To the business outsider this looks like
old fashioned faith glossed up as sect and presented as The Word. It’s what the Americans know as Strategic Account Management (SAM) and Kiwi business in increasing numbers recognises as key client management.
The practice is relatively new, the concept as old as business itself. Imagine you’ve already discovered gold but in the rock face you tap an existing vein in new ways which will make you much, much richer. Naturally you pay more attention to this than the lesser tributaries of this river of gold and, with the right tools, you maximise returns. Ditto key client management, which is the modern day refinement of the 80:20 principle, in which 20 percent of your customers give you most of your revenue and profit.
It’s practice in the quest of increased profitability, which has been transformed and professionalised. In the United States there is now non-profit Strategic Account Management Association, devoted to developing and promoting the concept of “customer-supplier partnering”. SAMA is dedicated to “the professional and personal development of the executives charged with managing national, global and strategic account relationships, and to elevating the status of the profession as whole”.
Suddenly it’s profession — but only in America. Here its practitioners still walk on the ground. Whatever its name and however it is practised, there is growing evidence to show that there is more emphasis on key client management. Competition, technology and globalisation are among the new drivers of the trend.
Tailoring your 20 percent
The aim is to maximise the revenue created by the 20 percent of customers who provide most of the revenue base. It is done by creating tailored programme to deal with the special requirements demanded by this elite of customers. Managing clients this way is seen as way of not only sustaining profitability but of finding new ways of doing business.
Create Value With Strategic Accounts, Finnish book on the subject by Sorbacka, Sivula and Kaario, carries warning. It says: “One should however bear in mind that SAM activities require lot of investment and resources, and in that sense it is neither possible nor sensible for firms to put such an effort into managing all (our emphasis) their relationships.
Critical success factors
“Choosing the right kinds of accounts and suitable account managers, and selecting the right kinds of people to run the programme are obviously crucial to SAM success. Defining account manager roles, finding the appropriate individuals, and creating development programme for account managers is critical to success,” they added.
The number of strategic accounts has to be limited and the authors believe the first rule in selecting customers is to select the most valuable customers the provider has. That has not always been done by New Zealand companies and banking offers one of the better examples.
Testing personal bankers
A December 1999 survey by Mark Colgate and Bodo Lang for the Marketing Department of the University of Auckland Business School showed comparative satisfaction levels of customers with personal bankers against those who do not have them. The survey asked, “overall how satisfied or dissatisfied are you with your main bank?”. For those with personal bankers (PBs), ASB stood out, reaching 4.0 (for those without PBs the figure was 3.7). WestpacTrust figures were, respectively, 3.6 (PBs) and 3.3.
But at the other banks, the BNZ, ANZ and National, the figures were less compelling. For the BNZ and National there was no difference between those who had personal bankers and those who did not. Both stood at 3.8. At ANZ the mean level of satisfaction for those with personal bankers was actually less — at 3.2 — than those without this service, (3.3).
When it came to comparative loyalty, the question was: “Based on your personal experience with your main bank, how likely or unlikely would you be to recommend this bank to somebody else?”
ASB was once again tops with those clients who had personal bankers, (3.6). National recorded 3.2 against 3.0 for those without PBs and WestpacTrust 3.0, as opposed to 2.6. But BNZ clients with PBs actually recorded 2.8 recommendation from clients with PBs — as opposed to 3.0 from those without. ANZ’s two client bases level-pegged at 2.6.
Colgate says the survey illustrates the way that key client management should be used only for some clients. The BNZ used it for large number of customers whereas WestpacTrust and ASB were much more selective. Colgate says the survey showed that the negative findings of personal bankers outweighed any positives.
The survey showed ASB was clear leader in its relationships with clients. Barbara Chapman, general manager of marketing and human resources, says the bank works at providing excellent service at every level of contact with its clients. Personal banking was no exception.
“The key to doing it right is first to make sure you relationship-manage the customers who want you to have that relationship with them. Secondly, because it’s expensive to do that from profitability perspective, we talk to the right customer grouping. and B are not mutually exclusive though — some customers don’t want personal management. Equally there are others who want ‘high touch’ relationship.”
Underlying the way technology drives this client management trend is the invaluable information offered by the bank’s database. It not only shows the bank which customers provide the most value — it also maps life stages and their accompanying financial concerns: late 20s when home loans are priority, mid 40s when other investment decisions are being made and the 50s for retirement issues.
When customers add little
One other outcome of refined assessment of customers is that it often results in businesses taking long hard look at some clients and dropping them, sometimes on the basis of revenue. In the United States, national market research company Custom Research Inc was earning $10 million from 157 customers in the late 1980s.
After thorough revenue and profitability analysis of all 157 customers, the company was disturbed to find that only 10 customers fell into the high revenue/high profit category and that the customers they thought were profitable were adding little if anything to the bottom line. Worse, many of these companies were in the Fortune 500.
Over the next few years CRI stopped doing business with 100 of its customers so it could focus on what it called its ‘core partners’ — key clients. In 1998 CRI earned $30 million from 80 customers, 35 of which were core partners.
