When a Key Account is not a Key Account (and what to do about it)

So you have the title ‘Key Account Manager’ and you are responsible for one or two ‘Key Accounts’.  With the best of intentions you seek to establish shared goals and plans where both parties (supplier and client) will benefit only to find that your ‘Key Accounts’ do not think the same way as you and do not share the same intentions. If this is your current dilemma as a Key Account Manager you may find that you do not have Key Accounts at all.

Welcome to the world of confusion when it comes to the definitions of things like Key Accounts, Prospecting, etc.  The business world is littered with all manner of definitions, just take the terms Strategy or Strategic and you see what I mean, but let’s not go there. Instead let’s take a look at different types of accounts, especially the large accounts which can take up a lot of time and money and look at how we need to work with them to ensure the best return on our sales/supplier investment.

Key Account Definition:

• A Key Account is an account which makes sustainably repeat purchases from the supplier.
• Both the supplier and buying organisations work with a philosophy based on forming partnerships of mutual benefit and collaboration.
• The client (buyer) places a premium on having a preferred supplier relationship that provides them with easy access to innovation, new ideas, keen pricing and superior service.
• In turn the client (buyer) is prepared to pay a premium, recognising that the higher level of service and commitment they expect from their preferred suppliers comes at a cost.
• The relationship between buyer and supplier in a key account is one of mutual dependence, with both working towards achieving a win-win outcome.
• Key Accounts are profitable.
• Key Accounts are about  mutual respect
• Key Accounts are about reciprocity*
• A Key Account does not have to be a large account.

Strategic Account Definition: A strategic account is an account that is critically important to the supplier for any of a variety of reasons i.e.

• The supplier wants to keep the account out of hands of other suppliers
• The supplier wants to grow market share quickly or gain a position in a market
• The supplier needs continuous production or high production volumes to achieve  economies of scale
• The supplier wants to disadvantage their competitors
• A strategic account is not necessarily profitable and doesn’t always provide continuous or repetitive business.  The client can often have a policy of shopping around.
• A strategic account does not guarantee easy access to senior executives and doesn’t usually foster transparency or loyalty.
• A strategic account does not usually care about the supplier relationships.
• A Key Account can be a strategic account as long as criteria for the Key Account definition exist, otherwise it is just a Strategic Account.

Major Account Definition:

• A Major Account usually makes a one off big purchase or very infrequent purchases i.e. A government buying a massive IT system once every 10-15 years.
• Major accounts are seldom Key Accounts.

Why is the distinction important? Because it can cost you and your business a whole lot in excessive time, money, effort, etc. if you get it wrong.  When we started working with an Australian FMCG client recently, they had determined (prior to our arrival) that they had 35 Key Accounts.  When we helped them redefine their customer structure it turned out that they had 33 Strategic Accounts and only 2 Key Accounts which completely changed how they worked with their clients.

For instance, Coles and Woolworths became Strategic Accounts because neither of those businesses were interested in Key Account relationships with this FMCG supplier thus changing the nature and scope of the decisions made at the supplier level. And as many thousands of auto parts manufactures around the world, including Australia, would like to believe that the big Motor Car companies are Key Accounts, in truth, the majority only have Strategic Accounts which is very dangerous as we are seeing play out now.

For instance – the Ford Motor Company has cut its supply chain dramatically, cutting out 40,000 suppliers from around the world in order to improve its own supply chain, with little consideration for the impact that would have on its suppliers.  Ford only looked at their decision from Ford’s point of view.  That is their prerogative to do so and if the auto parts suppliers thought they had a Key Account relationship with Ford they were only fooling themselves.

You can see the dilemma when it comes to creating your Go-to-market sales strategies and account plans.

So what to do… When you find yourself in the role of key account manager you need to define the nature of your accounts. Determine if they are Key, Strategic or Major by finding out what the client organisation’s philosophy is to partnering with your business.  Once you know how they want to work with you then you are in a position to plan your approach in the manner that best serves your business and the client’s in the clear light of day.

So don’t fool yourself, no matter how much you want a Key Account relationship, if they don’t then it won’t happen.  And don’t think for a minute that being customer centric means giving into clients at your expense. That is not good business either.  Good business is made on sound, evidenced based decisions with clear expectations in place. 

Whether you are dealing with a Key, Strategic or Major account you can set the guidelines and never be a victim. A Key Account must provide sustainable, repetitive business where a fair exchange of value is established and articulated.  With a Strategic Account you must be brave and clear minded, and negotiate your way to the best outcome for your business whilst not putting all your eggs in one basket.  

*Reciprocity in social psychology refers to responding to a positive action with another positive action, rewarding kind actions. As a social construct, reciprocity means that in response to friendly actions, people are frequently much nicer and much more cooperative than predicted by the self-interest model; conversely, in response to hostile actions they are frequently much nastier and even brutal.  People categorize an action as kind by viewing its consequences and also by the person’s fundamental intentions. Even if the consequences are the same, underlying intentions can cause an action to be reciprocated differently.^[2] Reciprocity is considered as a strong determining factor of human behavior. Positive reciprocal actions differ from altruistic actions as the former only follow from other positive actions and they differ from social gift giving in that those are not actions taken with the hope or expectation of future positive responses. The focus of reciprocity is centered more on trading favors than making a negotiation or a contract with another person. With reciprocity, a small favor can produce a sense of obligation to a larger return favor. This feeling of obligation allows an action to be reciprocated with another action. Because there is a sense of future obligation with reciprocity it can help to develop and continue relationships with people. Reciprocity works because from a young age people are taught to return favors and to disregard this teaching will lead to the social stigma of being an ingrate. Reciprocity as a form of social obligation calling for future acts kindness can be seen in the Japanese word for thank you, “sumimasen,” which means “this will not end”^[3]  from Wikipedia

Remember everybody lives by selling something. Author: Sue Barrett, www.barrett.com.au