February 2, 2010

Is Bigger Better?

By Henry Canaday

National Account Management (NAM), a popular way of handling a company’s biggest and best customers, puts special executives in charge of major accounts and usually offers price discounts and special services. Before adopting such a strategy, first examine your company’s reasons for trimming prices or boosting selling costs, even for your best buyers.

A national account program often “slides in by the back door,” according to Tom Tice, a principal with William M. Mercer. “It usually evolves. The VP of sales gets his job because he has sold the most business. He turns his accounts into house accounts. These finally become so large he has to find somebody to run them.”

So the overworked VP then creates a national account management system. “The VP pulls in senior salespeople,” Tice says, “and has them take the old house accounts over as national accounts in addition to their own accounts.”

But many small companies, which Tice reckons at $100-200 million in annual sales, “have no earthly reason to set up a national account program.” The sales VP or CEO already has an effective system for managing the two to three really critical accounts. “They just aren’t telling the sales force,” Tice notes. “If they are managing their house accounts effectively, they don’t need to change.”

“The real question is, do you need to segment your business to manage it better,” Tice emphasizes. “Ask yourself, are my large accounts effectively protected from competitors and growing at a satisfactory rate?”

Only if the answer is no, may NAM be worth the study, effort and expense to implement effectively. Even in this case, Tice stresses, NAM is only one option. Above all, do not try to substitute a reorganization of the sales effort for needed reforms in the basic business.

“Let’s start with manufacturing,” Tice explains. “You have to be the lowest-cost producer first, before you worry about account management. Only if a manufacturer has low costs can it afford to have competitive prices for its largest accounts.”

The basic point is simple, according to Tice. “For small companies, trim production and distribution costs first. Don’t work on the sales force until you have a competitive product.”

Small companies should also consider another tool for improving major account management. “Another option is to improve your Top-to-Top selling,” Tice argues. “Top-to-Top” means your CEO selling to the buyer’s CEO. But it needs careful controls to be effective and manageable. “The VP of sales has to tell the CEO how best to get involved,” he argues. “You have to structure the CEO’s selling activities tightly. For example, you don’t want your CEO in on the price negotiations.”

Also examine the type of industry of the selling firm, cautions Tice. “The more mature the industry, the more important segmentation becomes,” he notes. “In a mature industry, you must increase profits, pare your products down to what you can sell best, add value where you can and pick your customers carefully.” Each factor suits the NAM approach of segmenting your customers according to their needs and importance.

Conversely, he says, “the less mature your industry, the less you should segment accounts. In immature industries you are doing entrepreneurial selling. You are green-field prospecting.” Companies developing new products or new markets do not yet know who their best customers will be. They may not even know what their unit costs will be until they know the potential market’s true size. They usually need to expand rapidly before they start classifying customers.One kind of fast-growing industry, high-tech computer and communications, does classify its accounts early in the process.

“They focus on certain reseller groups,” Tice notes. “They may call it a key account or a national account.” While key accounts may be important customers, they are usually regional in scope, with national accounts falling into the nation-wide or even international category. But the biggest difference is complexity and depth, Tice says. “National accounts usually involve touching the customer many different ways.”

Many larger companies in mature industries do have a need for the NAM approach. When the selling company links its information system to its buyers, notes Tice, NAM becomes essential. Why is that so important? “Linked information requires service and coordination of the account,” he says. “That in turn requires relationships. And, let’s face it, information technology staff are usually not great relationship builders.”

So sales and service staff come together in a team to build relationships with the buying firm. “A program manager with new skill sets leads the team,” Tice notes. “Then the program manager becomes the NAM leader.”

So one decision – to link information systems – can lead to a change in selling. “Once you build the infrastructure, you’re committed,” Tice says. “Again, it’s evolutionary. One day, you wake up and you have a NAM system.”

There is another reason, frequent and hard-to-reject, for starting a national account program. As Tice puts it: “The customer asks for it.” The source of the request is usually straightforward, Tice explains. “The customer thinks that being a national account will give them price breaks.”

It may be hard to say no, but the selling firm had better be careful here, warns Tice. “I would always be glad to make it a national account, but without the price breaks. For example, can I give the customer more service? Can I give him breaks on transport costs for large volumes?”

In any case, a customer’s request for national account status should trigger very serious discussions on your relationship with the customer. “First I would want centralized buying from the customer,” Tice says. “I want some criteria up front, spelling out how they are going to work with us. I want it to be more efficient to sell to them, so we can cut costs or improve volume. Maybe my customer’s computer links into my distribution system can cut selling costs, for instance.”

National accounts should earn special price breaks only if they truly trim your total costs somehow. “I would also want to have single- or primary-supplier status,” Tice says. “I want to be their preferred vendor.”

By working with the account to find mutual gains, a national account relationship can benefit both buyer and seller. According to Tice, “You have got to go in with a series of qualitative and quantitative negotiation chips to see if you can make it work.”