Key Account Management (KAM): How to Retain and Grow Your Largest Customers

What key account management is, and what it is not

Malcolm McDonald of Cranfield School of Management argues that many companies’ core mistake is treating key account management as “selling with knobs on”. At heart it is about dealing profitably with big, powerful customers, and those customers do not like being sold to. ^[1]

Key account management should therefore be treated as a different business model that needs a clear strategy for competitive advantage, not as a sales add-on. ^[6] Its fundamental concept is alignment between supplier and customer: collaboration fails where there is mistrust or conflicting strategies, and companies that treat KAM as just another sales initiative often slip back into old practices. ^[2]

How do you select your key accounts?

Key customers were traditionally chosen by current volume, in lists such as the “top 100”. The more recent approach is to narrow the list and view key customers as a portfolio, assessed with a matrix that combines customer attractiveness with the supplier’s business strength, taking a view of potential over three years or more rather than past performance. ^[2]

Keeping the list short is not a detail. Woodburn reports research in banking that found that beyond about 70 key customers, firms tend to offer a standard “premium group” package rather than genuinely tailored treatment. ^[2] The portfolio also needs an owner with the authority to trade off competing customer needs. ^[2]

Woodburn distinguishes three levels of management: the whole portfolio, the individual account and the projects within it, and observes that portfolio-level management is rarely in operation, while project-level management is normally adequate. ^[2] If your organisation delivers projects well but never reviews the portfolio, start there. Market mapping also helps show where a key account approach fits and where it does not. ^[2]

Each category needs a different direction

McDonald warns that trying to “delight” customers indiscriminately is one of the quickest routes to bankruptcy, because excessive generosity destroys profit. The alternative is to classify accounts by their potential to grow the supplier’s profits over three years and the supplier’s competitive strength with them, and then set objectives and allocate scarce resources on that basis. ^[1]

Some accounts are managed for net free cash flow, some for net present value, and others are invested in to build future advantage. ^[1] In practice, write against each account on the list its direction, the level of resources allocated to it and what you expect from it.

In the Gulf, many large accounts are government or semi-government bodies. Here each country’s procurement rules, and the body’s own regulations, govern how contracting and contact take place; deepening the relationship means understanding the body’s objectives and improving delivery, not working around competition rules. Check the rules that apply in each country separately.

Relationship stages: should relationships always get closer?

Ryals and Davies use McDonald’s typology of relationship stages: exploratory, basic, co-operative, interdependent and integrated. In a basic relationship strategic intent is low on both sides, and contact runs between a single key account manager and a single purchaser; in an interdependent relationship strategic intent is high on both sides. ^[3]

The same study makes two cautions: relationships do not move in one fixed direction and can step back to a simpler stage without ending, and closer, more sophisticated relationships may not be appropriate in certain circumstances. ^[3] The study also found that supplier and customer often disagree about what type of relationship they have. ^[3] So do not make “partnership” the goal for every account, and check how the customer sees the relationship before planning to deepen it.

In long-term interdependent relationships the seller is the preferred supplier, and a case study by Ryals and Humphries concluded that trust and reliability are the most important factor, alongside adaptability and co-operation. ^[4] They therefore suggest the key account manager concentrates on process development and shared supply chain issues to build that trust. ^[4]

The key account manager and the team

McDonald argues that key account managers should be trained to general management level, with a thorough understanding of the customer’s finance, processes, organisation and culture, and should analyse the customer’s business to build solutions that create advantage for the customer rather than merely help it avoid disadvantage. ^[1]

They do not work alone. Supporting teams are essential, even though members do not report to the account manager and may give the account only a few days a month. ^[6] The key account manager handles communication between and within the two firms, and senior support is not enough unless operational staff are also on board. ^[4]

The reason is that the promise the account manager makes is delivered by other functions. When communication between sales and marketing on one side and operations on the other breaks down, it is the customer, not the supplier, who knows what was actually delivered. ^[2] Leaders in finance, operations and HR also need to understand and support key account management, because it extends to people, structure, processes, finance, data and culture, not just the account manager. ^[6]

The key account plan: recurring mistakes

Successful key account management is marked by a deeper understanding of the customer’s markets, multi-year strategic business plans and relationships run by teams rather than individuals. ^[2] Yet account plans are poorly implemented in many organisations, with common pitfalls including: ^[5]

• A plan written by the account manager alone and seen as theirs.
• A plan written once and never reviewed.
• A short-term, transactional plan.
• A plan about the supplier that shows little understanding of the customer.
• A plan kept private rather than shared.
• Filling in templates instead of thinking strategically.

A good plan is strategic and forward-looking, puts the customer at its centre, and is kept live and up to date. ^[5]

Hypothetical example: from supplier to preferred partner

An industrial spare parts supplier has dealt with a large utility company for years through one account manager and one purchaser. The supplier classes the account as “strategic” because the customer’s expansion plans for the next three years are substantial and the supplier’s position with it is strong.

The supplier starts by studying the customer’s operating indicators and finds that its main problem is unplanned downtime, not the price of parts. It forms a team including an applications engineer and a logistics lead, and proposes a joint plan to supply critical parts at a defined service level, reviewed every quarter. The conversation shifts from discounts to availability and performance.

How to start without repeating others’ mistakes

Mark Davies of Cranfield lists common mistakes in implementing key account management, including having no strategy, under-investing in a change that takes years, trying to do everything at once instead of three or four priorities, and having no board-level sponsor. ^[6] He also warns against pushing products instead of co-creating value with carefully chosen customers on the basis of trust and long-term partnership, and against buying off-the-shelf training that rarely fits the organisation’s needs, since best practice has to be tailored to each organisation. ^[6]

One of the most serious is the tension between quarterly sales results and key account results that take years. Progress should therefore be tracked with milestone indicators such as a balanced scorecard, and quick wins built with a few accounts to convince leadership that the investment pays off. ^[6]

Conclusion

Key account management is a strategic decision before it is a sales skill. Choose a short list by future potential, set a direction for each account, build a team and a live plan with the customer, and measure progress with the patience a relationship built on trust requires.