key accounts. Amongst the product strategies adopted are the following two, which are not mutually exclusive: •

Adding product value Based on an understanding of the customer’s value chain, their purchasing criteria and value perceptions (Chapter 3, Section 3.1), the various aspects of the supplier’s offer can be examined to see if it is possible to add value for the customer. Figure 7.5 provides a format for this analysis, systematically reviewing each part of the offer. Ways of adding value are identified. The customer’s value chain is examined and the part(s) where the change would impact, identified. An assessment is then made of the likely monetary impact on the customer of the possible change in the product/service/solution. Those changes that impact on parts of the value chain that are high priorities for the customer and have high value, are likely to result in good strategies. Naturally, the cost for the supplier of providing the improvement needs also to be taken into account.

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Factors

Ways to add customer value

Impact on customer value chain

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Monetary impact for customer

Core product Appearance Design Quality Option Features Efficacy Guarantee Other People component Relationships Training Appearance Quality Other Support services Speed Staff Delivery methods Other Image Positioning Price Personality Communication Other

Figure 7.5: Customer perceived product/service/solution attribute analysis •

Managing the category The customer perceives the supplier’s offerings as part of a group of similar purchases it makes. For example, one retailer may view paper kitchen towels as a part of the household cleaning and hygiene category. Another may perceive it as part of the paper products category. Similarly, one buyer of mobile phones for their sales force may perceive them as a part of the sales force communication category, whilst another may see it as part of customer service efficiency.

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Understanding where the purchase fits in for the customer provides the opportunity to help the customer manage the category better, through being able to provide broader, more relevant solutions. Taking the mobile phone customer service efficiency example, the customer wants to provide improved customer service at lower costs. Mobile phones may be part of the solution. It may be that some staff require more rugged mobiles, whilst other need the full functionality of a PC. Also of importance will be the measurement of actual customer service being provided, which could require the implementation of integrated software. Training and development of staff to both use the systems and how to interact positively with customers will also be needed. The total category purchases made by the customer extend far beyond just mobile telephones. The supplier should be knowledgeable about the total needs and requirements of customers wishing to improve their service efficiency. This knowledge can be used to help the particular customer manage the total process. In performing this role the supplier becomes the ‘category captain’. Working with the customer, the ‘category captain’ will identify the mix of products and services that help achieve the customer’s objectives, using a structured category management/consultative selling process. Complementary offerings from other suppliers may need to be bundled in. Where there are competitor offerings that satisfy the need of the customer better than the supplier’s own, then these should be recommended. Managing the category in this manner acts as an exit barrier as the supplier becomes an essential part of the customer’s business. However, implementing category management is only possible with customers where the relationship is at a good stage and state. 2. Customer development programme This involves the supplier going through the courtship stage and getting into parts of the customer that have not been dealt with before. Based on known customer information, typical strategies involve using existing contacts to provide bridges into the new DMU, bringing together offerings to overcome a known customer problem, mounting a communication campaign and creating a large number of opportunities to meet with people in the new DMU.

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3. Product development programme Developing products, services and solutions jointly with the customer to meet their specific needs is often a powerful attack strategy. Both sides can gain significant benefit. The customer gets a specific solution to their problem, which can give them competitive advantage. The supplier develops stronger bonds and has available an offering which may be suitable, with or without adaptation, for other customers. It may require an additional investment programme by the supplier to both develop the new offering and to deliver it. 4. New business development programme This tends to be the most costly strategy as it combines both 2 and 3 above. 5.2 Supplier positioning strategy What customers perceive is what they believe. They have an image of their suppliers, which colours their thinking and impacts on their actions. Typically, they may think of one supplier as high priced, good quality, reliable service, listening, providing tailor made solutions, whilst another may be seen as average price, providing standard offerings, acceptable quality and so on. Three questions, based on information in the customer fact file (Chapter 2), that should be asked by a supplier are: •

What is the present image the customer has of my company?

•

What image do they have of my competitors?

•

What image is needed to achieve the objectives set for the account?

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Two tools can be used to structure thinking in answering these questions: 1. Perceptual mapping The image that the customer has of the suppliers will have a number of dimensions. Each dimension can be compared to one other and the positions of each supplier plotted as shown in figure 7.6. The values can be assessed objectively by asking the customer their views. An outside consultant/researcher can help to obtain more objective and structured responses from the customer. If this is not possible, then the supplier should assess them subjectively. Price and service

Speed of response and quality

Price + A
B C
Service
-

Speed of + response B

People +




+

Quality -

People and innovation

B
+ A


Innovation -

A


C
-

-

-

+

C


Figure 7.6: Positioning perception maps The three maps show how three suppliers A, B and C compare along three pairs of dimensions – price and service, speed of response and quality, people and innovation. Supplier A is perceived as offering the highest service and highest price, with the highest quality and an average speed of response, and with good people but average innovativeness. Supplier B on the other hand, is lower in price but also perceived to have less good service, quality and innovativeness. They are however perceived to be more responsive and have better people. C in contrast is well perceived for innovativeness but less well along the other dimensions. If these are the only dimensions considered as important by the customer it is likely that supplier A will be gaining share, whilst supplier C will be loosing share. The challenge open to C is to try to reposition itself more favourably. It can improve along five dimensions – price, service, quality, speed of response and people. However, implementing a positioning strategy that attempts to improve all of them at once is likely to be very resource hungry and extremely challenging. It should begin by picking one or two where it can leverage its strengths to make improvements and communicate them in order to change the customer’s perception. The dimensions used in the example are fairly generic. In practice they will be specific to each customer and a detailed understanding needs to be obtained of precisely what the customer understands by each.

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2. Customer value analysis The principle of positioning maps can be extended by the development of the fair value concept. Value is quality

Within any market, customers will have a view, at any point in relative to price time, of what constitutes fair value for money. They will compare the total quality of what they receive against the costs that they incur. Generally the higher the cost, the higher the total expected quality. Conversely the lower the cost, the lower the expected quality. The factors that the customer considers in making its purchase decision and their relative importance can be identified in a similar manner as with the perceptual maps. Amongst the quality factors that the customer might consider for example, could be the supplier’s reputation, the features of the offering, the materials used or its functionality. The price related factors reflect the costs the customer incurs in buying, receiving, using and if necessary, disposing of the offering. Price factors could include the list price, discounts, cost of usage or after sales service costs and others. The performance of each supplier, as perceived by the customer, against these criteria can be assessed enabling the various suppliers to be compared. The customer value map in figure 7.7 shows customer perceived quality plotted against the relative (compared to competitors) price for each supplier. The fair value line represents the point at which price and quality are balanced. Supplier Z has the lowest relative price and the lowest perceived quality, whilst Y is the highest on both dimensions. Supplier X has a relative price slightly lower than Y and perceived quality slightly higher than Z. Higher

Worse customer value

Fair value line

Relative price

Y X

1.0

Z

Better customer value

Lower Inferior

Superior

1.0 Customer perceived quality ratio

Figure 7.7: Customer value

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Which offer is the customer going to prefer? In this case, supplier Z’s since it offers, at its relative price, more than fair value. In fact it offers better value. Supplier X unfortunately, offers less than fair quality at its relative price, which is worse value. Supplier Y is more or less on the fair value line. Generally, the customer would prefer to deal with suppliers who offer better-perceived value. As a result these suppliers’ share of the customer’s business is likely to increase. The converse is true for those suppliers like X who offer worse value for money. The share that supplier Y achieves, being on the fair value line, will tend to remain stable. Generally therefore, suppliers that sit to the right of the fair value line will gain share, whilst those to the left will lose share. This has important implications for both attack and defence strategies. If supplier X for example, is adopting an attack strategy, it will need to get to the right hand side of the fair value line if it is to begin to gain share. It’s strategy for so doing can either be to reduce relative price at the present quality as perceived by the customer, or to increase perceived quality at the present relative price, or some combination of the two. Supplier Y on the other hand, may implement a defence strategy. For this to succeed it need only stay on the fair value line. This does not necessarily result in a ‘do nothing’ positioning strategy. Over time, as suppliers deliver improved customer perceived quality that which was exceptional becomes the minimum standard required by the customer. In effect, the fair value line moves in the direction of the bottom right of the customer value map. Unless supplier Y keeps up with this movement in customer expectations, it will fall to the left-hand side of the fair value line and begin to lose share of the customer’s purchases. For the purposes of developing the strategic account plan, the detailed calculations needed to draw the customer value map are not required. The reason for introducing the concept is to help understand the dimensions of customer perceived quality, relative price and fair value and their impact on positioning strategy. With this understanding the positioning strategy can be determined using the formats shown in figure 7.8 (a & b), allowing your company to be compared against up to three competitors.

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Performance rating (1 to 10) Perceived quality satisfaction Customer perceived quality attributes (1)

Importance weighting Allocate 100 points (2)

Competitors

Us (3)

X (4)

Y (5)

Z (6)

Us (2) x (3)

X (2) x (4)

Y (2) x (5)

Z (2) x (6)

Average

Total customer satisfaction rating

Figure 7.8a: Customer perceived quality profile The first column lists the attributes of quality as identified by the customer, or if this cannot be done, by staff in the supplier who know the customer. Some of these factors will be more important than others in the customer’s decision making process and each should be weighted to reflect their relative importance in column 2. This is achieved by allocating 100 points between them. In the next four columns, each supplier is rated against each attribute on a 10-point scale, where 1 represents very poor perceived performance and 10 extremely good perceived performance. In the next four columns each supplier’s rating is multiplied by the appropriate weight and the figures totalled to give a customer satisfaction rating. The final column gives the average of the customer satisfaction for each attribute. Figure 7.8b shows the same format for the relative price factors.

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Performance rating (1 to 10) Perceived quality satisfaction Customer perceived quality attributes (1)

Importance weighting Allocate 100 points (2)

Competitors

Us (3)

X (4)

Y (5)

Z (6)

Us (2) x (3)

X (2) x (4)

Y (2) x (5)

Z (2) x (6)

Average

Total customer satisfaction rating

Figure 7.8b: Customer perceived relative price profile The total scores will show the overall level of customer satisfaction in relation to the quality and price factors. Comparison against the individual attributes will identify where there is scope for improvement. Attack strategies should focus on those attributes which are highly weighted and where the supplier’s customer satisfaction score is low. As a proxy for the fair value line, the average of the perceived satisfaction scores can be used. Attack strategies require scores greater than this average, whilst defend strategies require the supplier to achieve average scores. To illustrate these strategies an example is given below in figures 7.9 (a & b).

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Performance rating (1 to 10) Perceived quality satisfaction

Louke

Sigma

Gena

Competitors

Importance weighting Allocate 100 points (2)

Euroco

Customer perceived quality attributes

(3)

(4)

(5)

(6)

Euroco (2) x (3)

Louke (2) x (4)

Sigma (2) x (5)

Gena (2) x (6)

Average

Supplier reputation

15

5

8

8

4

75

120

120

60

93.8

Fitness for purpose

25

5

6

3

8

125

150

75

200

137.5

Design

15

9

7

8

6

135

105

120

90

112.5

Maintenance requirement

25

4

6

5

8

100

150

125

200

143.8

Features/functionality

5

9

8

6

7

45

40

30

35

37.5

Speed of response

15

7

7

4

5

105

105

60

75

86.3

Total customer satisfaction rating

585

670

530

660

611.3

(1)

Figure 7.9a: Customer perceived quality profile Each quality attribute is defined in further detail. For example, supplier reputation would include innovativeness, reliability, financial stability, investment programme and market profile of the supplier. Each of these attributes would be assessed individually and their weighted scores brought together to give the ‘supplier reputation’ quality satisfaction score. The highest scoring supplier Louke, has an overall customer quality satisfaction rating of 670. Sigma has the lowest overall customer satisfaction score of 530. If Euroco is adopting a defensive strategy then it should be aiming to achieve around the average customer satisfaction score of 611.3 compared to its current level of 585. A number of options are available to enable it to gain around another 26 points. The most obvious is to improve the customer’s perception of ‘fitness for purpose’ by around one point. Because it is an important factor with a weighting of 25 points it would give an extra 25 points and brings Euroco close to the average. However, it may be that Euroco has a standard product, which does not lend itself to adaptation to individual requirements. This weakness means that another route should be chosen. The first point of reference is the SWOT. Does Euroco have any relevant strengths that could be brought to bear. Perhaps its speed of response is one? Although the customer currently rates it joint best it could do even better. This factor has a weighting of 15 so improving its customer perceived score by 1.5 would generate another 22.5 points. An attack strategy means that Euroco’s customer satisfaction rating should exceed the average. How far beyond the average it should try to achieve depends on its account objectives. Assuming it is currently the number three quality supplier to this customer, then if it wants to achieve a number two position it should strive

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for a customer quality satisfaction score greater than 660, that is an extra 75 points. This is clearly a much more difficult task requiring considerably greater effort. Again the SWOT analysis should provide the starting point for identifying the attributes to concentrate on. If it manages a customer quality satisfaction score over 670, then it has a chance to become the quality leader. The greater the score over 670 the faster Euroco’s share will increase. Clearly this means that it needs to bring considerably greater resources to bear to improve some very specific customer perceived quality attributes. Euroco can try to improve a number of attributes such as ‘maintenance requirements’, ‘supplier reputation’ and ‘speed of response’ by 1.5 points each, giving it an additional 82.5 customer quality satisfaction points. However, this may be spreading its resources too thinly. It may be easier to focus all the resources behind eliminating a weakness such as ‘fitness for purpose’ and embark on a product improvement project to increase the customer’s perceived score by a massive 4 points, adding another 100 to its customer satisfaction rating. However, this might also be difficult because it is hard to turn a weakness into a strength. Achieving an improvement of 3 may be possible, which means Euroco needs also to improve perceived customer quality satisfaction along another attribute if it is to offer significantly greater customer satisfaction than Louke. However, quality cannot be looked at in isolation. The cost paid by the customer, in exchange for the quality received, is the price. The price dimensions are shown in figure 7.9 (b):

Performance rating (1 to 10) Perceived quality satisfaction

Louke

Sigma

Gena

Competitors

Importance weighting Allocate 100 points (2)

Euroco

Customer perceived price attributes

(3)

(4)

(5)

(6)

Euroco (2) x (3)

Louke (2) x (4)

Sigma (2) x (5)

Gena (2) x (6)

Average

Invoice price

30

6

4

4

3

180

120

120

90

127.5

Credit period

15

5

3

3

3

75

45

45

45

52.5

Maintenance cost

15

9

4

8

6

135

60

120

90

101.3

Discount given

30

5

4

5

6

150

120

150

180

150

Resale value

10

6

8

6

7

60

80

60

70

67.5

600

425

495

475

498.8

(1)

Total customer satisfaction rating

Figure 7.9b: Customer perceived price profile

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Euroco is perceived to be very price competitive. Its ‘invoiced price’ has the highest score (lowest price) and it scores best for maintenance costs (lowest maintenance costs). However, the account manager may be under some internal pressure to increase the profitability of the account by reducing the period of credit taken by the customer and to increase the invoiced price. The impact of this on the customer’s perception must be estimated. If it is significant then it will impact on the customer’s perceived price positioning of Euroco. Again the strategy Euroco adopts will depend on whether it is implementing an attack or defence policy with this customer. It may judge that the price/quality perception is overall to the right hand side of the fair value line. In this case it needs merely to continue to do what it is currently doing to increase its customer share. Neither it’s quality nor price perceptions need to be changed. However, if it estimates it is to the left side of the fair value line, then it might judge that its strategy to improve quality perceptions, discussed above, will enable it to occupy a position to the right of the fair value line, despite an increase in the perceived price attributes, thereby implementing an attack strategy. 5.3 Pricing policy Having identified the desired price positioning, the pricing strategy can be determined. There are many possible strategies and applying creativity will enable unique pricing strategies and formulas to be developed. Six strategies, which are not mutually exclusive, are described below. 1. Leader/follower strategy An attack strategy usually implies a leader pricing strategy; that is leading price changes. This means pricing aggressively, particularly when the supplier is in a relatively weak position but it can also mean leading prices up when in a strong position. Defend strategies tend to produce follower pricing strategies, waiting to see what the competition does and then deciding whether to match it. In practice, finding out the competitor’s price is often a significant challenge. Knowledge of the competitor’s strategy, cost structure, capacity utilisation and their performance against their internal objectives can help to deduce their pricing level. Information provided by customer contacts also helps, although their motivations for communicating this information need to be taken into account.

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In figure 7.10 the various possible supplier/competitor-pricing strategies are shown: Supplier strategy Leader

Follower

Leader

Frontal attack

Matching

Follower

Pre-emptive

Stable

Competitor strategy

Figure 7.10: Leader/follower pricing strategies i) Frontal attack Both supplier and competitors are adopting leadership strategies. This will result in a head-to-head battle, generally forcing prices down. The likely winner will be the company with: •

the strongest position in the customer

•

access to the most resources.

If both sides are similarly placed then a lengthy battle will ensue where both sides will suffer falling profits. ii) Pre-emptive Where the competitor adopts a follower strategy, then adopting a leadership strategy can lead to higher prices, particularly where the supplier is in a strong position with the customer. An aggressive pricing strategy can also be successful where the supplier is in a weaker position, particularly if the stronger competitor does not follow the price down. iii) Matching When the competitor adopts a lower price leadership strategy in an attempt to increase share, then the supplier must decide whether or not to match the lower price. It may decide that it does not need to do so because of the overall strength of its position with the customer. However, if its position is weak, then it may be forced to do so to avoid losing customer share. Naturally this will impact on the profit generated from this customer. iv) Stable Where both sides adopt a follower strategy little changes and a stable situation is created. Under such circumstances it is desirable, if possible to increase the efficiency of dealing with the customer and thereby its profitability to the supplier.

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2. Performance based pricing strategy Payment by results is not an unusual concept when used by companies to remunerate their employees. The same principle can be applied in pricing. One of the simplest ways of doing this is by offering the customer an additional discount or bonus, based on their quantity of purchases. However, this is relatively crude and is very much a one-way arrangement from the supplier to the customer. Much more powerful performance based pricing strategies are available. The rationale behind these strategies is that it is to both the customer and supplier’s advantage that the customer is satisfied with their purchases. If the supplier performs excellently then the customer is likely to be better off in a number of ways. For example, their stock levels may be reduced, their administration costs may be less, the quality control required may be simplified and so on. If the supplier performs badly the opposite may be the case. A pricing agreement may therefore be struck reflecting the quality of the supplier’s performance. Excellent performance will trigger bonus payments, whist poor performance triggers penalties, as shown in figure 7.11. Standard payment is set at between 95 per cent and 105 per cent of normal performance. Below 95 per cent penalty payments are triggered, whereas above 105 per cent bonus payments are received. 80%

95% Penalty payment

105% Standard

120% Bonus payments

Figure 7.11: Performance based pricing strategy Supplier performance is assessed regularly, every three months for example. Where it is below standard, the supplier will credit the customer and where above, it will receive a bonus. The performance standards need to be defined carefully beforehand. In figure 7.12 some performance criteria are given by way of example, and the performance levels defined.

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Definition

Performance levels 95%

105%

Definition

Delivery

Time of receipt of order vs. agreed time

30 minutes earlier or later

20 minutes earlier or later

0.02% of standard price for every 2 minutes early or 5 minutes late

Product quality

Extent to which it meets the eight dimensions of the specification

Meets six out of the eight dimensions

Meets all eight and exceeds specification on one dimension

0.03% of standard price for each dimension

Response to telephone calls

Speed of response from the time the customer placed the call

Responds in 24 hours

Responds in 6 hours

0.01% of standard price for each hour

Figure 7.12: Performance criteria For the delivery criteria, standard performance is defined as between 20 and 30 minutes of the agreed time, on average. If it is outside this time frame, a penalty or bonus payment becomes due. For example, if it is an average of 12 minutes early or late of the agreed time over say a three months period, that is 8 minutes better than the 105 per cent performance level time of 20 minutes, then a bonus of 4 X 0.02 per cent is due to the supplier. Conversely, if it is an average of 60 minutes early/late over a three months period, that is 30 minutes later that the 95 per cent performance level, then a penalty payment of 6 X 0.02 per cent of the standard price is due from the supplier. Typically, both the bonus and penalty payment will be capped at say 80 per cent and 120 per cent, to avoid total open-ended commitments. A format suitable for developing a performance based pricing approach is shown in figure 7.13. One form should be completed for each criterion.

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Description Criteria Definition Standard range Maximum cap Minimum cap Performance unit for bonus Performance unit for penalty Payment per unit for bonus Payment per unit for penalty Measurement system availability Frequency of measurement

Figure 7.13: Performance based pricing criteria specifications The five factors that underpin the real power of this pricing strategy are: •

Detailed discussions have to take place on what the customer is really looking for, both in terms of the criteria and standards of performance

•

Joint systems have to be set up by the supplier and customer to measure performance against the criteria

•

Problems and issues of poor performance are highlighted as they occur and can be tackled before they do serious damage to the relationship

•

Powerful bonds are created which can block competitor entry

•

The levels set and the size of the payments are generally subject to negotiation. These are much more productive for both sides than the usual single dimensional pure price negotiations, which generally create a win/lose situation and are adversarial. Performance based pricing methods are multi-dimensional and exchanging concessions becomes much easier.

Overall therefore, performance based pricing strategies contribute to the maintenance of close productive relationships. However, they require the relationship to be at a positive stage and state for there to be enough openness and trust to set them up.

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3. Minimising cost of ownership pricing strategy From all that has been described above, it is clear that the cost to the customer of acquiring a product, service or solution is greater than its price ticket. Purchasing, owning, using and disposing of the product generate additional costs. The supplier can adopt a strategy to try and minimise the total cost of ownership for the customer. Figure 7.14 gives a suitable format to assess these costs, systematically reviewing each aspect of the customer ownership process.

Factors

Ways to reduce customer costs

Impact on customer value chain

Monetary impact for customer

Monetary costs Price Information purchase Transport Transaction costs Cost of usage Service costs Cost of disposal Cost of finance Other Time costs With supplier Making purchase Information gathering Post purchase training Other Energy costs Travel Running costs Telephone Other Psychic costs Decision making Worry/concern Justifying purchase Post purchase feelings Other

Figure 7.14: Customer ownership cost analysis

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Ways of reducing cost are identified. The customer’s value chain is examined and the part(s) where the change would impact identified. An assessment is then made of the likely monetary effect on the customer of the possible change in the supplier’s offering. Those changes that impact on parts of the value chain that are high priorities for the customer and have high value, are likely to result in good strategies. Naturally, the cost for the supplier of providing the changes needs also to be taken into account. 4. Market pricing strategy In commodity markets long-term supply agreements can be struck between supplier and customer at what appears to be an attractive price at the time. This has advantages to both sides as the customer has a stable price and the supplier a predictable demand. However, market prices may significantly decrease or increase during the period of the contract. In the former case, the customer is now overpaying by a considerable amount, whilst in the latter case, the supplier is appreciably undercharging. Although advantageous to one party or the other in the short-term, neither is of long-term benefit since either one side or the other is uncompetitive. Indeed, if rigidly enforced it can drive the supplier or customer out of business. A pricing strategy that keeps price stable within a band of market price fluctuations and then applies a pricing formula if market prices move outside the band for an agreed period of time, goes some way to overcoming this problem. For example, if the market price stays more than ± 10 per cent outside the contract price for more than four weeks, then it is changed by the difference less 2 per cent. The various elements of a market-based strategy are laid out in figure 7.15.

Pricing factor

Description

Market price fluctuation band within which price remains fixed

±

Period market prices need to be outside price band to trigger price change clause

Days/weeks/months

%

Formula for adjusting price

Figure 7.15: Market-based pricing strategy

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5. Cost saving sharing strategy Working closely with customers to reduce the costs of doing business together is a bonding mechanism, which can work powerfully for both sides. Jointly staffed project teams will address savings to be made in improving the supply chain, making more accurate order forecasts and so on. Both sides will gain benefits from this activity. The supplier for example, may gain by being able to reduce their stock levels. The customer may gain through fewer out of stock situations. Each side could keep its own savings and benefit. However, one side may gain significantly more than the other. One way of handling this more fairly, and increasing the incentives for both parties to help each other achieve efficiencies, is by pooling the cost savings and sharing them according to an agreed formula that adjusts the price. For example, if when working together with the customer, a supplier achieves a cost saving equivalent to €0.02 per unit then this may generate a €0.01 reduction in the price to the customer. An equivalent cost saving by the customer may generate an equivalent price increase or reduction in discount or rebate. For this strategy to be feasible the relationship must be at a good stage and state (Chapter 4, Section 3), since considerable openness and mutual trust are needed. 6. Open book pricing strategy In the defence industry for example it is often difficult for the supplier to predict the costs that will be incurred in delivering a major capital project. Rather than agree a fixed price, which could be very risky, the supplier will agree the profit margin they will wish to make from the contract. The customer then accesses the supplier’s cost records to check and verify the actual costs incurred and pays those costs, plus the agreed margin. In practice, customers are becoming less enthusiastic about this type of pricing strategy, as there is little incentive for the supplier to execute the project efficiently knowing that all their costs will be covered. Also it is difficult for the customer to compare one potential supplier against another, not really knowing where the final total price will end up.

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5.4 Service strategy The service priority needs to be set for the customer. This will be determined by the position of the account on the customer base map (Chapter 4, Section 2.4). Typically, this will be high, medium or low. Each of these service levels needs to be specifically defined in terms of such elements as response rate, returns policy, problem solving process and so on. This needs to be fine-tuned in relation to the customer’s perception of competitors’ performance. In Chapter 3, Section 2.4, service performance was discussed. This provides the basis for determining the service strategy. Using the same approach as that discussed above in Section 5.2 supplier positioning strategy, the service performance levels to implement an attack or defensive strategy can be determined. 5.5 Communication and contact strategy The main media to be used and the frequency of interaction between the customer and supplier need to be specified. Based on the SWOT analysis and linked to the strategies discussed above, the communications challenge can be assessed. For example, a supplier implementing an attack strategy may need to reposition itself with the customer as being more innovative. A suitable communication strategy to the client could be to ensure that all key customer contacts are: •

Aware of the supplier’s innovation record

•

Kept updated on all new developments in the pipeline.

A format for developing the communication and contact strategy is shown in figure 7.16. The main personal and impersonal media to be used are listed. The strategy for each is described, together with the objectives to be achieved. The frequency of use/contact is then listed as high, medium or low. Media

Strategy (description)

Objectives

Intensity

Impersonal

Personal

Figure 7.16: Communication and contact strategy

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5.6 Customer information strategy In Chapter 2 the customer fact file was discussed. Figure 2.1, the data collection checklist, identified the priority items of information that needed to be collected and the individual responsible for collecting them. This forms the focus of the information strategy. Broadly, the information sources can be divided between personal and impersonal ones. The former is part of the communication and contact strategy outlined in the previous section and should be included there. For the latter, the strategy will specify whether desk research is to be used or whether an agency is to be used to undertake field research.

6. Tactical action planning To answer fully the third planning question – How do we get there? – tactics need to be devised to implement each strategy. The four questions that need to be addressed for each strategy are: •

What must be done?

•

By whom?

•

When?

•

With what resources?

A suitable format for bringing the action plan together is shown in figure 7.17. Each strategy needs to have its own action plan. For example, if a supplier wants to pursue a performance based pricing strategy with a key customer, then the critical activities in its implementation could be:

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•

Develop the pricing formula

•

Internal presentation to gain support and commitment

•

Presentation to customer

•

Refining and agreeing pricing formula

•

Creating project team

•

Launching the new pricing structure.

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Strategy: Action

Responsibility of

Timing

Budget

How monitored

Figure 7.17: Tactical plan format Every action must have an individual responsible for it to ensure it is implemented. When the action is due to start and finish, and the cost of implementation should be estimated. Where the resources used are people, then some estimate should be made of the cost of their time. Finally, the way the action will be monitored to ensure it is implemented is entered. One issue is how detailed the tactical plan should be. For the plan document itself, it need only be concerned with the most important actions to realise the strategy. Subsequently, detailed project plans may be developed to implement and control complex tactical plans, which involve numbers of in-house and customer staff, and possibly outside experts. A second issue is whether activities which do not appear to be specifically related to individual strategies, should be included in the plan. For example, the order handling function may have considerable contact with the customer, dealing with an essential element of the business process. Some training of new staff may be envisaged to improve their knowledge of the customer and its requirements. This is unlikely to be a priority since the lack of knowledge of these staff has not been highlighted as a weakness. If it were, and if it risks being exposed by a threat, or if it inhibits an opportunity being capitalised on, then a strategy would need to have been developed to neutralise it. As this is not the case then it is not an important activity. In this context it is then legitimate to question whether the training is really necessary. Once all activities for all the strategies have been identified then some overlap may be found. For example, setting up a working party to identify cost reduction possibilities with the customer may also help implement the information strategy, positioning and pricing strategies. This is doubly desirable since it helps to reduce the total resource requirement, but more importantly, it is an indicator that the strategies are mutually reinforcing, making them more effective.

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7. Summary In this chapter we have covered the following: 1. The seven tests of good strategies •

Is it clearly an attack or defend strategy?

•

Does it have the required focus?

•

Is it based on the SWOT?

•

Is it different/creative?

•

Will it achieve the objectives?

•

Is it cost effective?

•

Will it generate competitive advantage?

2. Sources of competitive advantage •

Better products, services and solutions

•

Consistently lower prices

•

Better service

•

Applying more resources

•

Being innovative and doing things first

•

Developing stronger bonds with the customer.

3. Competitive strategy development

180

•

The strategy development process using a logical procedure for either generic attack or defend strategies

•

Generating strategic ideas through adopting ‘extreme strategies’ and ‘strategic visualisation’ processes.

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4. Some examples of strategies •

Category and product policy involving either a penetration programme, a customer development programme, a product development programme or a new business development programme

•

Supplier positioning strategy through perceptual mapping or customer value analysis

•

Pricing policy including: –

Leader/follower strategy

–

Performance based pricing strategy

–

Minimising the cost of ownership pricing strategy

–

Market pricing strategy

–

Cost saving sharing strategy

–

Open book pricing strategy

•

Service strategy in relation to the service priority in order to achieve the service performance objectives

•

Communication and contact strategy in terms of the main personal and impersonal media and their intensity of usage

•

Customer information strategy specifying the priority information requirements and the main methods for obtaining them.

5. Tactical action planning •

What must be done?

•

By whom?

•

When?

•

Using what resources?

•

How will implementation be monitored?

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Benchmarking your organisation’s ability to develop good key account strategies and tactics Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

OCCASIONALLY

RARELY/ NEVER

4

3

2

1

1. There is explicit consideration to develop an overall account strategy 2. The account strategy is written into the account plan 3. All account strategies are explicitly tested against a set of criteria 4. All key account strategies are classified as either defend or attack 5. A logical process is adopted to develop attack or defend strategies 6. Creative processes are used to generate strategic ideas 7. Account category/product strategies are developed 8. Supplier positioning strategies are developed 9. Pricing strategies are developed 10. Service, communication, contact strategies and information strategies are developed 11. Each strategy has a tactical action plan developed for it 12. Mutually reinforcing strategies are developed that economise on resource requirements Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column GRAND TOTAL SCORING: 40 – 48 points

Your company’s process for developing key account strategies and tactics is leading edge

31 – 39 points

Your company’s processes are well formed and should be maintained. Although further improvement is possible, the same effort applied to other parts of the key account planning process will probably yield higher returns

22 – 30 points

There are significant deficiencies in the key account strategy and tactics development process. Focus on those elements that have the lowest score

21 or less points The strategy and tactics development process is not working well and requires fundamental review and restructuring

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Implementing the key account plan 1. INTRODUCTION 2. GAINING INTERNAL COMMITMENT 3. GAINING CUSTOMER COMMITMENT 4 . A C H I E V I N G E X C E L L E N C E I N I M P L E M E N TAT I O N 5. IMPLEMENTING EFFECTIVE MONITORING AND CONTROL 6. SUMMARY B E N C H M A R K I N G Y O U R O R G A N I S AT I O N ’ S A B I L I T Y T O IMPLEMENT THE ACCOUNT PLAN

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Chapter 8: Implementing the key account plan

1. Introduction A significant amount of time and effort is invested in developing the key account plan, creating a high value asset. The return on that investment is determined by how the plan is used. Four issues determine the effectiveness of the implementation as shown in figure 8.1. Internal commitment

Customer commitment

•

Inputting to the plan

•

Inputting to the plan

•

Allocating responsibility

•

Selling the plan

Excellence of implementation

Effective monitoring and control

•

Project management

•

Reporting systems

•

Team working

•

Project reporting

Leadership and motivation

•

Reviewing the team

•

Controlling the plan

Training and development

•

Disseminating the draft plan

•

•

Presenting and agreeing the plan

•

•

Launching the plan

Figure 8.1: Implementation issues The first challenge is to line up the organisation behind it. Because the implementation of the plan crosses functional boundaries, disrupts existing systems and processes, challenges entrenched power, and often requires individuals to act in new and different ways it can, and often does, encounter resistance. In a recent survey3 over two thirds of account managers claimed that ‘turf wars’ was the greatest impediment to the effective implementation of their roles. Lack of support within their organisation at local level and resistance from the customer’s local managers to centrally negotiated agreements were cited as the main reasons. To overcome this resistance, the individuals involved in the plan’s implementation must take some ownership of it. It also means that senior management approval must be obtained to ensure the resources required are sanctioned. The plan needs to be marketed internally.

3

184

Internal marketing of the plan is as important as gaining the customer commitment to it.

Wilson, Croom, Millman, Weilbaker – The Global Account Management Study – April 2000

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As well as internal commitment, customer commitment is also needed. This is only feasible when the relationship is at a good stage and state. If this is the case, then plan implementation is something that is done ‘with’, rather than ‘to’ the customer. How well each activity is implemented will impact on its success. This is a function of how well the projects are structured, how well individuals work together and their knowledge, skills and abilities. Finally, implementation needs to be monitored to ensure it is going to plan and any variances identified and addressed. In this chapter each of these implementation issues is reviewed.

2. Gaining internal commitment 2.1 Inputting to the plan People tend to be more committed to their own ideas than other people’s. Whilst it may be tempting for account managers to draw up their customer plans on their own, since they have all the detailed knowledge of the customer, and it will probably take less time, it is a mistake not to get others involved. This can be done in a variety of ways: 1. The customer base map (Chapter 4, Section 2) is a cornerstone, not just for the account plan, but also for the implementation of the total account management process within the business. Its development therefore needs careful attention. A six-step process should be adopted: Step 1: Appoint a project manager An individual must be given responsibility for moving the project forward. This could be an account manager, a young business graduate or an outside consultant. Step 2: The champion of the account management process calls a senior management team meeting. The champion is the senior manager who has taken ownership of the account management strategy within the business and is a key driver in its implementation. Attendees should include the project manager and senior representatives from all the functions within the business who have some direct or indirect impact on customers. Typically, these include not only the marketing, sales and ser vice functions but also the finance, operations/manufacturing, research and development, human resources and

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purchasing functions. The purpose of the meeting is to explain the customer base mapping process and to gain a consensus on the customer attractiveness and position factors and their relative importance (weighting). Naturally, different functions will have different perceptions in relation to their own roles and objectives in the business. These need to be reconciled. An outside facilitator can be helpful in this process. Step 3: Develop the rating scales Each customer attractiveness and competitive position factor needs to have a rating scale determined so that individual customers can be measured. The project manager, possibly using outside consultants, should do this. The scales are fixed (calibrated) in relation to the dimensions of the business. For example, in one company a big customer may be one that buys more than €50m, whilst in another it may be more than €1m. Once each factor has been calibrated, the list of attractiveness and position factors, with their weightings and rating scales should be circulated to the senior management team for their comments and be subsequently refined. Step 4: Collect the data This is the responsibility of the project manager. Some data may be readily available, some may need meetings with account managers who know the customer, and some may need to be estimated. Complete accuracy is not usually necessary, as it is only important to know whether a particular customer fits into a band. For example, whether its growth rate is above 15 per cent p.a., between 5 per cent p.a. and 15 per cent p.a. or less than 5 per cent p.a. Once all the data is collected the customer base map can be drawn. This can be done manually or using spreadsheet and graphics software such as Microsoft Excel and Microsoft Graph. Step 5: Present results to the senior management team The champion should convene a second meeting. The results of the analysis are presented to the team and discussed. As this is likely to be the first time that senior management will have seen all the most significant customers pictured on a single piece of paper/overhead slide, it is likely to generate considerable discussion. This can take a significant amount of time and may require further calculations as weighting and rating scales are adjusted. The output of the meeting will be top level agreement throughout the business on the high priority customers (key accounts) where an investment strategy is required, the next tier where a defend/maintain strategy is called for and the third tier where a delegate or divest strategy is appropriate. The actions

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to be taken as a result must be agreed. For example, how much resource from each function should be allocated to a key account? How will divest accounts be handled without causing bad feeling in the market? Step 6: Communicate the outputs of the meeting Each of the senior managers must communicate the outputs from the customer mapping process to their staff. The implications in terms of the way they do their jobs must be agreed. 2. Strategic visualisation has already been described in Chapter 7, Section 4.2. 3. A number of meetings of members of the account team can be held. Typically, the account manager will orchestrate the process. The outputs from the analysis stage will be presented to the team and they will work together to develop the SWOT, objectives and strategies/tactics. 4. Having formulated the outline plan, the account manager can hold one-onone meetings with those holding responsibility for particular key functions. 2.2 Allocating and getting acceptance of responsibility for activities It is not enough merely to identify the individual responsible for each activity in the plan; they must accept that responsibility. Getting them to input their ideas helps, but may not be enough. They need to be sold on the benefits of doing it. This means that the account manager must understand their needs and the pressures and issues facing them. Unless they can see that there is ‘something in it for them’, they will remain uncommitted. Figure 8.2 shows a format to plan the internal sales campaign.

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Name, title, role and function

Key issues (Concerns, requirements, needs, priorities – job and personal) Action and responsibility required from them Their natural bias towards the action Personal characteristics (Background and history) Key benefits/ arguments to them

Figure 8.2: Internal sales argument For each individual the key job and personal issues facing them are identified. Often they will have conflicting priorities that need to be acknowledged and handled constructively. The responsibility that they need to accept and their likely natural bias toward it are assessed. Some individuals may naturally be very supportive of the strategic account approach and be very helpful, whilst others may be less so. Their personal characteristics are recorded to flesh out their profile. Finally, the key benefits that need to be brought to their attention to address their personal and job issues are worked out. Getting commitment is also a political process involving forming coalitions, extracting favours, and pulling people with diverse priorities, interests and viewpoints together in a common cause. ‘Pressing the flesh’ has a role to play. 2.3 Disseminating the draft plan Before the plan is finalised it should be disseminated to the individuals who will be involved with the customer or who will be providing the resources needed. It must be made clear that it is a work-in-progress and still being formulated and that anything and everything can still be changed. It is not generally advisable to circulate the detailed plan. Rather, a summary of the key points in the plan should be brought together in an easy to read, relatively short and interesting way. This should be an adaptation of the management summary referred to in Chapter 1, Section 6 where the structure of the key account plan was discussed.

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This is not a substitute for the more detailed involvement of the account team in building the plan discussed in 2.1 above. Rather, it is a way of involving a broader group of people who will have an impact on the quality of its implementation. They need to be asked to read and review the plan and it is important that each be asked for specific feedback on the parts that are most relevant to them. This means that a request needs to be addressed to each individual so they are clear on why they are being asked to read the draft plan and what response is expected from them. For example, the credit control manager might be asked to comment on the practicality of making regular contact with the manager of the customer’s accounts department. Once comments have been received, they need to be acknowledged and discussed further if necessary, before refining the plan to incorporate them. This can be a lengthy process so the account manager needs to be clear on the timescales for getting responses and including them in the plan. Personal follow up is often needed to remind people to respond, to show that their views are important and to give them credit for their ideas. 2.4 Presenting and agreeing the plan Someone senior in the organisation needs to sponsor/champion the plan. This may be the account director, chief marketing officer or even the managing director. They may or may not wish to be involved in the formulation of the account plan. It is critical however, that they agree with and fully support the account plan before it is presented to the senior management group. This presentation is a great opportunity for the account manager. Too often however, it is badly handled. The following structure should be adopted: 1. Circulate the management summary to the attendees before the meeting. 2. Make sure there is an overhead projector or a flip chart available in the meeting room. If you are using a Microsoft PowerPoint presentation then an LCD projector will be needed. However, do not be constrained by feeling you have to go through the entire presentation from start to finish in a linear way. Adapt it as you go along to match the requirements of your audience. 3. Open the presentation by stating the purpose for doing it; that is, to get their agreement to your plan and their sanction for the resources you need to implement it. 4. Ask them if they have particular issues or concerns arising from their reading of the management summary that they want addressed. Make a note of them on the flip chart or overhead projector. 5. Hand out copies of your plan.

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6. Structure your presentation to address the issues that are of concern to your audience. Use the visual aids you have prepared to support your points. This means that you must be familiar with them and be able to access the relevant slide quickly. 7. For each issue/question that you deal with get feedback on the extent to which the senior management group is satisfied with your response. Move to the next issue by confirming that they are happy with your response using a phrase such as ‘shall I now move on to the next point as you’re now satisfied that issue X can be handled satisfactorily’? 8. Once all the points have been dealt with in this way, present your final visual, which should communicate simply, and powerfully, the results that will be achieved and the resources needed to achieve them. 9. Do not forget to close. Ask for their agreement to your plan and the resources you need. In preparing for the meeting use the form in figure 8.3, which is an extension of the internal sales argument form in figure 8.2. Attendees (name, title, role and function)

Key issues (Concerns, requirements, needs, priorities – job and personal) Questions that might be raised Their natural bias towards the plan Key benefits/ arguments to them PRESENTATION CHECKLIST

•

Agenda: ______________________________________

• Venue – check layout

______________________________________________

• Equipment – flip chart/OHP and pens, LCD projector

______________________________________________ STRUCTURE OF THE PRESENTATION

• Pre-meeting materials to be circulated:

• Opening

–––––––––––––––––––––––––––––––––––––––––––––––– • Materials to be circulated at the meeting:

• Questions • Presentation

––––––––––––––––––––––––––––––––––––––––––––––––

• Close

Figure 8.3: Plan presentation preparation form

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2.5 Launching the plan Once approved the plan should be launched to the whole team, even though they have been involved in developing it. The point is to build momentum, create excitement, share the account vision and gain internal alignment. A good way of doing this is for the account manager to call the team together and present it to them. The presentation should focus on: •

The positive reception and support from the senior management group

•

The vision for the account

•

The account objectives

•

The key implementation priorities.

Individual responsibilities and actions need to be subsequently confirmed in writing. If it is not possible to make a presentation, then the management summary should be circulated.

3. Gaining customer commitment 3.1 Inputting to the plan The key account plan process provides an opportunity to strengthen bonds with customers. At a superficial level, they may be flattered that their supplier thinks they are important enough to spend time drawing up a plan. Nothing is lost therefore by communicating to the customer that a plan is being compiled. However, the relationship can derive further benefit. By getting their input to the plan, their commitment to it grows and therefore the likelihood of its successful implementation increases. Depending on the stage and state of the relationship (Chapter 4, Section 3) varying depths of input are feasible. Level 1 – Customer gives an estimate of possible quantity requirements for the period. There is no commitment to actually purchase the quantity. Level 2 – Customer gives estimate of likely quantities with implied commitment to purchase approximately that amount. Level 3 – Customer discloses his/her main priorities for the forthcoming period. The supplier is asked to identify ways that it can contribute to their achievement by aligning its offerings.

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Level 4 – Customer discloses their organisational and personal objectives and the key strategies for achieving them. The supplier identifies the role they can play and the contribution they can make. Level 5 – Customer and supplier work together to develop joint strategies that contribute to the achievement of the customer’s objectives. Level 6 – Customer and supplier work together to develop joint projects to implement joint strategies. High

Level 6: Joint working to implement joint strategies

Customer input

Level 5: Joint strategies to achieve customer objective Level 4: Organisational and personal objectives revealed Level 3: Priorities revealed and offerings aligned Level 2: Estimate probable purchases Level 1: Estimate possible purchases

Low Low

Supplier input

High

Figure 8.4: Amount of inputs to plan from both sides The degree of involvement and interaction deepens and broadens moving from level 1 to level 6 as shown in figure 8.4 and the number of people involved on both sides increases. Level 1 interactions are possible at most engagement and wedlock stages, except very poor states. Levels 5 and 6 only work in relationships at honeymoon or good wedlock states. 3.2 Selling the plan to the customer’s organisation For customer involvement at level 4 and higher, the customer is taking some ownership of the plan and has an increasing level of commitment to it. In the same way as the account manager needs to sell the plan internally to his/her own company, the customer contact needs to do the same in their organisation. The account manager should aim to assist in this process in similar ways to those described in Section 3.1 above.

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4. Achieving excellence in implementation 4.1 Project management Where relationships are narrow and transactional in nature, as in levels 1 and 2 described in Section 3.1, then the interactions will be fairly simple and the number of significant initiatives or projects will be few in number. As the depth of the relationship increases, so will the number and complexity of the initiatives. Managing and keeping track of what is going on can become difficult. Software such as Microsoft Project, which can handle complex projects with many contributors, or Microsoft Schedule for less complex projects, are well suited to plan, monitor and control customer initiatives outlined in the plan. They help focus on the detail. Unfortunately, this can sometimes obscure the big picture of gaining real agreement to the key milestones. These milestones are the significant stages that mark the completion of key parts of the project. Good milestones need to satisfy three criteria: •

They mark the completion of an activity. For example, succeeding in establishing contact with a key decision maker

•

They must be measurable. For example, setting up a pricing agreement

•

Active inputs are required. For example, obtaining written agreement from the customer.

Milestone planning helps overcome the most common reasons for project drift: •

Lack of commitment by individuals to the plan

•

Details obscure the objectives and key issues

•

The plan is not used to manage the project

•

Things change and the plan gets out-of-date

The process operates by gaining agreement to the key steps by: •

Focusing attention on the results that need to be achieved to meet the overall project objectives.

•

Specifying what needs to be achieved but not how it will be achieved

•

Involving all the team in a creative process

•

Assigning responsibility for achieving milestones, not the tasks to get there.

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There are two steps to developing the project plan. For smaller, more straightforward projects, only step 1 is required. Step 1 – Developing the milestones and a work breakdown Any customer initiative can be broken down into a number of steps. For example, developing a joint advertising campaign will need the following to be completed: 1. Develop outline campaign plan 2. Agreement of customer and own company to campaign plan and budget – milestone 3. Development of and agreement to media and copy plans 4. Copywriting and art work roughs 5. Sign-off the advertisement – milestone 6. Booking media and placing advertisement 7. Launch campaign – milestone 8. Evaluate plan effectiveness. There are eight activities, of which numbers 2, 5, and 7 are milestones. Each activity can now be broken down into a number of smaller steps. For example: 1. Develop outline campaign plan a) Develop campaign objectives and specify target audience b) Meet with advertising manager to get inputs and commitment c) Estimate budget requirements d) Specify work plan e) Develop draft campaign theme and plan f) Prepare client and internal presentation. This breakdown could be taken further and each step broken into even smaller tasks, until it is absolutely clear what needs to be done to implement each step. Obviously, the more detailed the breakdown the more complex the project plan becomes and the extra work entailed in doing this will soon run into diminishing returns. Figure 8.5 shows a format for carrying out a work breakdown and for milestone planning. The main steps are listed in the first column and the second ticked if it is a milestone (meeting the three criteria listed above). The main steps can then be broken down into subtasks if it is appropriate to do so and the start date and task duration estimated.

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Duration

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Figure 8.5: Work breakdown/milestone planning Step 2 – Detailed planning and developing a Gantt chart The tasks identified in the work breakdown can now be included in a Gantt chart as shown in an example in figure 8.6. If appropriate, tasks can be broken down further into sub tasks and even sub subtasks. Using appropriate software it is usually only necessary to specify the details listed in the work breakdown and the chart will be completed automatically.

ID

Task Name

1

Project set up

2

Initial round of meetings

3

Refine approach/presentation

4

Refine road map

5

Agree project implementation plan

6

Senior portfolio team workshop

October 05/10

Review benchmark portfolio capabilities

8

Agree road map

9

Agree reponsibilities

10

Agree tools development procedures

12

19/10

November 29/10

02/11

09/11

16/11

12/11

7

11

12/10

Agree monitoring and control procedures Review meeting

Figure 8.6: An example of a Gantt chart

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4.2 Team working One of the account manager’s most valuable assets is his/her internal network, the people in various functions such as the supply chain, marketing communication, market research, production planning, operations and so on, who can make things happen. In matrix organisations they may have ‘dotted-line’ responsibility to the account manager. Sometimes they are brought together in a formal, crossfunctional team to address particular customer issues. Most times the relationship will be informal, with the account manager working these contacts to form a virtual team. At times, particularly in large organisations, members of these teams may be located in different countries and continents. The rationale for bringing a team together is that it should, if it works well, produce better results than a set of individuals working on their own. Creating and managing these teams effectively is therefore critical to successful implementation of the plan. The individuals will have primary roles and job objectives within their own functions. Generally, these are the main criteria against which their job performance is primarily judged. Yet they need also to address specific, customer issues. Some guidelines for creating and managing virtual teams are: 1. Creating the team

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Example: The account manager in a contract catering company wanted to give his key account access to the qualifications, experience and training of each of the supplier’s staff working on the customer’s premises. This information, along with other private information on salary and so on was held on the supplier’s HR database. To give the customer the degree of access he was looking for, the account manager needed to get involvement from his legal department, HR department and IT department as well as the customer’s IT and HR departments. For each of the individuals involved this activity represented only a small part of their total work load, was not a high priority, yet detracted from the time they could spend on more important, at least in their eyes, tasks.

•

People are needed who are, or could be helped to be, enthusiastic about serving customer needs. They may feel frustrated in their roles by insufficient customer contact; they may see it as a stepping stone to their next promotion; they may want to use the customer to prove a point for them and so on.

•

Be clear on the end objectives the team is to achieve.

•

Choose people with the necessary technical expertise to complete the task.

•

Try to make sure that the full range of team roles is represented. Dr Meredith Belbin has researched team effectiveness for many years. His work suggests there are nine team roles that need to be present in any team for it to function effectively. For each team role, there are core strengths and weaknesses. In a team, the strengths should be exploited. Weaknesses, known as allowable weaknesses, should be acknowledged and managed. An attempt to ‘correct’ a weakness will often undermine

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the real strength. In other words, the weakness is the price to be paid for the corresponding strength. Dr Belbin’s nine team roles are: –

The company worker or implementer: Turns ideas into practical actions. Strengths: methodical, disciplined, organised, and efficient. Allowable weakness: may be inflexible, slow to respond to new possibilities, conservative.

–

The chairman/co-ordinator: A co-ordinator of efforts; doesn’t have to be brilliant but good social leader. Mature, confident and a good chairperson. Clarifies goals, promotes decision-making, delegates well. Strengths: gets on well with and motivates people. Allowable weakness: tends to be manipulative and off loads personal work.

–

The shaper: Outgoing and dominant; the task leader; tends to be domineering. Strengths: hard driving, challenging, dynamic, pressurises, finds ways around problems. Allowable weaknesses: prone to outbursts of temper, can be blunt and rude, provocative, offends people’s feelings.

–

The plant: Most creative, imaginative and solves difficult problems but introverted, ideas person; easily put off, needs to be brought in. Strengths: clever and creative. Allowable weakness: non-conformity, ignores incidentals, too preoccupied to communicate effectively.

–

The resource investigator: The most popular, the salesperson, the diplomat, Mr Fix-it. Strengths: outgoing, extrovert, enthusiastic, picks up new ideas, develops contact networks. Allowable weakness: over optimistic, becomes easily bored.

–

The monitor-evaluator: Sober, strategic and discerning; works slowly and methodically; judges accurately. Strengths: careful objective approach, sees all options. Allowable weakness: seen as slow moving, lacking drive and the ability to inspire others.

–

The team worker: Smoothes over conflicts, uncompetitive, mediator. Strengths: supportive, co-operative, listens, builds and is diplomatic, averting friction. Allowable weakness: indecisive under pressure.

–

The completer-finisher: Checks details, conscientious, worries about deadlines, and keeps putting pressure on to complete. Strengths: meticulous, searches out errors and omissions, good follow through, attention to detail, delivers on time. Allowable weaknesses: worries, reluctant to delegate.

–

The specialist: Has detailed, technical knowledge. Strength: in-depth expertise, single minded, dedicated. Allowable weakness: contributes only on narrow front, dwells on technicalities, may be unrealistic.

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•

The ideal size for a team is three, four or five people. Teams of four to five people are often easier to manage, and assist in reducing the time taken to run formal team meetings by having fewer contributors. In small groups therefore, members have to take on several roles. A person will have a primary role, and one or two secondary roles, which should be identified to assist in the construction of a balanced team. It is also perfectly possible for more than one member of a group to fulfil a particular role. As organisations go through a rapid process of change, team structures need to be kept flexible.

•

If members of a team fulfil too few of the above roles, the danger is that a task will not get done. The presence of the full set of roles is most important where there is rapid change in the technology, the marketplace, the organisation or the product. More stable teams can often get by without the full set of roles.

•

To assess an individual’s team role they need to complete a short questionnaire4. This can be tricky unless they are motivated to do so or already understand the concept of team roles. An early part of the team’s training and development might be to watch a video explaining Belbin’s concept5.

2. Building relationships

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•

Unless the account team has been brought together as part of a company initiative, it is unlikely that its members will consider themselves to be a part of a team, at least initially. Do not demand that the team members think of themselves as a team or regularly put aside a fixed amount of time to work on the customer issues. The only person who may think of them as a team may be the account manager. Some members may not even know each other initially.

•

It is communication that brings the team closer together. Every opportunity should be taken to talk with the individuals, to e-mail them, to send them information such as press clippings on the customer, breaking news, customer events and so on. To start with this communication will flow one way from the account manager, but in time it will be reciprocated.

•

Positive feedback should be given often when something has been done well and tasks have been completed successfully.

4

www.belbin.com

5

Video Arts – Building the Perfect Team

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•

Local/functional loyalties will tend to be strong and usually the primary focus for relationships. As an individual’s advancement is usually largely dependent on his/her boss, their performance will naturally focus on those aspects that their manager has indicated are priorities. This can work against the involvement that the account manager needs. Keeping individual team member’s bosses informed is more than just common courtesy. It is vital to avoid local processes working against the required customer involvement. If possible get the boss on side, but as a minimum they need to be neutral.

•

Whenever possible communication should be face-to-face. This can be difficult, especially when team members are located widely over large geographic areas. Tele, web and video conferencing are useful tools, as are the telephone, e-mail and web sites. They do not however, eliminate the need for personal, face-to-face contact. If it is not possible to have a team meeting then one to ones should be fixed up.

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3. Setting goals and controls •

The members must share the vision for the account. As discussed, involving them in the planning process helps.

•

Individuals must know their roles in the team and the specific objectives that they should achieve. Since the account manager generally has no line control over the team members this can be a tricky task. By discussing the challenges in satisfying the customer requirements and delivering specific aspects of the plan, individuals will hopefully take ownership of their parts of it and set their own goals. At the same time it does little harm for the account manager to go into internal sales mode to help this process.

•

Using the project management techniques discussed in Section 4.1 helps to ensure that individuals deliver to time and to quality. Without line authority, however, the account manager is not able to exert direct control. Getting the individuals’ line managers on side helps. Regularly, but not too frequently, asking how they are going and if they need any additional support or assistance is also needed, provided it is done ‘with a light touch’.

4. Maximising individual performance •

Much time can be taken up in travelling, getting to and attending meetings. As discussed above, face-to-face meetings are important to build and maintain the team but they should be kept to a minimum. Tele and video conferencing are useful, easy to use time saving tools that allow timelimited executives to be more productive.

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A shared vision and agreement on each team member’s objectives are fundamental. How the individual achieves the objectives is up to them. The only issues for the account manager are: –

Will the customer be happy to go along with it?

–

Will it cut across any other member’s activities?

If these issues are significant then working together, the individual and the account manager must come up with a revised approach. If appropriate the account manager can act as a coach.

5. Managing team performance •

Developing bonds between team members will help fashion a community. The customer is one interest that the members have in common. There may be others. They can be used to provide areas of joint interest and lead to greater identification with the team.

•

Celebrate team success where significant milestones have been achieved. Get the executive sponsor involved to recognise the achievements of the team and the individuals.

•

Compare the team’s performance with that of other account teams in the business and engender a spirit of competition.

•

Not every activity will be a success. Do not hide this, as credibility will suffer. Be open about failures but do not allocate blame.

6. Continuous improvement

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•

Regularly circulate information about the client and periodically update everyone on the latest situation. Consider holding workshops on the customer, their needs, their strategies, the opportunities and issues they are faced with.

•

Circulating good approaches to particular activities and recognising best practice, whether within the team or from outside it, enables standard methodologies to be adopted and avoids the need to keep ‘reinventing the wheel’. Now and then ask the members for lessons learned or best practice ideas and circulate them.

•

Holding occasional focus groups to examine particular issues can stimulate new and interesting solutions.

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4.3 Leadership and motivation The account manager is the customer champion in the business. As such he/she adopts a leadership role since he/she has more ownership of the customer than anyone else. Being a leader without having the position or status in the organisational hierarchy that automatically confers leadership is a challenging task for the account manager. Typically, the traits that are looked for in a leader are honesty, competence, forward vision, inspiration, intelligence, fair-mindedness, broad-mindedness, courage, straightforwardness, imagination, good communicator, interesting presenter and dependability. Account managers have to lead in a very practical way, being close to the action. In figure 8.7 the four styles of situational leadership are shown. These relate the degree of participation and involvement of individuals in defining tasks and the amount of structure given by the leader to implement tasks. Account managers need to change their styles to suit particular individuals and circumstances. However, it is likely that, lacking line authority, they will only be able to give a limited amount of direction. Predominantly the appropriate leadership style will be involvement and delegation, with some selling. High

SELL

DELEGATE

TELL

Participation and involvement

INVOLVE

Low Low

High

Direction given

Figure 8.7: Situational leadership styles Power is an extremely important leadership dimension. The account manager has to identify and use all the sources of organisational and personal power available. Figure 8.8 shows the dimensions of power and how the account manager can use these.

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Positional

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Power dimension

Influence impact

Formal authority/ position Seeks compliance in the organisation

Position of executive sponsor in hierarchy

Ability to offer reward

Seeks compliance

Incentive payments related to achievement of objectives with the customer

Ability to discipline and coerce

Can meet with resistance

Remove individual from team

Providing information

Generates motivation and commitment

Press clippings, results achieved, breaking news

Providing expertise

Generates motivation and commitment

Project management, relationship development, account planning

Sheer personality

Generates motivation and commitment

Humour, vision, insight, intellect, charisma

Provided by the organisation

Personal

Some examples of usage

Developed by the manager

Figure 8.8: Authority and leadership power Positional power usually involves push behaviours aimed at achieving compliance. This mode is usually inappropriate for the account management role. Personal power is exercised through pull behaviours and aims to attract and involve the other person. A checklist to help the account manager assess the effectiveness of their leadership behaviour is shown in figure 8.9. The extent to which each is implemented and the implications for improvement are assessed.

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Improvements required

Adapt your leadership behaviour rather than altering your personality To enhance your adaptability keep developing your ability to see what is required, your repertoire of responses, your ability to improve Allow informal leadership to move around team members Tailor the amount of direction and involvement to the nature of the individual, the task and the team Consider the maturity of the team’s development to influence the leadership style adopted Avoid relying on positional power to get things done Always respond positively to team challenges Power is not a fixed quantity, it must be cultivated Help to release the personal and informal power of others by empowering them

Figure 8.9: Adaptive leadership checklist

4.4 Training and development Part of the account manager’s role is to act as team coach. This is the individual who observes how the team operates and the progress being made, and monitors the interactions and dynamics of the process. If necessary, the coach helps and supports individuals to improve their performance. To perform this role, as well as their functional and team leader roles, is a real challenge for any account manager. Before taking it on, it is advisable to see if there is anyone else in the team who may be better suited and has the time and skills to take on this responsibility. Team coaches need to possess eight key skills: Skill 1: Understanding of where the team is coming from Each individual brings with them a significant amount of personal baggage, and the team will create more of its own. For example, one may perceive that they have been asked to get involved because they have not been allowed to go on a quality service training programme and the project will expose them to a customer, going some way to meeting their training need. Sometimes a team may see itself as a dumping ground for those who did not fit in anywhere else.

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To develop this skill of understanding where the team is coming from: •

Ask the individuals what concerns them

•

Challenge them to state their concerns for the team

•

Discuss how different types of baggage will affect team performance.

Skill 2: Observing and recording group processes After a while predictable patterns of behaviour begin to emerge. For example, C will always speak after F; B will always pick up a suggestion positively and then immediately follow with a ‘but’ and pick out a negative; A will continually doodle to the annoyance of others; E will usually arrive late and so on. These behaviours can become really disruptive and stop the group dynamics working positively. To develop observation skills consider: •

Making careful notes of the circumstance of the behaviour, being precise and factual

•

Discuss the non-verbal signals that indicate what is really going on with others.

Skill 3: Reviewing and feeding back team processes Periodically, when it is clear that a project is not going as well as it should, then feeding back on team processes may help push it forward. To develop reviewing and feedback processes consider: •

Getting team feedback on the team’s progress

•

Having individual discussions to help understand the reasons behind individual’s behaviours and to help them understand the impact it has on others

•

Discussing with the team how they can help individuals to refine behaviours that have a negative impact

•

Showing training videos such as Belbin’s (Section 4.2).

Skill 4: Coaching the team This involves giving individual feedback and working with them to identify small, practical ways of improving their performance. The skill can be developed by:

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•

Attending a coaching workshop

•

Making inputs to individual’s performance assessments and the personal development plan

•

Being at the receiving end of good coaching.

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Skill 5: Helping individuals to develop Getting individuals to practise and internalise new skills to implement parts of the account plan and adopt new ways of behaving to improve the effectiveness of the team. This process can be assisted by: •

Encouraging team members to help each other

•

Providing inputs and reminders during team meetings

•

Offering praise and encouragement when new behaviours and skills are seen to be used

•

Providing access to specialists outside the team

•

Attendance at suitable training courses.

Skill 6: Supporting a serious setback Setbacks dent a team’s confidence and can be perceived as failures. The coach needs to be listening, supporting, confident and encouraging. Reminders of similar setbacks that have been overcome and trying to understand the reasons for the setback provide the basis for moving forward. This process can be encouraged by: •

Practising summarising skills to help show the bigger picture

•

Searching for positive opportunities within the failure.

Skill 7: Picking up information at odd times Reading between the lines of what is said can give clues on performance, attitudes and so on. For example, the customer contact may ask for a status report on a particular project, which they had not asked for previously. This suggests that there may be a problem between the individuals on either side involved in the project since such a report could easily have been obtained from these individuals directly. Picking up information like this requires active listening and considerable sensitivity. Developing good listening skills requires: •

Concentrating very hard on what is being said

•

Trying to understand why it is being said

•

Trying to understand why it is being said particularly at this time and to you

•

Noticing what is not being said which might legitimately have been expected to be said.

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Skill 8: Helping team members to give each other feedback Encouraging individuals to give feedback on each other’s performance, to act as mentors and to provide help when needed enables teams to add considerable value, over and above what each member could achieve on their own. The coach can foster these skills by: •

Putting individuals together in development partnerships to support each other

•

Discussing the issues where individuals feel they require help and identifying whom they would like to give it.

5. Implementing effective monitoring and control 5.1 Reporting systems What gets measured gets done. Depending on the sophistication of the information systems, accurate data will be made available on performance with the customer. Performance against the main/hard objectives will generally be available, and indeed hard objectives are generally only set in areas where data is forthcoming. For the supporting/soft objectives existing systems may be suitable or specific exercises may need to be undertaken periodically. For example, an existing customer relationship management system may require every contact with the customer by any of the supplier’s personnel to be entered. From this information it should be possible to build the customer base matrix (Chapter 3, Section 2.5) and monitor actual contact levels and frequency against those planned. On the other hand a research survey may need to be commissioned to establish changes in the customer’s perception of their relationship with the supplier. 5.2 Project reporting Most project management systems allow detailed reporting of progress against individual tasks. However, for communication within the team, to the customer and internal management this can become overcomplicated. Instead it is better to only report on the progress against the project milestones. A format is shown in figure 8.10.

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Review date___________

Milestone

Completion

Days late/early

KEY

ACCOUNT

PLAN

Impact/comment Reasons/deliverables affected/ resources needed to recover/ deliverables delayed

Past Pl Pr Ac Pl Pr Ac Pl Pr Ac Pl Pr Ac Pl Pr Ac Pl Pr Ac Pl Pr Ac Pl Pr Ac Pl Pr Ac

PI

Planned date

Pr Projected date

Ac Actual date

Figure 8.10: Milestone report The report is prepared at regular intervals, usually on a weekly or monthly basis. The milestones due for completion in the previous period or the projected periods are listed. Each completion column represents a period. The first, headed ‘Past’, refers to the previous period. The next is the current period; the third completion column is the next period, and so on. If a period is a week, then the ‘Past’ completion column is the previous week, the second column is this week, the third next week and so on. The columns are headed accordingly. The planned (Pl) completion date of each milestone is then entered. Next, the projected (Pr) completion date is entered. This is the latest estimate of when the milestone will be completed, which may or may not be the planned date. Any milestone, which has actually (Ac) been completed, is entered in either the past or present column. For planned completion dates that have slipped or will be met early the number of days late or early of the new projected date is entered. Finally the impact, if any, of the slippage’s on the project are assessed.

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The big advantages of this reporting format are: •

It focuses only on the key elements of the project, which is what management is most interested in.

•

It highlights both those milestones successfully met in the current and previous period, those due for completion in the near future and those that are slipping.

•

Milestones that have missed their planned completion date continue to appear as their projected completion date moves forward.

•

It only looks ahead six periods and focuses attention on the short-term deliverables.

•

The amount of any slippage is identified and its impact on the overall project assessed.

5.3 Reviewing the team From time to time it will be necessary to review the whole team to check if it is still ‘up to it’. Figure 8.11 gives a format for conducting the review. Each of the possible causes of problems should be objectively reviewed and inputted to by all team members. Comments

Action required

Personal grievances against each other Feelings of powerlessness Insufficient sharing of information Dissatisfaction with the allocated tasks Competitive behaviour between members Frustration about past incidents Failure to receive support Resentment at lack of recognition Poor structure of interactions and meetings Lack of fun Other non customer related priorities keep taking precedence The tasks are boring

Figure 8.11: Team health check

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5.4 Controlling the plan There are two situations when control may need to be exerted and additional action not originally specified in the plan taken. 1. When unpredictable events occur creating new threats or opportunities; or anticipated events have a more significant impact than expected. For example, a competitor may be more aggressive on price than predicted, or the customer may develop new priorities to meet a challenge they face. In deciding whether to respond to or capitalise on the event, the account manager must assess: •

What has actually happened, why and where?

•

Will it significantly impact on the achievement of the plan?

•

If ‘yes’, identify what needs to be done to get back on plan

2. When there are no significant unpredictable events but actual performance deviates ‘too much’ from planned. But how much is too much? A certain amount of variance is usually quite acceptable. Action need only be taken when performance falls outside these limits. For example, if the objective set for delivery lead-time is ‘within 12 hours’, then achieving 12.5 hours may be acceptable, but if it is later than that, corrective action needs to be taken. In order to assess what to do it is necessary to assess: •

If the planned level of resources have been applied.

•

If not, then additional resources need to be harnessed to achieve the objectives. It is in situations like these that the agreement and plan sign off processes prove their worth. They provide the lever for the account manager to press senior management for the agreed level of resources.

•

If resources are not the problem but their effectiveness is, then this must be further investigated. What is going wrong, where and why it is occurring, needs to be assessed and corrective action formulated.

6. Summary In this chapter we have covered the following: 1. Gaining internal commitment by: •

Developing the customer base map

•

Obtaining inputs to the plan by members of the team

•

Allocating responsibility and getting individuals to accept their responsibilities

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•

Disseminating the draft plan and obtaining and responding to feedback comments

•

Presenting and agreeing the plan so that it is ‘signed-off’ by senior management

•

Launching the plan to the whole team to build momentum, create excitement, share the account vision and gain internal alignment.

2. Gaining customer commitment by: •

Obtaining their inputs to the plan at the appropriate depth allowed by the stage and state of the relationship

•

Assisting the customer in selling the plan in their organisation.

3. Achieving excellence in implementation by: •

Implementing project management through work breakdown, milestone planning and developing Gantt charts

•

Building and developing a high performance team using Belbin team role concepts to create the team, building relationships, setting goals and controls, maximising individual performance, managing team performance and ensuring continuous improvement

•

Showing leadership and motivating individuals through adopting the appropriate situational leadership style and using the right sources of power

•

Implementing training and development, performing a team-coaching role.

4. Implementing effective monitoring and control by:

210

•

Using the internal information systems and, where they are inadequate to measure progress against the objectives specified in the plan, carrying out special exercises to obtain the information

•

Using milestone reports for projects

•

Conducting periodic team reviews to assess whether it is still performing at the level needed

•

Taking corrective action when unpredictable events occur or results fall outside the performance limits set.

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Benchmarking your organisation’s ability to implement the account plan Read each statement below and tick the column that most reflects the extent of your agreement

ALWAYS

USUALLY

OCCASIONALLY

RARELY/ NEVER

4

3

2

1

1. Team members input to the account plan in a structured way 2. Individual responsibility and accountability for plan implementation is clearly allocated and accepted by the individuals 3. The draft plan is circulated and refined as a result 4. The plan launch is viewed as an occasion to build momentum and excitement 5. Customer inputs appropriate to the level of the relationship are incorporated 6. Structured project management techniques are used 7. Team working processes are carefully planned and used 8. Training and development implications of the plan and team working are incorporated 9. Accurate and timely information systems to monitor progress are used 10. Corrective action is taken only after careful consideration of the factors causing the negative variances Value for each tick score Add the ticks in each column and multiply by the value for each tick score TOTAL Add the total for each column GRAND TOTAL SCORING: 34 – 40 points

Your company’s process for implementing key account plans is leading edge

26 – 33 points

Your company’s processes are well formed and should be maintained. Although further improvement is possible, the same effort applied to other parts of the key account planning process will probably yield higher returns

18 – 25 points

There are significant deficiencies in the key account implementation process. Focus on those elements that have the lowest score

17 or less points The key account implementation process is not working well and requires fundamental review and restructuring

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Blank

Account planning formats 1. INTRODUCTION 2. AN EXAMPLE OF A COMPLETED ACCOUNT PLAN 3 . A C C O U N T P L A N N I N G F O R M AT S 4. SUMMARY BIBLIOGRAPHY

chapter

9

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Chapter 9: Account planning formats

1. Introduction The account plan itself is the physical output of the account planning process. Its use and contents have been discussed in previous chapters. In this chapter we look at an example of a good account plan. This is based on an actual plan completed by one of our clients. Names, locations, account facts and figures have been changed and modified to respect the client’s confidentiality. All companies have there own internal language and abbreviations that are hard for outsiders to understand. For clarification jargon has been removed or rephrased to be meaningful to those who do not have inside knowledge of the customer, or if this is not possible it is explained.

2. An example of a completed account plan The supplier, International Learning Solutions (ILS), markets a range of Web and CD-ROM based technical and management training courses, classroom based simulations and consulting packages for technical, operational and commercial managers and staff.

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FORMATS

PENTAGRAM SYSTEMS CO STRATEGIC ACCOUNT PLAN – 2002 Account manager: ________Henry Dalton This plan is based on the inputs of each divisional account manager dealing with Pentagram. 1. The customer Pentagram Systems is our fourth most important customer. Their forecast purchases from us this year to date are €21m, representing nearly 10 per cent of our total European turnover. Pentagram had global revenues last year of €12.4bn. It develops, manufactures and markets instrument systems and associated consumable products for life science research and related applications. The products are used in biotechnology, environmental testing, food, human identification, agriculture and chemical manufacturing industries. The company also provides consulting, contract research and development services. The systems are also used by educational and research institutions, government agencies and other non-profit organisations. The company is headquartered in Brussels, manufactures in France, UK and Italy and has international sales operations in Europe, Japan, North America, Latin America and other Far East countries. Pentagram is particularly strong in Europe where it has over 40 per cent of the market. It has recently entered the North American market but has only managed to capture a small share. Unlike its three main competitors Stravo Instruments, Presstile and KJM Industries who are subsidiaries of larger companies, Pentagram is an independent company quoted on Nasdaq. All purchasing is co-ordinated through Brussels and central approval is required. However, local operations are free to place orders with any centrally approved supplier. Historically their purchases from us have been growing at an average of nearly 20 per cent per year, more or less in line with their growth. However, the rate of increase is likely to decline in 2002 as their own growth begins to ease, their market begins to plateau and becomes more competitive. Our main competitors in this account are EduSystems, Corn Stephan, Roles Inc and MRTP. We estimate we have 25 per cent share of their total non-facilities related training spend of around €104m.

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2. Management summary We plan to nearly treble our turnover with Pentagram over the next three years. This requires an investment policy. Nevertheless, trading profits will increase by over 250 per cent during this period. Our key strategies leverage: •

Our ability to service Pentagram globally

•

Our strength in customer service training

•

Our ability to help them assess the full costs and benefits of training through our consultancy division and thereby increase employee productivity by more effective implementation and management of training inputs.

To achieve these results approval is required for an additional €2.25m this year. The financial impact will be to reduce the trading profit from 4.2 per cent to 4.0 per cent. 3. Account objectives and goals Our vision for this customer Our vision is to become Pentagram’s dominant supplier of system based training courses, helping them to determine, manage and organise their people development activity globally through positioning ourselves as uniquely knowledgeable about learning processes and their effectiveness. Three year objectives (main)

This year (Projected)

2003

2004

€27

€32

€48

€79

+ 44%

Number of projects

97

128

213

396

+ 61%

Number of licences ‘000

34

42

67

112

+ 53%

Share of customer spend

25%

29%

35%

45%

+ 22%

Relative share

0.77

0.82

0.92

1.12

+ 13%

€1.13 €1.28

€1.82

€2.84

+ 18%

Revenue €m

Trading profit €m

216

Average annual 2005 change

CHAPTER

Supporting objectives

9:

ACCOUNT

This year’s anticipated achievement

New products/ services introduced • 28 new titles

Relationship

Contact base development

Customer servicing standards

PLANNING

FORMATS

Next year’s objective • 32 new titles

• Consulting services

• TNA toolkit

• Stage – engagement

• Stage – engagement

• State – middle, stable

• State – middle, moving closer

• Established contact with Group MD and Group HR directors

• Establish contact with six functional heads in Brussels

• Made contact with HR managers in each factory

• Establish contact with Manufacturing, Operations, Research and HR directors

• Current customer satisfaction rating – 3.48

• Customer satisfaction rating – 3.75

• We are number three

• Number two

• Best performer EduSystems – 3.89 Most important customer projects

• Provide licence invoicing by customer site and function • Established dedicated helpline

• Assessment of total customer cost of usage for each training mode • Linking learner training history into PDP process • Providing monthly reports on licence uptake • Notifying learners of course content update/changes

Our image with customer

• Good service

• Improving service

• Good quality learning materials

• Good quality learning materials

• Predictable, standard offerings

• Innovative offerings

• High price

• Provide services to match our needs

• For operatives, junior and lower middle management • Conservative

• High price • Also has offerings for middle management • Trustworthy and reliable

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4. Situation analysis A. Trading history Sales and trading profit have been increasing by just under 20 per cent per annum. Our share of the customer’s spend has levelled off in recent years. Their training spend is around 0.7 per cent of revenue, averaging around €2,500 per employee per annum. 30

30% % share

25

€ million

20%

15 Revenue 10

10%

Share of customer spend

20

5 % Trading profit 0

0% 1998

1999

2000

2001

B. Customer organisation and manpower deployment A total of around 42,000 people are employed. This has been growing between 10 per cent and 15 per cent each year. The rate of employee growth is expected to slow to under 10 per cent per annum. We have good contacts at HQ and in European operations. HQ Brussels – 150 persons

Manufacturing

France 1,500 persons

UK 9,500 persons

Operations

Italy 3,200 persons

Europe – 12,800 persons Africa and Middle East – 2,500 persons Japan – 2,700 persons Asia and Australasia – 5,000 persons N America – 1,800 persons S America – 1,600 persons

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Research Germany 850 persons

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C. SWOT analysis (Pentagram in their market) Strengths

Weaknesses

1. High share in Europe

1. Low share in N America

2. Very innovative with strong knowledge base

2. Relatively low productivity per employee

3. Global coverage

3. Internal knowledge base not well co-ordinated and difficult to access

4. Breadth of product range wider than competitors enabling Pentagram to satisfy a broader range of customer needs

4. Manpower development not well co-ordinated across their operating units, manufacturing and H.Q. 5. Finds it difficult to offer uniform, high levels of service to their global customers

Opportunities

Threats

1. N American market still growing well

1. Market reaching a plateau, growth slowing and competition increasing

2. Increasing requirement for food and livestock testing 3. Pharmaceutical and biotechnology industries growing fast 4. Increasing numbers of customers want to coordinate and centralise their instruments and supplies purchasing to gain lower prices.

2. New technology, being developed by KJM industries may obsolete 20% of Pentagram’s product range 3. Stock price is at a five year low and vulnerable to takeover 4. The top university graduates are increasingly being attracted by competitors Stravo and Presstile 5. Downward pressure on prices

Pentagram’s strategy and objectives focus on five main initiatives: •

Reducing their cost base as a proportion of sales revenue by 10 per cent each year for the next three years so as to be able to operate at lower prices and still preserve margins

•

Focusing on 25 global customers and developing an infrastructure that supports this activity to increase their revenues from these customers by 50 per cent in three years

•

Upgrading their customer service levels to increase customer service satisfaction by an average of 30 per cent over the next two years

•

Focusing more development effort on the pharmaceutical, biotechnology, public and animal health sectors so as to achieve 40 per cent of revenues in five years.

•

Bringing together in a usable and productive format, their substantial knowledge base to enable them to continue to develop the highest number of innovative products in the industry

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D. SWOT analysis (ILS in customer) Strengths

Weaknesses

1. Breadth of learning offerings

1. Lack of knowledge about and few contacts in manufacturing, research and outside Europe

2. Depth in customer service training offerings 3. Consulting and research services 4. Dedicated helpline

2. Low share in manufacturing, research and outside Europe

5. Rapid response to service problems

3. Few offerings suitable for senior and middle management

6. Capable of servicing Pentagram at all their locations

4. Do not have much influence in determining the training specification

7. Dominant supplier in European operations

5. No substantive joint projects

8. Learning management systems Opportunities

Threats

1. Customer is focusing on making employees more productive

1. Eurosystems may enter partnership agreements locally

2. Recruitment embargo on Brussels HQ staff

2. Eurosystem’s share is increasing

3. Need for customer to reduce training cost per employee

3. Eurosystem is becoming more aggressive on price

4. Customer wants to establish return obtained on training investment 5. Customer entry to USA market

4. Share price has suffered and there are rumours that Pentagram may be taken over

6. Pharmaceutical and biotechnology sectors growing fast

5. Reorganisation may increase decentralisation of training spend

7. MRTP’s share is small and decreasing

6. Strong focus on cost/price reduction

8. Customer is reorganising its processes around the Internet to reduce costs

7. Customer’s rate of growth is slowing down

9. Low staff morale 10. Customer seeking to differentiate itself through service 11. Customer’s strategy is to build and leverage their knowledge base to gain competitive advantage

Pentagram values the breadth of offerings we have available since they can satisfy a broader range of their training requirements from us than any of our competitors. We can use this strength to help them to reduce the variety of courses they run, thereby reducing the cost of purchasing training. Our depth of offerings for customer service training will assist them in their priority of making employees more customer focused and differentiating themselves through service.

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Our service and product strengths will be used to develop new ways of working together and thereby upgrade our image. We must leverage our strength of being the only supplier who can service them at all their locations by sharing information internally and with the customer. Our training products can help improve staff morale, particularly when combined with training events and conferences and we need to include this dimension in the pre and post training assessment process. We must increase our knowledge of what is happening outside Europe to safeguard ourselves against Eurosystems reaching partnership agreements. Our consulting services can help Pentagram assess their full costs of training, the return on training investment and together with our systems people look at further integration using Internet technology.

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E. Relationship analysis Historically we have been very reactive with this customer. Our main contacts have been in the HR/training department at Brussels HQ. Over this last year, as the resources devoted to this customer have increased, we have become more proactive. Regular customer visits are now taking place and a number of presentations have been made to various groups of managers. However, our contact base is still very narrow and the relationship is of a transactional nature. Analysis shows that overall we are at engagement stage; middle, stable state. This differs for each DMU but not much progress has been made in recent years. Decision making unit

Stage

State

HQ – Brussels

Engagement

Middle, moving closer

Manufacturing – France

Courtship

Long shot suitor

Manufacturing – UK

Engagement

Middle, stable

Manufacturing – Italy

Courtship

Long shot suitor

Research – Germany

Courtship

Long shot suitor

Operations – Europe

Wedlock

Stable

Operations – Africa/Mid East

Engagement

Early evaluation

Operations – Japan

Engagement

Early evaluation

Operations – Asia/Australia

Courtship

Long shot suitor

Operations – N America

Courtship

Long shot suitor

Operations – S America

Courtship

Long shot suitor

Our overall strategy is to attack. The priorities are Europe Ops, N and S American Ops, Research Germany and UK Manufacturing. For Japan Ops, Italy Manufacturing, and Asia/Australasia Ops we will keep a watching brief to defend our present position and maintain our contacts. France manufacturing and Africa/Middle East are low priority and will be dealt with on a reactive basis.

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Low

0%

F. Customer base map Customer attractiveness 100%

67%

High

Medium

33%

Strong

OPS Europe

Moderate

Competitive position

67% HQ

OPS North America OPS Japan

33%

Weak

Manufacturing UK

OPS Africa/Middle East

Research Germany

OPS – Asia Australasia

0%

Manufacturing Italy

Manufacturing France

Corn Stephen

MRTP

KEY ILS

Eurosystems

Our main focus is currently on European Operations where there is still significant potential for us. We are also well positioned at the Brussels HQ who have helped us to get into the Americas, Japan and the Middle East by strongly recommending that they should purchase from us. We have a reasonable position in UK manufacturing.

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5.

CUSTOMER

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Strategies and action plan

A. Brussels HQ Our long-term goal: is to become the partner to the central HR and training function to help them to achieve their objectives. Our strategy: is to provide additional resources, contributing state of the art tools and processes, and providing information on training and development activity throughout Pentagram’s business. This will ensure that we help guide their training policy and will be able to identify opportunities at an early stage. Where we do not have suitable offerings then this process can drive our product development activity. We expect to gain share at the expense of Corn Stephan. Our twelve month objectives are: •

To achieve direct revenue of €0.3m

•

To establish our consulting services to provide ongoing advice

•

To broaden our contact base to include each individual in the DMU

•

To understand the relationship between HQ and the operating units

Our main activities during the year will be to: •

Introduce our consulting services to address the issue of assessing the full training costs per employee

•

Set up a system to feedback information obtained in operating units, factories and research centres to the Group HR Director

•

Fix meetings and develop relationships with functional heads

•

Get senior directors and personnel to visit our learning development centre and see our exciting new offerings

•

Review in conjunction with the IT functions, opportunities to integrate more closely with the customer using Internet technology

•

Increase our site visit frequency to twice a week.

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ACTION PLAN Task

Who Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Introduce consulting services HD HR director to meet our MD and development director

HD/ FN

Capability presentations to senior Pentagram managers

HD

Information feedback system JP Learning development centre visit

HD

Assessing full training costs

PF

Assessing return on training investment

PF

Quarterly customer reviews

HD

Internet integration opportunities

SF

CONTACT PLAN Pentagram (Contacts per annum.)

PT – UDM & ACh

JJ – Bu

RT – ICh

RT – Sp

JG – Sp

AM – In

Sp

12

6

24

2

2

2

FN

2

Team

JR

2

LP

2

ER SS

2 1

SF UDM = Ultimate decision maker

6 Ch – Champion

EU = End User

ICh = Information champion

Bu = Economic/commercial buyer

MCh = Mentor champion

Sp = Technical buyer/specifier

ACh = Advocate champion

In = Gatekeeper/influencer/competitive sponsor

ActCh = Action champion

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Note: Strategies and action plans are competed for each of the DMUs in a similar fashion to that described above: 2. European Operations 3. Germany Research Centre 4. N American Operations 5. S American Operations 6. UK Manufacturing 7. Japan Operations 8. Italy Manufacturing 9. Asia/Australasia operations

226

6.

Key assumptions and dependencies

•

Customer growth rate is moderating

•

Corn Stephan, Roles strategic direction will make their offerings less attractive to Pentagram

•

Our consulting services have the capacity to deal with this client

•

Pentagram’s focus on improving training productivity increases

•

The Group HR director remains in place for at least the coming year.

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9:

ACCOUNT

7.

Resources

A.

Customer P & L – Pentagram Systems Co

PLANNING

This year forecast

Licence revenue Consulting and associated revenue Other revenue Total income

Less: Invoiced discounts

FORMATS

2003

Total €000’s

%

Total €000’s

%

25,250 1,500 250 27,000

93.5% 5.6% 0.9% 100.0%

26,500 4,500 680 31,680

83.6% 14.2% 2.1% 100.0%

5,575

20.6%

6,526

20.6%

Net income

21,425

79.4%

25,154

79.4%

Less: Cost of goods sold Customer gross profit

8,630 12,795

32.0% 47.4%

9,075 16,079

28.6% 50.8%

780 1,300 1,750 4,685 1,480 780 125 1,895

2.9% 4.8% 6.5% 17.4% 5.5% 2.9% 0.5% 7.0%

1,560 1,520 2,250 6,135 1,553 785 125 2,151

4.9% 4.8% 7.1% 19.4% 4.9% 2.5% 0.4% 6.8%

Less: Outstanding payments interest

276

1.0%

317

1.0%

Returns and allowances

485

1.8%

570

1.8%

1,134

4.2%

1,264

4.0%

Less: Helpline costs Design costs Direct relationship management costs Direct service and travel costs Direct training costs Direct promotion costs Direct entertainment costs Customer contribution

Trading profit (loss)

Licence revenue is expected to increase a little whilst consulting revenue is expected to treble. Helpline costs reflect the full year costs of the facility compared to only four months this year, plus increase in staffing. Increases in the level of service and staffing additions account for the increase in relationship management and service and travel costs. B. Resources Additional resources required: •

An additional customer analyst to collect data, maintain fact file and conduct analyses

•

Increase of time allocated by our regional account managers to this account. In Europe two account managers are required, one in North America, one in South America, one in Japan and 50 per cent of the time of an account manager’s in Asia/Australasia and Africa/Middle East

•

The staffing on the helpline needs to increase by 15 per cent to match an anticipated increase in demand

•

50 per cent of the time of a learning solutions developer

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3. Account planning formats In this section a number of examples of account plan formats are shown. In deciding the type of format that is appropriate, a balance needs to be struck between presenting the key information and the supporting detail that provides the evidence and logic behind it. Each organisation must decide on what is best for it based on its culture, the state of development of its information systems and the importance of the account management function in the business. There is no single best format and the examples given both above and in the rest of this chapter are just that – examples. They are not recommendations, although they do have a number of elements that could be regarded as good practice. 3.1 Business services This example is relevant to organisations selling business services such as information technology, telecommunications, facilities management, finance and so on. It has the virtue of all fitting on one piece of paper, albeit A3 size and is used both to communicate the plan and to review progress on a quarterly basis. The format opposite (designed to fit on A3 sized paper) has been shrunk and distorted to fit on the page.

228

Date of last review: 1. BASIC DATA:

DATE: 2. ACCOUNT PERFORMANCE

Account: Type: AM: Acc. Team

Last Year

3. ACHIEVEMENTS/LOSSES


    

 

Year Year +2

YTD + 1

4. ACCOUNT REVIEW

    
    


   Q1: Q2: Q3:

Total purchases of account

   

  !  

    
  
 5. CURRENT POSITION  
       
    
    
 
     

6.Contacts (include org chart) UDM, Bu, Sp, In, Ch, In

" 

Planned date of next review:




  

Q4:

    
   :

7. ACCOUNT BUSINESS STRATEGY

 #
 $ 

8. OPPORTUNITIES TO GAIN CUSTOMER SHARE

! &  ' %

#
 %

#   (
 


     
 10. ACCOUNT'S GROWTH PLANS

9. BRAINSTORMING SUMMARY

11. OBJECTIVES FOR ACCOUNT

 
 

) )& Product/ service

Distribution

Promotion

Relationship building Internal issues

Finance

*  

  


 
    

12. ACCOUNT DEVELOPMENT PLAN Who +   Who ,-*.  

Who

STRATEGIC

CUSTOMER

PLANNING

The top of the form acts as a control, requiring the date of the last review, the current date and the scheduled date of the next review to be entered. Reviewing each section of the form: 1. Basic data: The account’s name, type classification, account manager’s name (AM) and the members of the account team are entered in the top left hand box. 2. Account performance: Sales statistics for last year, this year to date (YTD) and the planned level for next year and the year after are entered for the total market; the total purchases of the account from all suppliers of the category; the share of category purchases ( per cent total market) that the customer accounts for; the supplier’s sales volume (our sales volume); the suppliers share of the total category purchases ( per cent our market share), their share of the customer ( per cent our share of customer) and the share the customer accounts for of the supplier’s business ( per cent of our business). This shows the customer’s position in the market, their importance to the supplier and whether the share of the customer’s purchases is higher or lower that the supplier’s market share (over or under represented). To avoid misinterpretation, a definition of the market is required. 3. Achievements/losses: The orders won or lost in the current year to date are entered with the associated gains or losses in customer share, together with details of major orders gained or lost. As the current year proceeds consecutive quarters are completed moving down the columns. 4. Account review: Assesses various characteristics of the account, the supplier’s position, competitor’s position and the risks as discussed in Chapter 3. What the account thinks of us is the perceived supplier positioning. Strengths and weaknesses of the supplier in the account and competitors are assessed. The basic things that the supplier needs to do to be allowed to complete (basic competitive requirements) come next. Finally, looking forward the account manager’s vision for the customer and the supplier’s sustainable competitive advantage(s) are listed. 5. Current position: refers to the relationship stage. Rather than the stages and states of relationships referred to in Chapter 4, six more qualitative assessments are shown (unwanted, uncomfortable, doubtful, OK, comfortable, wanted). 6. Contacts: A description of the decision making unit, the key individuals (name), their job title (title) and their role (type) in the purchasing decision. 7. Account business strategy: refers to the opportunities and threats presented by the customer’s environment and the resulting business strategy adopted by them.

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8. Opportunities to gain customer share: identifies specific, known potential orders or changes within the customer that will significantly impact share gains. 9. Brainstorming summary: to try and maintain a fresh and creative approach to account planning, the significant outputs from the brainstorming sessions held by the account team are entered. This helps to ensure that good ideas, which may not be immediately applicable, are not lost. 10. Account’s growth plans: Looks at the key investments being made by the customer during the period of the plan and the key success factors that must be present for them to succeed. 11. Objectives for account: as described in Chapter 6, for each activity area. 12. Account development plan: lists the key actions for each activity area, specifying the one, three and twelve month milestones, together with the initials of the individuals responsible for their achievement. On a quarterly basis achievements against these milestones are reviewed and the plan refined. The format is highly structured and allows only limited scope for individualism. Some organisations may feel it is unnecessarily constraining whilst others will value the ease with which individual plans can be read and compared. 3.2 Consumer products Consumer goods companies sell mostly through distributors, wholesalers and retailers. This example shows a fairly detailed analysis and planning format that systematically reviews information about the customer, the supplier’s performance with the customer, the supplier’s objectives, strategies and activity plans. 1. Executive summary: The first page of the Customer Business Development Plan is devoted to a free format executive summary. This allows the account manager to present the important challenges and opportunities, the objectives, key strategies, activities and the resources needed to implement the plan. Note the requirement for the plan to be signed off to signify it has been approved and that the resources needed will be made available. 2. Customer profile: This section records the basic information about the customer and their performance over the last three years. Important considerations are the types of outlets, and total available sales area that the customer has and their total sales of each of the categories the supplier provides. This will impact on the customer attractiveness and is needed as inputs to the sales forecast. Once completed this section is updated annually.

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3. SWOT analysis – customer in industry: This will be based on the information in Section 2 and the account manager has to determine the implications of the SWOT analysis for the supplier. The future customer trends are then considered explicitly and the major issues for the supplier from the analysis identified. 4. Supplier performance with customer: Three past years and the forecast for the current year are considered. Graphic representation of some of the key figures will more clearly show trends. Lines 18 and 19 show the supplier’s share of the customer in relation to the supplier’s overall market share. If their share of the customer is less than their overall market share (representation <1) then they can be said to be under represented in the account. If the converse is true then the supplier is over represented in the account. SKU refers to stock keeping unit, which is an individual product variety and size. The figures give a top-level picture, which will be broken down in more detail by outlet type, category and so on. 5. Relationship analyses: Analyses the decision making unit and assesses the relationship stage and state. 6. Customer handling process: Looks at both the process of dealing with the customer and the key service standards (productivity measures). 7. SWOT analysis – supplier in customer: In a similar manner to the SWOT analysis of the customer this takes the analysis one step further by looking at the implications for the supplier and the major short and medium term issues. 8. Supplier objectives with customer: Three-year sales, share of customer and profit objectives are required. The relationship objectives and the projected position of the customer on the customer base map are required for the next year. 9. Supplier strategy: Thirteen potential areas for setting strategies, based on the SWOTs are laid out. It is not intended that each area should have a strategy. 10. Action plan: A Gantt chart format is used. 11. Customer profitability: A projected three-year profit and loss statement.

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FORMATS

CUSTOMER BUSINESS DEVELOPMENT PLAN FOR______________________ Account Director _____________

Date presented_____________

1. EXECUTIVE SUMMARY

Approved by: ______________________________

Date: _____________.

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2. CUSTOMER PROFILE Customer name: Parent Group: Buying Group Country: Local currency: Customer profile (Description of historical growth, location, reputation and main competitors)

Information technology (EDI, scanning etc.):

Outlet type number

Yr – 3

Yr – 2

Yr – 1

Yr (est.)

Total sales area Category 1 Market share

Year – 3 Year – 2 Year – 1 This year (est.)

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Number items

Category 2 Market share

Number items

Category 3 Market share

Number items

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2. CUSTOMER PROFILE (CONTINUED) Customer marketing strategy:

– Target segments

– Pricing

– Promotions

– Assortment

– Display

– Supply chain

– IT

Decision making unit: (Org. structure, individual roles and objectives)

Purchase criteria including customer measures of supplier performance

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3. SWOT ANALYSIS – CUSTOMER IN ITS INDUSTRY Strengths

Weaknesses

Opportunities

Threats

Implications of SWOT for Supplier:

Future customer trends:

Major issues: – – – – –

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4. SUPPLIER PERFORMANCE WITH CUSTOMER Category and total

Year – 3

Year – 2

Year – 1

This year (est.)

Categories

Categories

Categories

Categories

1

2

3

1

2

3

1

2

3

1

2

3

1. Sales volume 2. Sales volume per store 3. % account share of supplier (vol.) 4. % account share of supplier (val.) 5. Ranking in supplier Share analysis 6. % Supplier share of account (vol.) 7. % Supplier share of account (val.) 8. % Comp 1 share of account (vol.) 9. % Comp 1 share of account (val.) 10. % Comp 2 share of account (vol.) 11. % Comp 2 share of account (val.) 12. % Comp 3 share of account (vol.) 13. % Comp 3 share of account (val.) 14. % Supplier share of market (vol.) 15. % Supplier share of market (val.) 16. % Account share of market (vol.) 17. % Account share of market (val.) 18. Volume representation (6 ÷ 14) 19. Value representation (7 ÷ 15) 20. Number of supplier brands 21. Total number of SKUs 22. Average sales/ brand 23. Average sales/SKU 24. % sales on promotion

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5. RELATIONSHIP ANALYSIS: Relationship stage:

Relationship state:

Contact name:

DMU role: Key issues:

Partnering projects:

6. CUSTOMER HANDLING PROCESS:

The flow of how supplier deals with customer

Supplier’s organisation structure dealing with customer

Productivity measures – – – – –

238

Year – 3

Year – 2

Year – 1

This Year (est.)

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7. SWOT ANALYSIS – SUPPLIER IN CUSTOMER: Strengths

Weaknesses

Opportunities

Threats

Implications of SWOT for Supplier:

Major issues – short-term: – – – – –

Major issues – medium term: – – – – –

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8. SUPPLIER OBJECTIVES IN CUSTOMER: Last year Vol.

%±

This year (est) Vol.

%±

Year +1 Vol.

%±

Year +2 Vol.

%±

Year +3 Vol.

Sales category 1 Sales category 2 Sales category 3 Sales total Share category 1 Share category 2 Share category 3 Share total Profit category 1 Profit category 2 Profit category 3 Profit total

Sub objectives: 1. 2. 3. 4. 5. Customer base position strategy: Attractiveness of customer

Productivity of relationship

High

Medium

Low

Strong Moderate Weak

This year’s position

Next year’s objective

Relationship stage: ……………………

Relationship stage:…………………….

Relationship state: …………………….

Relationship state: …………………….

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%±

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9. SUPPLIER STRATEGY: (only areas identified through the SWOT analysis should have associated strategies)

1. Attack/defence: (specify if we are attacking the competitor or defending our position in this account)

2. Competitor: (If attack, which competitor(s) are we mainly attacking)

3. Relationship:

4. Pricing:

5. Range:

6. Product innovation:

7. Customer usage:

8. Promotion:

9. Communication:

10. IT:

11. Supply chain:

12. Customer service standards:

13. Other bonding/partnering activities:

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10. ACTION PLAN: J

F

M

A

M

J

Ju

A

S

O

N

D

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

11. Customer profitability: This year (est.) Gross sales Discounts Net sales Primary costs Total landed costs Local product costs Gross profit II Consumer marketing costs Total brand building Trade marketing costs Total selling Order handling/user care Total care Other costs Total supply chain Distribution costs Total order to delivery Finance costs Total shared support Total admin support Total M & A excl service and spares Integrated profit Discretionary investment in customer

242

Year + 1

Year + 2

Year + 3

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Business projects This plan format is most appropriate to business-to-business companies receiving relatively few, large orders. Typically, the purchases will be linked with a series of projects being implemented by the customer. Proposals will be requested by the customer, usually from several suppliers, which will be evaluated against each other. The format is used for both planning and for periodic review of the plan. 1. The first page covers basic customer information and historic performance. Page two is devoted to data analysis and page three records the plan. 2. The basic customer details (name, DMU) are written at the top of the form together with the review date and previous review date of the plan and the name of the account manager who completed the document. Typically, the plan is reviewed every six months. 3. The composition of each DMU is then described in the section on standard client data. The Notes area detailing particular issues of importance to the individual contact, helps to highlight customer contacts who need more attention. 4. A record of proposals and the result achieved is entered into the Proposal/Project history section together with whether the proposal was accepted or refused (A/R). This is helpful for tracking conversion rates. 5. The total number of projects and the amount billed to the customer over the preceding four years is detailed together with the sales in the current year to date (YTD). The share of the customer’s total category spend and total number of projects is then estimated. This will show trends and the difference between project and value share will show whether the supplier is tending to be more successful in obtaining the larger or smaller projects. 6. The first part of the analysis section, on the second page, is a short SWOT analysis of the supplier in the customer and the customer in their market. This will give insight into the customer’s situation and strategy and help identify opportunities where the supplier can leverage its strengths. 7. A relationship analysis is recorded in the next section, with some supporting rationale. 8. Next the image that the customer has of the supplier is detailed. Their positioning in relation to the competition is assessed obtaining information from the customer. 9. The main reasons the customer purchases from the supplier are then detailed, together with the main areas where the supplier has competitive advantage.

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10. The first part of the client plan section on page three specifies the main and subsidiary objectives for a one-year and three-year period. 11. Next the vision for the customer is recorded and the overall (attack/defend) strategy specified. Following this the individual strategies are detailed. 12. Finally, the activity plan is recorded detailing the actions to be implemented, the critical success factors that need to be in place to ensure successful implementation, the help and assistance required, the estimated budget, the individual responsible and when the action will commence and be completed.

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ACCOUNT

PLANNING

FORMATS

Review date: ____________________

Client name: __________________________________________ Last review date: _________________ DMU name: __________________________________________ Completed by: ___________________ Standard client data Contacts Job title Department Role in DMU Notes (Include individual needs and requirements and key issues/buying criteria)

Proposal/Project history Date

Value £k

Description

A/R If R (refused); Reason?

Billing REVENUE £ YTD

YR-1

YR-2

SHARE % YR-3

YR-4

YTD

YR-1

YR-2

YR-3

YR-4

Revenue £ k No of projects

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ANALYSIS Strength

Weakness

Opportunity

Supplier in client (also consider other divisions, sister co’s, foreign affiliates, suppliers and customers)

Client in market

Stage

State

Evidence? Share –

Communication –

Growth –

Openness –

Age –

Sharing –

Payment –

Tolerance –

Client’s image and perception of our positioning

Major reasons for client buying from us

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Our main competitive advantages

Threat

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CLIENT PLAN Account objectives:

1 year

3 years

Revenue £k Share % No of projects Relationship (stage/state) Contact base

Vision for this customer:

Generic strategy: (attack, defend etc.) Specific strategy: (Critical major activities)

Short-term activity

Critical success factors

Support required

Cost £

By who

Timing

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4. Summary In this chapter we have covered the following:

248

•

An example of a completed key account plan

•

Three further examples of key account planning formats

•

Each organisation needs to develop an account planning format that fits with its culture.

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Conclusion This Report has described a systematic process for developing a strategic account plan. It contains over eighty practical tools to help the account manager to bring together and implement a well structured and thought through account plan. By going through the relevant thinking processes the account manager will end up with a better plan that is more likely to achieve superior results. By using the planning process more effectively, increased commitment will be gained from others involved in its implementation. The strategic account plan is amongst the most powerful tools that the account manager has available. Its effective development and deployment is the bridge that marks the transformation of the role from senior sales person and personal relationship manager to that of strategic account manager. Our experience suggests that many account managers have yet to cross this bridge. This Report, it is hoped, will help them to do so.

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Bibliography

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•

Bacon, 1999, Selling to major accounts, Amacom

•

Carrie & Capla, 1991, Keeping customers for life, Amacon

•

Christopher, Payne & Ballantyne, 1991, Relationship marketing, Butterworth Heinemann

•

Cram, 1994, The power of relationship marketing, FT Pitman

•

Cross & Smith, 1995, Customer Bonding, NTC Business Books

•

Gale, 1994, Managing customer value, Free Press

•

McDonald, Rogers & Woodburn, 2000, Key customer, Butterworth Heinemann

•

McDonald & Rogers, 1999, Key account management, Butterworth Heinemann

•

Nielsen, 1992, Category management, The Nielsen Press

•

Payne, 1995, Advances in relationship marketing, Kogan Page

•

Steward, 1999, Developing strategic partnerships, Gower