Articles - Written by Arthur Hughes - 466 Comments
How to Profit from Investing in Customer Relationships
In Integrated Account Management, (AMACOM 1997) Mark Peck provides a complete guide on how to install a highly profitable system for building customer relationships in a business to business environment. IAM has been used by:
- An automotive after-market business to turn an $8 million loss into a $400,000 profit in one year
- A technology company to create a new sales channel with a four to one return on operating expenses
- A high-tech equipment company to generate a doubling of sales in one year with no increase in the size of the sales field force.
Mark Peck is Executive Vice President of Hunter Business Direct, Inc. of Milwaukee. Drawing on experience from clients such as Monsanto, BellSouth, Hewlett-Packard, S.C. Johnson, Amoco and Shell Oil, Peck guides the reader through the philosophy and economics of IAM and, in addition, provides a blueprint for the tactical design of an IAM business system.
What is IAM?
“Selling is getting the customer to want what the company sells, and marketing is getting the company to sell what the customer wants.” Integrated account management blends these two disciplines to allow each account manager to manage relationships with customers in ways that are cost effective and profitable. IAM is proactive: it is not a system that waits for the customer to call you. IAM involves high levels of productivity through careful planning of contacts. IAM treats account managers as if they were small business owners.
In conducting IAM, account managers:
- Own the relationships with their customers.
- Plan their customer contacts in an organized cost effective program
- Segment their customers by profitability and risk of defection.
- Work to understand their customer’s needs
- Use a customer database as a primary customer knowledge tool.
- Invest in customers based on their worth
- Sell by not selling.
- Let the customer decide the contact medium that they prefer
Peck identifies three factors in customer grading:
|Potential incremental revenue||$4,400|
|Probability of achieving the increment||15%|
The potential incremental revenue is calculated by determining the “best in class” revenue performance. If a customer has 400 employees, and your best customer of that type with approximately 400 employees has annual revenue of $29 per employee, then the incremental revenue for that customer is computed like this:
|Best in class performance||$29|
|Potential incremental revenue||$4,400|
Once these numbers are calculated for all customers, you can make up a total worth matrix with grading parameters that looks something like this:
|Incremental Revenue Class||Percent Customers||Potential Incremental
You can then grade your customers by a combination of actual and potential revenue. Peck makes up five grades of customer as follows:
- AA = 55,54,53,52
- A = 51,45,44,43,42
- B = 41,35,34,33,32,31
- C = 25,24,23,22,21
- D = 15,14,13,12,11
The AA customers are those with the highest total revenue and highest potential gain. The A customers come next. These grades guide the organization in making decisions on the modules for regular monthly customer contacts.
What Is The Optimal Module Size For Customer Contact?
A module is the group of customers assigned to an account manager. If we assume that an inside account manager, working on the telephone, can accomplish 30 customer contacts on the average working day, with about 213 working days per year (after deducting weekends, holidays, and annual leave), then she can have 6,390 customer contacts per year. A typical inside account manager costs about $89,000 per year (including salary and infrastructure). At 6,390 contacts per year, that averages $14 per contact. If you want to contact the average customer 24 times per year, then the average investment per customer is $336. Checking this against average annual customer revenue, your Integrated Account Manager should cost you about 4% of annual revenue.
At 24 contacts per customer per year, and 6,390 contacts available from each account manager, then each manager should be able to handle about 266 accounts. In assigning these 266 accounts to managers, the old way was by geographic region. Modern telephone, email, and fax technology has made geography unnecessary as a segmentation system. It is possible to give each account manager an equal mix of customers of all five types: from AA to D, adding up to 266. Each manager, therefore, will have an equal chance of success. The differences in their performance will be easy to measure, since each has an equal group of customers to work with.
What To Look For In Hiring An Account Manager
Successful IAM account managers are salespersons who think like marketers. There are three factors that are used in most selection systems:
- Talent: critical skills and behavior necessary for the job.
- Experience and Education
- Cultural requirements or Chemistry
In many cases, companies make a mistake of hiring IAM personnel based on experience (which stands out in a resume). Success in this field is greatest, however, when a candidate has all three factors. In hiring, if one attribute is low, it should be experience, since that can be gained through on the job training.
How do you identify Talent and Culture during the interview process? Peck suggests a role playing exercise. The candidate is given some written background information on the company and its products, and on a particular customer. She is given thirty minutes to review the material. Then the interviewer (taking the role of the customer) uses the telephone to talk to the candidate. During the call, the interviewer rates the candidate’s:
- Questioning skills
- Listening skills
- Ability to apply information learned
- Ability to convey benefit to the customer
- Ability to move the customer to the next level
- Interpersonal tact and diplomacy
- Voice inflection and enthusiasm; style and tone
- Enunciation and correct use of language
- Ability to articulate thoughts
Providing Value To The Customer
The Integrated Account Manager is not an order taker. To be successful, she must provide value to the customer through her contacts. Peck provides a useful set of rules:
- Don’t contact a customer unless you think that the contact will be of value to the customer.
- Seek first to understand, and then to demonstrate that you have an understanding of the customer and his needs
- Do not attempt to sell prematurely
- Provide continuity in the relationship.
This last point is central to IAM. A good marketer wants a relationship of some duration with the customer. The customer is looking for a trusted, reliable, consistent and empathetic source for product and information.
What Is Customer Value?
How do you determine what customers want? Peck suggests holding customer workshops (similar to focus groups) in which eight or ten customers meet for three hours with company personnel to discuss their contacts with the company. The agenda involves:
- Discussion of valued contacts
- Discussion of negative contacts
- Definition of performance requirements
- Identification of specific valued contacts
- Rating of contact importance
- Media and frequency definition
These performance requirements developed in the workshop are used
- By account managers in planning their customer contacts
- As a training tool
- In development of printed communications with customers.
How To Measure Integrated Account Management Success
There are three critical measurements:
- The income statement
- Customer loyalty
- Account management productivity
Customer loyalty is defined as behavior, rather than satisfaction rates. “Increasing an overall customer satisfaction level is not a primary objective of an IAM program.” Instead, loyalty is determined by four very measurable factors:
- Repurchase or retention rates
- Product penetration. Second and third product purchases indicate that there is something more than coincidence in the relationships: trust and credibility.
- Dollar volume purchases
- Referrals. Customers who give you referrals typically have higher retention rates and higher lifetime value.
To insure that the IAM system is worth the investment, Peck suggests tactics:
- Assessing and qualifying the impact of IAM. A valuable method is to determine the percentage of customers likely to defect, and their average annual customer revenue. The potential loss from these customers is determined before the IAM program is set up. Once the system has been running for a few months, then a similar study is undertaken. If IAM works, the at-risk loss should be significantly reduced.
- Targeting loyalty segments. Customers are divided into: Secure customers, Complacent customers, At-risk customers and Defectors. Programs are devised to reach each of these segments with different tactics and varying amounts of effort.
- Identifying satisfiers that improve customer behavior. Examples of such satisfiers are: technical support, personal relationships, customer service, delivery notification, price, product knowledge. These satisfiers can be applied in varying amounts to each of the loyalty segments.
- Removing dissatisfiers. Examples are: lack of communication, delayed shipments, lack of sales rep contact, customer service, damaged product, lack of follow-up, pricing, product availability.
- Building an early warning system. You can’t fix everything at once. The segmenting and satisfier identification system enables you to triage your customer loyalty problems, devoting attention to where it is needed most, while you work longer term to fix all the identified problems.
This book is an essential tool for companies which want to set up an organized system to maximize sales and profits in the most cost effective way, that will guarantee long term customer retention.
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