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I am often asked to advise sales and marketing executives about their challenges in managing key accounts. While it is critical for a business to have several key accounts to provide stability to the business, it is also important that the key accounts be monitored carefully to ensure that these accounts continue to be profitable at the same time. It is quite common to see in our industry that key accounts end up demanding more than a fair share of their supplier’s resources.

Most executives have to constantly struggle with finding an effective key account management strategy since losing even one of these accounts can have a devastating impact on the company. On the other hand, having account-specific teams is costly, and in most cases, it is hard to cut down on resources committed to key customers.

'Key account value analysis’
This is one tool that I recommend that companies use at least once every quarter. In businesses with small size orders, the tool can be used monthly. For each key account, the following metrics should be captured accurately:

• Total sales
  
• Percentage profits (over sales)
  
• Growth rate of sales in existing product line
  
• Value of new products/services
  
• Order size distribution and average
  
• Price comparison with other customers in the same category

In the subsequent paragraphs, I will discuss how this data can be helpful in resource allocation and sales/marketing strategy formulation.

What does it mean?
There are numerous advantages of working with key accounts. Most large companies have excellent R&D resources and are generally more active in new product introductions. As packaging materials suppliers, some of these pressures from customers mean a lot of opportunities for innovation in developing the right package. However, the thing to remember is that the key driver at these customers is not the profitability of the packaging supplier but their own efforts to come up with the cheapest package that can result in a successful launch of their product.

In an analysis that I conducted, the findings are very interesting. A typical key account does provide stable cash flow to a packaging company and this is exactly why suppliers stick to their key accounts. What I concluded, however, is that key customers are more likely to overuse resources of current supplier for awarding additional/new business because of the relationships.

That is why it is important to at least track key account performance by assessing the value of each account to the enterprise. I am not suggesting that a large account be dropped for generating less value. Instead, this analysis should help an executive answer some of the following questions:

• Which of these key accounts are profitable?
  
• Is growth rate at key accounts higher/lower than other accounts?
  
• What kinds of business opportunities have emerged from key accounts – several small orders, few large orders, a mix of both?
  
• Is the price offered to key accounts justified in terms of revenue/profits/new business generated?
  
• How much resources need to be dedicated to which account to maximize value to the enterprise?

Using the analysis for strategy formulation
I typically recommend that companies follow a dual strategy for managing their customers – one for key accounts and another one for all others. A value analysis of key accounts will clearly indicate to a company the role these customers play – Are these profitable customers that need to be pampered or are these just large customers that provide good cash flow but the growth will still have to come from other accounts?

Such data will enable executives in serving better those customers that have the highest growth potential and thus create value for their company. There is a fine line here. It is an undisputed fact that finding new customers is always more expensive than retaining the existing ones. In most cases, existing customers switch not because of price but due to problems in receiving the right kind of attention. However, a company that is looking for growth has to make sufficient resources available to pursue customers with highest growth potential.

Related articles

How to identify key accounts

Tactics for key account management

Key account management strategies

How to develop a key account management strategy

Key account management for small and medium sized companies

Key account management for MNC

Customer segmentation

Refine key account management program

Key account management framework

Customer relationship management

Labels: crm, key account management, strategy

posted by eCreativa Media  # 2:04 PM 0 Comments

The majority of packaging converters do not appear to be prepared to make the transition to e-commerce. This jump will require a reengineering of business processes.

I tend to look at the packaging industry as a combination of three value blocks. We start with the raw material manufacturers, then we have the packaging companies or converters (who convert raw materials into cans, bottles, bags, etc.), and finally there are the end-users. There are others in the value chain such as distributors, designers, equipment manufacturers and packagers, but their role is not strategic to the value chain and can be safely grouped elsewhere for the purpose of this discussion.

In looking at some of the recent developments, I have concluded that the strategic control of the value chain has shifted to the converters. They seem to be capturing the highest value in the chain. The raw material manufacturers typically serve more than one industry, and packaging happens to be one of them. Accordingly, their business model is driven by volume rather than capturing higher value. The end-users treat packaging as a “necessary evil” and tend to focus on minimizing its cost (except for such cases as cosmetics packaging). That leaves the converters to capture the highest value.

This dynamics of the packaging industry value chain is also reflected in the manner each of the value blocks has embraced e-business models. The raw materials suppliers have been very active in integrating e-business models since the efficiencies on both buy and sell side are simply enormous. This is also reflected in the emergence of exchanges and consortia. The end-users, on the other hand, have been focusing primarily on the buy side in their e-business initiatives.

Penetration of e-business in packaging industry
An interesting finding from my recent research work is that, partly as a cost-cutting initiative and partly due to the pressure from their suppliers, converters are embracing e-commerce in purchasing raw materials since the savings are clearly visible. However, the converters have been relatively slow to integrate e-business in their core business process.

During the past two years, while the raw material suppliers and the end-users have invested millions of dollars in e-business tools, about 50% of the converters are yet to have even professional websites (ones that provide sufficient information that enables visitors to make a business decision). Moreover, I am not aware of many converters that have fully e-commerce-enabled websites, though I understand that approximately 10% of them do provide varying degrees of ordering capabilities from their websites. This leads me to believe that due to their complacency — which arises probably out of wanting to capture the highest value in the chain — the converters are relatively slow in exploiting the newly available tools.

On the other hand, my discussions with executives at end-users lead me to believe that they are starting to require their suppliers to enable their information technology (IT) infrastructure to be compatible with their systems to ensure machine-to-machine connectivity and to make almost all functions of their relationship accessible by electronic means. The end-users are driving this as part of their buy-side logistics initiatives. This means that very soon the converters will have to upgrade their IT systems to conduct business with their major customers.

It is clear that a vast majority of converters are unprepared at this time to make that transition. While the technology part can be easily outsourced to an IT firm, the bigger challenge is going to come from reengineering of business processes. Take, for instance, customer needs assessment. When selling is done in person, there is a whole lot going on other than selling. You come to know about your customer’s concerns, future plans and unmet needs. E-business systems, including customer relationship management (CRM) programs, provide excellent data on customer behavior, but you still have to use other means to uncover hidden needs and better understand future plans.

Suggestions for packaging companies
If you are carefully observing the market trends, you must have noticed how customer relationships are changing. While a packaging supplier’s priorities still have to be centered around making it easier and less expensive for its customers to do business with them, the company will need to uncover its customer’s “hidden needs” so that it can fulfill those needs before its competition does.

Since selling will be executed through electronic means, a supplier has to retrain its sales force to become “customer relationship representatives,” whose sole responsibility will be to prepare their company’s business for the future needs of its customers.

Labels: crm, customer segmentation, ebusiness, packaging industry, reengineering

posted by eCreativa Media  # 1:54 PM 0 Comments