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.

€50m

€20m – €50m

< € 20m

Net contribution in last full year

5

>€15m

€3m – €15m