We've all been faced with those trying accounts: extraordinary service demands, minimal follow-on business, sometimes even a twist of rudeness, little if any concern for suppliers and an expectation of buying quality products and services--all for a price that no company can afford to provide profitably.
Many businesses, seemingly up against the wall to meet these buyer demands or lose the account, have caved in for the sake of revenue.
We have all been well schooled in servicing all accounts equally. News flash: Our teachers were only partly right. All accounts are important; however, our servicing models cannot be the same for all accounts. It is now time to refocus our efforts, priorities and expectations on our approach to account servicing.
The 80/20 Rule?
During some recent research and analysis, one of The Chapman Group's accounts discovered that while they were busy servicing all accounts equally, their business revenue base and sources of profit had dramatically shifted. Where once they could point to 70 to 80 percent of their revenue coming from 20 to 30 percent of their accounts (the old 80/20 rule, or so they assumed), financial analysis with all account servicing costs accounted for now show a much different profit picture.
Less than 15 percent of existing accounts were generating greater than 90 percent of their margin (a new 90/10 profitability model, versus the old 80/20). Conversely, the other 80 to 90 percent of accounts were now only representing approximately 10 percent of profit dollars.
With a business world shaped by years of mergers, acquisitions, consolidations, buying groups and buying exchanges, this shift should have been expected. It is time to change old models and servicing practices.
Servicing, Not Funding
Being "account-centric" is the correct business model, but account-centric means servicing clients, not funding them. There is a distinct difference. Servicing means providing the products and services (human and technological) commensurate with account needs and expectations, all for a fair and profitable price. Funding means providing those same products and services (human and technological) at below costs, an inevitable "out-of-business" practice. Yet many times, this represents the model toward which accounts drive their suppliers.
All supplier-servicing models have a cost-base associated with them. Suppliers must implement the appropriate servicing solutions while bearing in mind two important principles:
When the cost-of-servicing exceeds gains in margin, it is the wrong servicing model, but not necessarily a bad account.
Accounts need to be given servicing choices. Suppliers need to develop multiple servicing models that allow accounts to choose the servicing option that best aligns with their needs, expectations and business practices.
Customers vs. Accounts
For many years, in many industries, terms are sometimes used so loosely that their meaning becomes unclear, inaccurate, ineffective or sometimes just lost. An example of this is the word customer. Throughout the business world, specifically in B2B businesses, customer is used interchangeably or synonymously to mean a large account, a potential account, an account that we are losing, a specific person within an account or even all accounts in a supplier's portfolio. The impact of the generic meaning and use of the word customer can even be realized in the acronym CRM, Customer Relationship Management.
Does this acronym infer that all accounts are customers? Are those accounts who provide none, some or significant revenue and profit all customers? Do they all have the same value? Do they all need similar or different management and servicing models? Do we differentiate? How do we differentiate?
We do know that all accounts in business are different. In many situations we need to manage the non-customer relationships differently, those not yet providing sales revenue for a supplier's goods and services, to spawn new "revenue-generating" account relationships. We also know that some customer relationships are more valuable to our organization, and we need to service them accordingly.
Additionally, in the new "e" world, true customer relationships are not always desired or practical. That's not to say that all users of the acronym CRM are in error. We support the implementation of a unified relationship management process between an account and a supplier, and in many B2C environments the term customers is very appropriate. However, it is now necessary to create a call-to-action for a next generation of CRM complete with more clarity, specificity, understanding and change in our approach to differentiating between types of accounts (buyers, customers and clients) based on a set of predetermined, yet flexible business criteria.
One thing is certain: All businesses are someone's accounts.
Clients, Customers and Buyers
Over the past 30 years, the common denominator across all businesses, most specifically in the B2B arena, is the term account. All references to selling, servicing and relationship management should be centered on that term. An account may be one person; an account may also be an enterprise organization of many thousand workers. Accounts may or may not be customers, however they will always be accounts--and yes, users of some organization's similar products and services. Therefore, we at the Chapman Group recommend that our clients in the B2B business space start thinking about Account Relationship Servicing (ARS).
Within ARS, accounts are segmented into three categories:
• Client Accounts
• Customer Accounts
• Buyer Accounts
Here's a brief look at these account segmentations.
Clients collaborate with the organization on attaining mutual goals of profitability. They appreciate support, offer profitable revenue on a consistent basis and are reasonable in their expectations of services for prices paid. They embrace client teams and expand relationships between both organizations. They are willing to buy-off and embrace agreed upon "economic value" delivery models.
Customers many times act and look like clients, with one significant exception: They want most goods and services for lower than market prices. Customers are very costly to service. They must be transitioned to clients or buyers.
Buyers emphasize and focus on price. They primarily prefer to live in a "commodity-based" environment. Buyers are tasked with acquiring quantities for "best" prices. Value, relationships and services seldom offset significant pricing differentials in this account segment.
Note: Many times individuals within accounts reflect these behaviors and practices. The sum of these individuals' practices helps to determine the specific account type. Extensive account knowledge needs to be gained and evaluated prior to any typing of an account. Many times diverse account behaviors and practices are prevalent within a single account. This requires adaptation within your overall account servicing practice to meet these "inner" account expectations and requirements.
We need to establish and administer this differentiation into our account servicing practices. This suggests that many suppliers will now have three different, yet integrated, servicing approaches for accounts that offer them different levels of revenue and profitability: a client account approach, a customer account approach and a buyer account approach. Only through this type of differentiation can servicing profitability and account servicing expectations (supplier and account) be met. The good news is that accounts are driving this evolution. They are also experiencing similar issues and needs for segmentation within their own account portfolio.
More good news: Technology has matured to the point of being able to support these innovative servicing approaches. Web-based technologies have enabled accounts to access delivery information, collaborate in real-time with customer support centers to solve issues and in some situations even price their own purchases by product type, quantity and pricing levels while receiving an immediate ship date online.
The following summarizes recommended servicing practices for client, customer, and buyer accounts:
Account Model: Client
Recommended Servicing Practice: In-depth, collaborative cross-functional teams partnering with extensive network of client contacts able to provide a breadth of services based on return on services investment.
Account Model: Customer
Recommended Servicing Practice: streamlined cross-functional team aligning with only select customer requirements and expectations. Services are cost-sensitive and based on long-term profitability projection.
Account Model: Buyer
Recommended Servicing Practice: Customer service; e-servicing solutions, mostly indirect services; and technology-based support due to current and projected levels of profitability.
The Chapman Group has assisted organizations through its proprietary account management "best practice," strategic Mega Account Resource Teams (SMARTS), which integrate process, methodology and technology into one client-servicing practice. SMARTS align client teams and supplier teams (client-centric and cross-functional) into one unified and collaborative workgroup. It enables clients and suppliers to take a proactive approach to achieving mutual visions, missions and business goals (that is, profitability and new marketplace gains).
It is also important to understand the account profiles and appropriate strategies in order to optimize profitability:
• Client accounts offer long-term upside. Use team-based servicing, relationship networking and collaboration on joint profit-gaining initiatives to promote a sharing of vision and mission.
• Customer accounts are very costly. Transition them into client or buyer accounts.
• Buyer accounts. Utilize technology gateways.
Total Costs of Servicing
One of your most challenging initiatives will be to lock-down on your Total Cost of Servicing (TCS). This calculation is often difficult since it requires assimilation of internal and external costing numbers that have traditionally not been accurately tracked. The components of this calculation include the following:
• Salaries, commissions, bonuses and the like for personnel associated with servicing a specific account (account-specific activity-based costing process required)
• All expenses; travel, lodging, meals, entertainment, product (installation/evaluation), technology (communication systems)
• Employee benefits and other reward costs for all team members
• Specific training expenses (employee or account)
• Senior management, marketing and corporate overhead factors
Economic Value Proposition
Businesses have become bottom-line practitioners. The era of social values--the three-martini lunch, tickets to ball games, golf outings and meetings filled with many hours of family chatter--have all taken a second position to delivering an Economic Value Proposition (EVP). EVP is the formula for optimizing account relationships: When X is economic value delivered (economical gains from products and services provided), and Y is all account costs (direct and indirect) of goods and services purchased, then X minus Y equals EVP (the supplier's economic value proposition).
It is recommended that a supplier collaborate with its account and reach an agreement on the criteria for EVP delivered, and the exact EVP formula that the account agrees applies to its business model.
Therefore, all account models (clients, customers and buyers) now require their suppliers to deliver economic value. It is the responsibility of a supplier to develop an EVP process and model that their accounts accept and buy in to for validation purposes.
EVP is also the mechanism for maintaining clients for the long term and for transitioning customers to clients. And EVP is the mechanism for valuable differentiation within a commodity-buying arena. It is strongly recommended that teams support clients. The main premise for this account servicing practice is that only through diverse cross-functional teams can suppliers create, deliver and validate the necessary EVP to maintain and justify long-term client relationships.
What About CRM?
Customer Relationship Management is the springboard for migrating to a more finite Account Relationship Servicing (ARS) practice for the B2B marketplace. CRM embeds the culture, systems and processes to position an organization to become "Best-In-Class" at account relationship servicing. ARS is the next generation of CRM for B2B businesses.
ARS aligns the proper servicing practice to the account's business practice model, and thus ensuring realistic and accurate long-term return on account investment, thus profitability. Based on this new "by unique account" segment-servicing model, organizations can now build service processes and teams that align with profit expectations and provide service according to profit expectations. This new business servicing evolution is required in the new-world economy.
In the beginning, we discussed how one account was immersed in challenges associated with their business transformation because of their new profit mix from different account segments. They, as others, are now finding success through focusing on aligning services with account value. Their journey has just begun, however they now have defined process and methodology to meet their challenges. They are now collaborating with their accounts, one team, one vision and one mission, all united by one goal: long-term mutual profitability and success.