Ways to Examine Strategic Accounts

What is a strategic account? Strategic accounts are customers who most readily help a firm achieve its strategic and financial goals. As one firm's chief sales officer said in responding to this definition, "I get it. The problem I'm having is that we don't have a real sales strategy except for hitting our numbers every month." Suppliers without strategies often simply declare large revenue producers and/or marquee customers strategic and, in many cases, they remain so forever. Other firms have developed different strategies for each of a small number of accounts, which is less cost-efficient than an overall marketing strategy, but at least this is better than ad hoc strategic account management (as Honeywell IACS discovered).

Firms with clear strategies often enjoy another distinction with strategic accounts: as the relationship progresses, it changes. Accounts begin to see your firm not as a vendor delivering a commodity, but perhaps as a chosen supplier delivering differentiated value—through various kinds of contributions. A handy tool can help you both classify how your accounts see the value you provide and help you determine how to move those accounts to the next level. We call this tool the Buy-Sell Hierarchy. ^[2] Understanding where your customers perceive you to be on the Buy-Sell Hierarchy is important when determining the resources and costs required to grow customer relationships.

Figure 4-1: The Buy-Sell Hierarchy

At the lowest level of the buy-sell hierarchy, the account sees you as a commodity vendor, competing purely on price. At this level you will need to continue price competition unless you can move up the buy-sell hierarchy. If you move up the steps, the account may then recognize you as differentiating on product (level 2) or service quality (level 3). Given the emphasis on product and service quality in the last 20 years, in many markets quality is the price of entry. If product and service quality offer a way to differentiate, in many cases, the differentiation is short-lived. If your strategic account manager, however, can truly start helping your accounts with business and organizational issues (levels 4 and 5)—helping their revenues grow, minimizing their costs, positioning them more effectively in the marketplace—the relationship can change dramatically. Few suppliers make it to these top two levels. But those who do find their accounts treat them as "trusted advisors," ^[3] in the words of David H. Maister, combining high levels of technical expertise and interpersonal skills to help their customers. As difficult as these levels are to achieve, at this level of relationship, competition is almost nonexistent and value flows freely in both directions.

But some customers would never allow this business/organization level of relationship. They tend to see suppliers as vendors, period. If one of your strategic accounts does not see the value in your increased investments, or thanks you for them and asks for deep discounts, it may make little sense to keep defining them as strategic or to invest more in the relationship. It is a very hard lesson for some firms, but some clients just want a good product at a good price—nothing more. We have seen customers tell suppliers to get rid of the extra services— such as a strategic account manager—and to remove those service costs from the prices they are paying.

As one example of buyers who prefer straight vendors, a high-tech manufacturer in the 1990s named several hundred large revenue producers as "enterprise" customers. Then, before program rollout, the firm conducted a follow-up and wide-ranging portfolio analysis on those accounts. The analysis determined that a significant proportion of these customers was not looking for a strategic supplier, but rather for a vendor. They preferred an inside salesperson to sell them, not a strategic account manager. Whoever suggested the portfolio analysis should have received a huge bonus because it saved the high-tech firm tens of millions of dollars in unwanted sales and service costs. The portfolio analysis also caused the firm to create different sales channels to sell to the customers in the ways they preferred to buy. Before rolling out strategic account management, customer assessments and portfolio analyses are more than just good ideas. They can guide your strategic planning tremendously and help you wisely invest your resources.

You also might copy another approach to initiating strategic account management by examining what a medium-sized manufacturer did in the mid-nineties. The firm started its strategic account management pilot by focusing on three of its five largest and most critical customers—its co-destiny accounts. It chose the three after in-depth account assessments and portfolio analyses (which found that the other two accounts had very low profitability at best). There was no question that these three firms deserved a higher level of attention. The supplier's only concern was whether it would receive a clear return on its strategic investment.

The firm therefore started the implementation not with promises, but by letting the three customers know that it would like a closer relationship with each of them. The supplier needed to develop new processes and systems, but by treating each of these as a value-added initiative and presenting them as such, all three accounts were very pleased by the program. The new closeness that developed through the changed systems and processes allowed the SAM to understand the accounts' needs more deeply than she had before. Within 18 months, the supplier was doing joint R&D projects with two customers and working on a large joint venture with the third account. The supplier's strategic initiative had also increased its revenues with these three accounts by almost 50 percent, with significantly increased profitability.

Twenty-four months later, the supplier started rolling out the program to another five large customers. It was more than comfortable with the ROI on its first investment in strategic account management—both in dollars and in greater customer loyalty.

The next year, the supplier created a second pilot for a "junior strategic account management" program, which leveraged the systems and processes already developed to focus on medium-sized customers with large opportunities. The supplier staffed the junior program with people whom it thought had the skills to be strategic account managers. The firm thought of the junior pilot as the account management "farm" system, where people could learn as they developed customers. As it happened, the medium-sized account management program generated millions in incremental revenue and trained 10 account managers who were soon ready for the "big leagues." This two-sided program became the single most effective marketing initiative the firm had launched. The supplier attributed its success to going slowly, starting with an intent rather than with promises, developing processes as needed, and quantifying the value it delivered along the way.

Defining too many customers as strategic too often makes it very difficult for the program to demonstrate a timely return. A firm that sees itself as having been burned might justifiably resist continuing strategic account management. Trying to focus on too many customers is also an excellent way to waste valuable resources, which in turn may force SAMs to focus on generating more short-term revenue—to become, in our definition from Chapter 1, key account sellers. You can better optimize your returns from strategic accounts by aligning around a common vision and strategy, selecting the right people to manage customers, training those account managers, setting up a human-resources support system, and ensuring that the customers you select are best suited for a strategic account approach.

Identifying a "right" account starts with strategic alignment, followed by an account assessment, including a customer portfolio analysis. Because such portfolio analyses can be very complex, with activities-based costing and predicted margins, we have provided below a simpler way to conduct a high-level portfolio analyses.

^[2] Miller Heiman, Inc.

^[3]Maister, David H., et al (2000). The Trusted Advisor. New York: The Free Press.