1、Key Account Masterclass global best practice Day 3,by Professor Malcolm McDonald Cranfield School of Management,2. Global Key Account Management,The objectives for this module are: to provide a guide to the current world class practice of major account management to provide a framework for understan
2、ding the development of major customer relationships to provide a planning framework for improving major customer management Outputs/deliverables focus on and augment best practice major customer management improve understanding of the techniques involved in the process,Programme,Key account definit
3、ionModelling key accountsDefining and selecting key accountsKey account analysis and planningOrganisational and skills issues,Challenges,Market maturity Globalisation Customer power, Professor Malcolm McDonald, Cranfield School of Management,Customer power,Big customers are getting bigger Customers
4、are rationalising their supplier base Customers have become more sophisticated Customers want tailor-made solutions The cost of serving customers is increasing Suppliers and customers are developing new ways of working together, Professor Malcolm McDonald, Cranfield School of Management,Biscuit,Manu
5、facturer,Board/,Packaging,Speciality,Adhesives,Metal,Bearings,24,76,16,64,14,39,18,44,Biscuit,Manufacturer,Board/,Packaging,Speciality,Adhesives,Metal,Bearings,1972,1996,% of total,supplier,sales,From: Profitable Customers, Charles Wilson,Sales to the top 5 customers as a % of total supplier sales (
6、1972 - 96),Increasing customer concentration.,Customer power,Big customers are getting bigger Customers are rationalising their supplier base Customers have become more sophisticated Customers want tailor-made solutions The cost of serving customers is increasing Suppliers and customers are developi
7、ng new ways of working together, Professor Malcolm McDonald, Cranfield School of Management,Increasing costs of interfacing with customers,Supplier to the print industry (turnover 200M),Interface costs 000 per customer (adj. for inflation),1980,1996,Top 10% of customers,60,140,1980,1996,Bottom 10% o
8、f customers,15,9,Costs of the frontline (Sales, service, trade promotions etc.(1980 v 1996),Source: Profitable Customers, by Charles Wilson,From Key Account Management Cranfield University School of Management, 1996,Suppliers are still interested principally in volume Whilst they are interested in t
9、he potential for added value, most still do not measure account profitability,The widening rift between profitable and unprofitable customers:,Source: Supplier to the European printing industry (turnover 200 million),1980,1,2,3,4,5,6,7,8,9,10,15,17,16,13,12,10,7,6,4,1,1,2,3,4,5,6,7,8,9,10,% of total
10、,company,profits,Largest 10%,of customers,Smallest 10%,of customers,Customer decile groups,1,2,3,4,5,6,7,8,9,10,-3,26,29,22,20,8,4,-3,-3,1,2,3,4,5,6,7,8,9,10,% of total,company,profits,Largest 10%,of customers,Smallest 10%,of customers,Customer decile groups,1996,% of company profit by customer deci
11、le (each decile = 10% of customer base),Source: Profitable Customers by Charles Wilson,Customer account profitability analysis,The key phrase is Attributable Costing The objective is to highlight the financial impact of the different ways in which customers are serviced, Professor Malcolm McDonald,
12、Cranfield School of Management,Creating closer relationships with supply chain partners,Marketing,Operations,Information Systems,Sales,Purchasing,Marketing,Operations,Information Systems,From,Supplier,Customer,DIRECTORS,DIRECTORS, Professor Malcolm McDonald, Cranfield School of Management,Creating c
13、loser relationships with supply chain partners,Information Systems,Operations,Marketing,Operations,Information Systems,Marketing,To,Directors selling company,Directors buying company, Professor Malcolm McDonald, Cranfield School of Management,Preliminary selection of key accounts,Key account prelimi
14、nary categorisation,Top 15 (in volume/revenue generated),Next 30,Next 55,A,B,C, Professor Malcolm McDonald, Cranfield School of Management,Key account preliminary categorisation,Realisation of fullest potential of both organisations,Confidence in relationship, stable & highly evaluated by both sides
15、,Integrated,Interdependent,Basic,Degree of collaboration,KAM relationship stage,Needs of parties to KAM relationship,Low: transactional,High: collaborative,Reduction of risk, ability to forecast,Operational, efficient transactions,Cooperative, Professor Malcolm McDonald, Cranfield School of Manageme
16、nt,Exploratory,Basic,Cooperative,Interdependent,Integrated,Strategic intent of seller,Strategic intent of buyer,Adapted from a model developed by Millman, A.F. and Wilson, K.J. “From Key Account Selling to Key Account Management” (1994),The relational development model,Exploratory KAM,Selling compan
17、y,Buying company,Managers,Clerks,Operators,Directors,Supervisors,Managers,Clerks,Operators,Directors,Supervisors,Key Customer Contact,Key Account Manager,Cranfield University School of Management 1996,Pre trading Customer potentially qualifies as Key Account Both sides exploring Signaling importantS
18、eller needs to be patient & prepared to investReputations critical,Exploratory KAM,Selling company,Buying company,Board,Board,Admin,Admin,Ops,Ops,Key Account Mgr,Key Customer Contact,Cranfield University School of Management 1996,Basic KAM,Transactional: emphasis on efficiency Driven by price, succe
19、ss measured by priceProbably multi-sourcing Easy to exit Single point of contactBusiness relationship only Very little information sharingReactive rather than proactiveProbably low common interestOrganisation suits selling companyReward structure of KAMgrs paramountSmall chance of growing businessCa
20、n be stable state or trial stage,Basic KAM,Cranfield University School of Management 1996,Co-operative KAM,Selling company adds value to relationshipBased on assumption/experience of delivery performanceMay be preferred supplierExit not particularly difficult Multi-function contactsRelationship stil
21、l mainly with buyerOrganisation mainly standardLimited visits to customerLimited information sharingForecasting rather than joint strategic planningNot really trusted by customer,Co-operative KAM,Selling company,Buying company,Managers,Managers,Operations,Operations,Administration,Administration,Boa
22、rd,Board,Key,Account,Mgr,Purchasing,Manager,Cranfield University School of Management 1996,Interdependent KAM,Both acknowledge importance to each otherPrincipal or sole supplier Exit more difficult Larger number of multi-functional contacts Developing social relationships High volume of dialogueStre
23、amlined processesHigh level of information exchange, some sensitiveBetter understanding of customerDevelopment of trust Pro-active rather than reactivePrepared to invest in relationshipWider range of joint and innovative activity Joint strategic planning, focus on the futureOpportunity to grow busin
24、ess,Interdependent KAM,Operations Focus Team,Finance Focus Team,R&D Focus Team,Environment Focus Team,Market Research Focus Team,Marketing Focus Team,Buying company,Key Account Mgr,Selling company,Buyer,Cranfield University School of Management 1996,Integrated KAM,Real partnership: complementary, mu
25、tually dependentFew in numberSole supplier, poss handling secondary suppliersHigh exit barriers, exit is traumatic Individual organisations subsidiary to team socially Dedicated, cross-boundary functional/project teamsOpen information sharing on sensitive subjectsTransparent costing systemsAssumptio
26、n of mutual trustworthiness, at all levelsAbstention from opportunistic behaviourLowered protection against opportunismJoint long-term strategic planningBetter profits for both,Integrated KAM,Inte- grated,Inter- dependent,Co-operative,Basic,Regress to lower level?,Or split & separate?,Disintegrating
27、 KAM,Occurs at any levelRarely caused by price problemsOften change in key personnel Key Account Managers approach or lack of skillsFailure to forge multi-level links Breach of trustProlonged poor performance against agreed programmeChanging market positions Changing culture, organisation, ownership
28、, roleComplacencyFinancial disappointment?,Disintegrating KAM,Many activities cross the boundaries - especially information based activities such as: Sales Forecasting, Capacity Planning, Resource Scheduling, Pricing, etc,Design,Cost generated by decisions,Time,Cost (%),Increase of expenses,Potentia
29、l saving,Industrial prototype,Production,100 90 7515 5,Impact of an upstream action,Customer Retention,Source: Bain & Co, Bain & Co 1990,0,20,40,60,80,100%,1st January,31st December,Percentage of Customers,Customer Retention Rate (85%),Customer retention is the best measure,Retention Rate: =,No. of
30、customers at year end who were customers at the beginning of the year,No. of customers at the beginning of the year,x 100,Retaining customers is extremely profitable,Source: Bain Customer Retention Model, Bain & Company,Copyright Bain & Company 1990,Price premium,Referrals,Base profit,Year,Retaining
31、 customers is extremely profitable,How much profit a customer generates over time,Source: Harvard Business Review Sept. - Oct. 1990,Year,(51),30,42,44,49,55,(60),(40),(20),0,20,40,60,0,1,2,3,Profit per Customer ($),4,5,Credit Card,How much profit a customer generates over time,-300,-200,-100,0,100,2
32、00,300,1,2,3,4,5,Year,Industrial Laundry,Source: Harvard Business Review Sept. - Oct. 1990,144,166,192,222,256,Profit per Customer ($),Lifetime values of customers,Source: Wilson M. Marketing Improvements Group,A Defection rate (% customer lost each year),B Relationship Life expectancy (years),C Ann
33、ual Value (units of value),D = B + C Lifetime Value (units of value),20%10%5%2.5%,5102040,3000300030003000,150003000060000120000,Therefore,Halving customer defection rate doubles rate of future turnover- lifetime value of customer,A credit card companys defection curve,The net present value of the p
34、rofit streams a customer generates over the average customer life. At 10% defection rate for example, the average customer life is ten years (1 divided by the defection rate). The customer value is the net present value of the profit streams for ten years.,*,Source: Harvard Business Review Sept. - O
35、ct. 1990,0,200,400,600,800,$1000,40%,30%,20%,10%,5%,0%,50%,2.5,3.3,5.,10.,20,2 Years,Defection Rate,Average customer years,$20,$70,$38,$134,$300,$525,5% fewer defections increases value by 95%,Customer Value*,Reducing defections 5% boosts profits 25% to 85%,Calculated by comparing the net present va
36、lues of the profit stratems for the average customer life at current defection rates with the net values of the profit streams for the average customer life at 5% lower defection rates.,*,Source: Harvard Business Review Sept. - Oct. 1990,Auto-service chain,Branch deposits,Credit card,Credit insuranc
37、e,Insurance brokerage,Industrial distribn,Industrial laundry,Office-bldg. mgmt.,Software,30,85,75,25,50,45,45,40,35,20,40,60,80,100,0,% Increases in Customer Value*,Why customers stop buying,1% Die, retire or are terminated 3% Transfer to other jobs, companies or locations5% Give their business to o
38、ther friends9% Competitive reasons 14% Product dissatisfaction 68% Attitude of supply companyResearch by Miller Business Systems,Thought starters,To what extent do you measure customer retention by segment?,Thought starters,To what extent do you measure the impact on profitability of each % point in
39、crease in retention segment?,Key account strategies,Invest in Joint information systems and focus teams,High,Low,Vigilance and motivation,Invest in devolved relationships Maintenance & Consistency,Exploratory KAM Invest in tailoring product Basic KAM Invest in building relationships Cooperative KAM
40、Invest in improving processes,Basic KAMCo-operative KAM,Customer Attractiveness,Stage of KAM relationship,Interdependent KAM Integrated KAM,Adapted from: “Key Account Management”, Cranfield University School of Management, 1996,High Low,High,Low,Suppliers business strength with customer,Customer att
41、ractiveness,Strategic: invest,Volume: manage for cash,Bread & butter: maintain,Future stars: selectively invest,Key customer,Developed from McDonald, Millman & Rogers, 1996,Customer portfolio strategy matrix,11,9,http:/www.TheMarketingProcessC_,High Low,High,Low,Suppliers business strength with cust
42、omer,Customer attractiveness,Strategic: invest,Volume: manage for cash,Bread & butter: maintain,Future stars: selectively invest,Key customer,Developed from McDonald, Millman & Rogers, 1996,Customer portfolio strategy matrix,Customer account profitability,“The total sales revenue generated from a cu
43、stomer or customer group, less all the costs that are incurred in servicing that customer or customer group.” (Ward - Strategic Management Accounting),Why calculate CAP ?,Knowing absolute profitability of customers assists in the decision: do we want to keep this customer? If so, on what terms? Know
44、ing the relative profitability of customers helps in strategic decisions on allocation of resources Knowing the factors affecting customer profitability enables informed decisions to be taken in negotiations, and in pitching for new business.,Customer profitability some questions,How much does the c
45、ustomer buy in a year? What is the direct cost of those goods? Standard products or bespoke? Is it steady work, or seasonal peaks? How many orders do they place in a year? By what mechanism? How many of these are emergency orders? Small quantities or large? How many times do our salespeople have to
46、visit them? Do we have to maintain stock for them, or do we make to order? How many delivery sites? Where? What delivery terms? How many invoices do we raise to them? How many credit notes? Do they pay promptly? What are our credit control costs? How much does it cost us to finance their debts? How
47、much after-sales service do they need? What is likely to change in the future?,CAP: A basic model,Customer account profitability,Remember: in the early stages of the lifecycle, many of your customers may be unprofitable to service. Consider the likely impact over the whole lifecycle!,Customer lifeti
48、me value,NPV of future cashflows over the customers lifetime Lifetime revenue For how long? What amounts per year? Costs to service Discount rate,Valuing Key Customer Accounts,Background/FactsRisk and return are positively correlated, ie. as risk increases, investorsexpect a higher return.Risk is me
49、asured by the volatility in returns, ie. the likelihood of making avery good return or losing money. This can be described as the quality ofreturns.All assets are defined as having future value to the organisation. Henceassets to be valued include not only tangible assets like plant andmachinery, bu
50、t intangible assets, such as Key Customer Accounts.The present value of future cashflows is one of the most acceptablemethods to value assets including key customer accounts.The present value is increased by:increasing the future cash flowsmaking the future cash flows happen earlierreducing the risk in these cash flows, ie. (hence the required return)improving the certainty of these cash flows,
