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Business Definition for: Key Account Management

• the management of the customer relationships that are most important to a company. Key accounts are those held by customers who produce most profit for a company or have the potential to do so, or those who are of strategic importance. Development of these customer relations and customer retention is important to business success. Particular emphasis is placed on analyzing which accounts are key to a company at any one time, determining the needs of these particular customers, and implementing procedures to ensure that they receive premium customer service and to increase customer satisfaction.

Customer royale!: Key to good account management

The existing customers have to be made clients and then advocates for the products. This could only be done by delighting them beyond their expectations, not just satisfying them.

In recent years, however, this has become unmanageable. With the ever-increasing demands of customers, and the premium on time and manpower, organisations have found it unviable to put in so much effort in every customer relationship. Besides, the Pareto 80-20 rule had proved itself here as well - 80% of a company's profit comes from only 20% of their customers; just as 80% of the margins come from only 20% of the products in its portfolio. The only way out was through KAM or Key Account Management. KAM requires a focus on the 20% customers, the important key accounts who add 80% to the bottom line, and satisfy them to a 100%, bonding with them so that they are retained as loyal customers with captive referral power.

This is easier said than done, however. The human implications are tremendous! It is heartbreaking for those salespeople who have nurtured relationships with the 80% who are not to be fostered any longer. How does one let go? More importantly, how do we choose these 20%? Each company evolves their own criteria for this selection. Whatever the measure, find these key accounts and focus on them. Eighty percent of the sales team's time must dwell on the information analysed about the client, in order to meld the corporate's goals with that of the marketer.

The marketer should now be seen as a partner, not just a supplier. An alliance that wants the best for the client corporate, that understands the client's needs and always looks out for the best interests of the client. Not the marketer's! The client's goals come first. In the pursuit of this, the perception of the supplier-marketer as a partner will force the client corporate into a win-win situation. He has to help the marketer grow to keep growing himself.

One corporate that has successfully implemented KAM is ITW Signode. The company has found that this programme has helped to motivate and retain its sales team.

Key sales teams, selected from the best and most experienced, are placed in position to interact with these key accounts. Incentives to the sales team are based on the deliverables to the key accounts, the rise of the CSI (Customer Satisfaction Index), and the retention of these accounts.

Other prospects are regularly fostered by a second sales team, the field engineering team. Their performance is evaluated on the basis of the conversions to key account status of potential customers, and the time span this is achieved in. A great KAM system worth emulating! Concentrate on the satisfaction indices of the key accounts. Enhance the Lifetime Value (LTV) or the CLV (Customer Lifetime Value) that these Most Valuable Customers (MVCs) can bring to your growth potential! This is the overriding mantra for marketing success today!

LEKHA SISHTA

lekha.hyd@careercommunity.co.in

Calculating customer lifetime value

Customer lifetime value has intuitive appeal as a marketing concept, because in theory it represents exactly how much each customer is worth in monetary terms, and therefore exactly how much a marketing department should be willing to spend to acquire each customer. In reality, it is difficult to make accurate calculations of customer lifetime value due to the complexity of and uncertainty surrounding customer relationships.

The specific calculation depends on the nature of the customer relationship. Customer relationships are often divided into two categories. In contractual or retention situations, customers who do not renew are considered "lost for good". Magazine subscriptions and car insurance are examples of customer retention situations. The other category is referred to as customer migrations situations. In customer migration situations, a customer who does not buy (in a given period or from a given catalog) is still considered a customer of the firm because she may very well buy at some point in the future. In customer retention situations, the firm knows when the relationship is over. One of the challenges for firms in customer migration situations is that the firm may not know when the relationship is over (as far as the customer is concerned).

Most models to calculate CLV apply to the contractual or customer retention situation. These models make several simplifying assumptions and often involve the following inputs:

• Churn rate The percentage of customers who end their relationship with a company in a given period. One minus the churn rate is the retention rate. Most models can be written using either churn rate or retention rate. If the model uses only one churn rate, the assumption is that the churn rate is constant across the life of the customer relationship.
• Discount rate The cost of capital used to discount future revenue from a customer. Discounting is an advanced topic that is frequently ignored in customer lifetime value calculations. The current interest rate is sometimes used as a simple (but incorrect) proxy for discount rate.
• Retention cost The amount of money a company has to spend in a given period to retain an existing customer. Retention costs include customer support, billing, promotional incentives, etc.
• Period The unit of time into which a customer relationship is divided for analysis. A year is the most commonly used period. Customer lifetime value is a multi-period calculation, usually stretching 3-7 years into the future. In practice, analysis beyond this point is viewed as too speculative to be reliable. The number of periods used in the calculation is sometimes referred to as the model horizon.
• Periodic Revenue The amount of revenue collected from a customer in the period.
• Profit Margin Profit as a percentage of revenue. Depending on circumstances this may be reflected as a percentage of gross or net profit. For incremental marketing that does not incur any incremental overhead that would be allocated against profit, gross profit margins are acceptable.

Uses of Lifetime Value

Lifetime Value is typically used to judge the appropriateness of the costs of acquisition of a customer. For example, if a new customer costs $50 to acquire (CPNC, or Cost Per New Customer), and their lifetime value is $60, then the customer is judged to be profitable, and acquisition of additional similar customers is acceptable. For this reason, the costs involved in the first purchase are typically not included in LTV, but rather, in the Cost Per New Customer calculation.

Basic Accounts Receivable Management

This article will outline some of the basic components for managing accounts receivable, ranging from policies and measurement to outsourcing options.

The foundation behind account receivables is your policies and procedures for sales. For example, do you have a credit policy? When and how do you evaluate a customer for credit? If you look at past payment histories, you should be able to ascertain who should get credit and who shouldn't. Additionally, you need to establish sales terms. For example, is it beneficial to offer discounts to speed-up cash collections? What is the industry standard for sales terms? There are several questions that have to be answered in building the foundation for managing accounts receivables.

A system must be in place to track accounts receivables. This will include balance forwards, listing of all open invoices, and generation of monthly statements to customers. An aging of receivables will be used to collect overdue accounts. You must act quickly to collect overdue accounts. Start by making phone calls followed by letters to upper-level managers for the Customer. Try to negotiate settlement payments, such as installments or asset donations. If your collection efforts fail, you may want to use a collection agency.

Also remember that the collection process is the art of knowing the customer. A psychological understanding of the customer gives you insights into what buttons to push in collecting the account. One of the biggest mistakes made in the collection process is a "sticks only" approach. For some customers, using a carrot can work wonders in collecting the overdue account. For example, in one case the company mailed a set of football tickets to a customer with a friendly note and within weeks, they received full payment of the outstanding account.

Measurement is another component within account receivable management. Traditional ratios, such as turnover will measure how many times you were able to convert receivables over into cash.

Example: Monthly sales were $ 50,000, the beginning monthly balance for receivables was $ 70,000 and the ending monthly balance was $ 90,000. The turnover ratio is:
.625 ($ 50,000 / (($70,000 + $ 90,000)/2)). Annual turnover is .625 x 360 / 30 or 7.5 times. If you divide 360 (bankers year) by 7.5, you get 48 days on average to collect your account receivables. You can also measure your investment in receivables. This calculation is based on the number of days it takes you to collect receivables and the amount of credit sales.

Example: Annual credit sales are $ 100,000. Your invoice terms are net 30 days. On average, most accounts are 13 days past due. Your investment in accounts receivable is:
(30 + 13) / 365 x $ 100,000 or $ 11,781.

Example: Average monthly sales are $ 10,000. On average, accounts receivable are paid 60 days after the sales date. The product costs are 50% of sales and inventory-carrying costs are 10% of sales. Your investment in accounts receivable is:
2 months x $ 10,000 = $ 20,000 of sales x .60 = $ 18,000.

Measurements may need to be modified to account for wide fluctuations within the sales cycle. The use of weights can help ensure comparable measurements.

Example: Weighted Average Days to Pay = Sum of ((Date Paid - Due Date) x Amount Paid) / Total Payments

Example: Best Possible Days Outstanding = (Current A/R x # of Days in Period) / Credit Sales for Period

Receivable Management also involves the use of specialist. After-all, you need to spend most of your time trying to lower your losses and not trying to collect overdue accounts. A wide range of specialist can help:

- Credit Bureau services to review and approve new customers.
- Deduction and collection agencies
- Complete management of billings and collections

Examples of specialist include www.clect.net , www.ecredit.com , and www.iab-inc.com . Finally, don't overlook software programs for managing receivables, such as www.getpaid.com .

customer value proposition

In the field of marketing, a customer value proposition consists of the sum total of benefits which a vendor promises that a customer will receive in return for the customer's associated payment (or other value-transfer).

Put simply, the value proposition is what the customer gets for his money/time.

Accordingly, a customer can evaluate a company's value-proposition on two broad dimensions with multiple subsets:

1. relative performance: what the customer gets from the vendor relative to a competitor's offering;
2. price: which consists of the payment the customer makes to acquire the product or service; plus the access cost

The vendor-company's marketing and sales efforts offer a customer value proposition; the vendor-company's delivery and customer-service processes then fulfill that value-proposition.

Contents [hide] 1 Value-proposition as a Marketing Tool 2 Theory 3 See also 4 Notes

[edit] Value-proposition as a Marketing Tool

A value-proposition can assist in a firm's marketing strategy, and may guide a business to target a particular market segment.^[1] Typically, there are three ubiquitous elements in a value proposition: Convince (who?), that (what?), because (why?). This framework will structure your value proposition in a cohesive manner that makes sense internally and externally.^[2]

Whether for a product, service or a company as a whole, this formulation can allow a firm to see if its competencies align with the segment that it plans to target.

[edit] Theory

The company has always^{[citation needed]} had the value-proposition of increasing its market share and growing revenue by:

1. providing superior customer service
2. product differentiation
3. operational efficiency

A strategic analysis and planning document should contain at least five elements:

1. current situation (including problems, causes and effects)
2. target situation
3. when to reach the target situation
4. cost of reaching the target situation and opportunity cost analysis
5. the benefits of both the targeting and the achievement phases

Customer Value

What is Value Proposition?

Value proposition is a description of the customer problem, the solution that addresses the problem, and the value of this solution from the customer's perspective.

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Why Customer Value Proposition?

To achieve customer success, your company should deliver a particular customer value proposition to a definable market in order to exist. Competition is all about value: creating it and capturing it.

The Tao of Customer Value Creation

"In fact, your values are the reason you do everything you do. Plain and simple. And since everyone on this planet holds to these values, effective marketing targets the corollary emotions that run as conduits from these mission control centers. This is the secret to instant access into someone’s subconscious mind. It is also the answer to doing this so effectively that the subconscious literally kicks the conscious mind of your target market in the seat of its pants and compels it to do something. These control centers work to drive the behaviors of everyone. If someone values what you have, they will trade you their money for what you have. Now that’s a value!" says Mike Litman.⁸

Make the Competition Irrelevant

By: John Mehrmann

The Value Proposition. For each option that you present to the potential customer, provide a value proposition. Your value proposition should be something that can be conveyed in three to five bullet points, three to five sentences, or spoken in thirty seconds or less. You should be precise and succinct. Present the value proposition from the customer point of view. For example, rather than say "we ship in three to five days", you could say "the product will typically arrive at your door in three to five days". Rather than say "we have the fastest process", you could say "our process is fast, so you get results faster"... More

Why People Purchase? And How To Get More Of Them To Purchase From You Now?

“Let’s get right down to the heart of the matter. The power, the force, the overwhelming urge to own that makes advertising work, comes from the market itself, and not from the copy.

Copy cannot create desire for a product. It can only take the hopes, dreams, fears and desires that already exist in the hearts of millions of people, and focus those already existing desires on to a particular product. This is the copywriter’s task: not to create this mass desire – but to channel and direct it, ” wrote Eugene Schwartz.

A powerful quote. As an entrepreneur, the purpose of your marketing efforts is to direct desire. People do what they want…desire…to do and this is rooted in six values that are universal to everyone. So it stands to reason that if these values are universal and if they like a puppeteer pull the strings on how people feel, then all you need to do in your marketing efforts is tap into a value system with copy that stirs the emotions.

Value Innovation

The value innovation concept provides a relevant support for questioning product/market strategies as well as underlying assumptions.

Why do some companies achieve sustained high growth in both revenues and profits?

The less successful companies take a conventional approach: their strategic thinking is dominated by the idea of staying ahead of the competition. In stark contrast, market leaders pay little attention to matching or beating their rivals. Instead, they seek to make their competitors irrelevant through a strategic logic called value innovation... More

How To Create Amazingly Seductive Offers

An irresistible offer is an "invitation" that is so clearly compelling, so powerful, and so obviously attractive that no one in his/her mind could refuse.

The million-dollar question is: how can you make your offers amazingly seductive?

Here’re some "Whip Up An Immediate Buying Frenzy" tips... More

Look at Your Company from Outside-In and Inside-Out

By: Masaaki Imai

· What needs do you satisfy now?

· What need could you satisfy now? In future?... More

Customer Value proposition

A value proposition is a clear statement of the tangible results a customer gets from using your products or services. The more specific your value proposition is, the better.

Most people and companies have lousy value propositions. They're weak - and I mean really weak. Often they're simply a description of the offering's features or capabilities. Or they're filled with self-aggrandizing puffery.

Here are a few examples of weak value propositions:

It's the most technologically advanced and robust system on the market.

We improve communication and morale.

We offer training classes in a wide variety of areas.

My product was rated the best-in-class by leading authorities.

You're probably saying, "So what?" That's exactly what most customers think when you share a weak value proposition. They've heard lines like that a zillion times before and don't believe you one little bit. Besides, you haven't shared what's in it for them - and that's all customers care about.

With today's tight economy and overburdened decision makers, you need to have a strong value proposition to break through the clutter and get their attention. That means you need a financially oriented value proposition that speaks to critical issues they're facing. And, by including specific numbers or percentages you get the decision maker's attention even faster.

Now back to the two professors. In researching various pharmacy benefit managers (the companies behind your prescription drug card), they found that some firms are much better deals than others.

One of their clients switched to a plan they recommended and saved $800,000 in the first 6 months without reducing services to their employees.

Now that's a REALLY STRONG value proposition. I can't imagine any Chief Financial Officer turning down an appointment with the two professors after hearing those figures.

Let me give you another example. A while back I was having lunch with the president of a $1/2 billion division of a major corporation. She told me that if someone called her and said he could reduce her waste by just 1%, she'd meet with him immediately.

Now a 1% saving seemed miniscule to me, so I asked her why. She told me that she knew exactly how much her company spent on waste - and it was a big chunk of change. Every penny she saved would go right to her bottom line as more profits.

Strong value propositions deliver tangible results like:

Increased revenues

Faster time to market

Decreased costs

Improved operational efficiency

Increased market share

Decreased employee turnover

Improved customer retention levels

Documented success stories make you believable to prospective buyers. That's why the two professors have such a compelling value proposition.

So how does your value proposition look? Can you describe what you do in terms of tangible business results? Do you have documented success stories?

Or do you need to do some work to enhance your value proposition? If it's not strong enough yet, don't despair. Most people and companies have a much stronger one than they use. They just get caught up describing "what" they make or "how" they do things.

Here are several things you can do right now to enhance your value proposition:

1. Brainstorm with Your Colleagues
Review your marketing material and what you say to customers to try to get their attention. If you're not talking tangible results, keep asking each other, "So what?"

So what if it's an efficient system?

So what if we have a replicable process?

So what if it's high quality?

By asking this question over and over again, you'll get much closer to the real value you bring to customers.

If you're a sole proprietor, do this exercise with group of other smalll business owners.

2. Talk to Your Customers
Your existing customers are your best resource to find out what value you bring. Tell your customer you need help understanding the real value of your offering and you'd like a chance to learn their perspective.

Most people are scared to ask their customers about this. It took me awhile before I was willing to risk this, but what I learned was a real eye-opener. Not only did it change my value proposition, but it also changed my offerings and self-perception.

Don't let another day go by with a weak value proposition. A strong one literally opens the doors of major corporations for you, while a weak one keeps you on the outside