Ch04 - Account Relationship Management

Part II

SALES FORCE ACTIVITIES Chapter 4:

Account Relationship Management

The Key Aspects of Business-to-Business Relationships

Account Relationship Management Concepts

Account Purchasing Process

The Buying Center

Building Account Account Relationship Relationships Binders

Figure 4-1: Account Relationship Management Concepts

(1) The Purchasing Process

Recognition Evaluation of Needs of Options

Purchase Decision

Implementation and Evaluation

Value Added Role of Sales Force: Help customers recognize a need or problem and to define them in a new or different way.

Identify options, provide superior solutions and approaches and help overcome obstacles to acquisition

Make the purchasing process convenient, hassle-free and inexpensive.

Figure 4-2: The Typical Purchasing Process

Support the purchase decision by showing customers how to install and use the product, replenish, and evaluate value.

Evidence from the real world regarding account purchasing

PURCHASING - Survey Results Do you track supplier performance?

Do you single out certain suppliers as “preferred”? 9% N.A.

No 16% Yes 84%

(% of respondents)

No 36%

Yes 55%

(% of respondents)

PURCHASING - Survey Results Do you have multiple tiers for ranking suppliers? Yes 51%

No 40%

9% N.A.

(% of respondents)

PURCHASING - Survey Results Have any suppliers attained and lost top-level status?

No 23% Yes 77%

(% of respondents)

PURCHASING - Survey Results Traits of Top-Performing Suppliers (% of respondents)

<5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% . . Others 7%

. . . . . . . . . . . . . . . . . . . . . . . . . . . . Good

8% Management 12%

. . . . . . . . . . . . . . . . . . . Good

14% Response/Flexibility 28%

. . . . . . . . . . . . . . . . . . . . ISO 9000 Certification

0

5 10 . Service

. . . . . . .20 . . . . . . .25 . . . . . . 30 .... 15 . . . . . . . . . . . . . . . On-Time

Figure 4-3:

Tiering of Suppliers Tier

Type of Supplier

Nature of the Relationship

In



Traditional “arms length” relationship, usually established at an individual level over time. Standardized, non-strategic, products for which there are may qualified suppliers.

2

Preferred



3

Extended



Relationship centers on suppliers’ products and services, but there is a high level of familiarity and trust between the supplier and the The customer. relationship typically involves a breadth

4

Partner



1

of products and services and usually crosses numerous sites. Usually involves several collaborative processes – product design, inventory management, sales force training, etc. Supplier is viewed best in class. Supplier is viewed as key to the customer’s ongoing competitive position. The business relationship is rarely challenged and is treated as exclusive along some dimension, critical along other dimensions, and , in general, special.

Standard Questions in a Value Analysis Study Value Analysis – Focus: TOTAL COST 2. Can the item be eliminated? 3. If item not standard, can standard item be used? 4. If item standard, does it completely fit application or misfit? 5. Does item have greater capacity than required? 6. Can its weight be reduced? 7. Is there a similar item in inventory that can be substituted? 8. Are tolerances specified closer than necessary? 9. Is unnecessary machining performed on the item?

Standard Questions in a Value Analysis Study Value Analysis – Focus:

(continued)

2.

Are unnecessary fine finishes specified?

3.

Is commercial quality specified?

4.

Can item be manufactured cheaper in-house

5.

If manufactured in-house can it be purchased cheaper?

6.

Is item classified to obtain lowest shipping rate?

7.

Can packaging costs be reduced?

8.

Are suppliers asked for suggestions to reduce costs?

Total Cost of Repetitively Used Items INVOICE COST

The cost per item as listed on the invoice a customer receives.

POSSESSION COSTS

Costs associated with stockpiling items between delivery and use. These costs include the building and maintenance of storage areas, inventory control, insurance, taxes, pilferage, and interest charges on money borrowed to pay for inventory.

ACQUISITION COSTS

Costs associated with generating an order and processing a delivery. These costs include order origination, inter-viewing salespeople, expediting deliveries, receiving and editing invoices, and follow-up on late or inaccurate deliveries.

Some important points regarding the sale

Determine the Decision-Making Process 

Nothing is more important to driving an accurate selling strategy than understanding your client’s decision-making process.



Project teams typically have a well-defined evaluation process, but not a well-defined decision-making process.



In the law of algebraic democracy, some people’s votes count more than others. –

Know who gets a straw vote and who gets a real one.

Determine the Decision-Making Process 

A salesperson must understand how a decision will be reached even more clearly than the client does.



You must also understand the approval process once you’ve been chosen.



Analyze each stakeholder based on pain, preference, power, and the part he or she plays in the decision-making process.



Don’t resort to price or discounts to create a sense of urgency. –

In negotiation, power lies in alternatives, weakness in deadlines.

(2) The Buying Center

Buying Center Members MARKETING

When a purchasing decision has an effect on the marketability of a firm’s product, such as altering the product’s materials, packaging, or price.

MANUFACTURIN G

Manufacturing is responsible for determining the feasibility and economic considerations of producing end products. Is involved in the initial development of products and processes and set broad specifications for component and materials criteria, minimum endproduct performance standards, and occasionally manufacturing techniques. Top management is likely to be involved when the

RESEARCH AND DEVELOPMENT GENERAL MANAGEMENT PURCHASING

purchase situation is unusual for the firm or when the decision is likely to have major consequences on the firm’s operation. Purchasing agents are specialists who have negotiation expertise, knowledge of buying products, and close working relationships with suppliers. They tend to become most involved in the purchasing situation in the later stages of a “new buy” situation. Are generally the dominant decision makers in repetitive buying situations.

Economic Buying Influence ROLE:

Asks “Why” Gives final approval

CHARACTERISTICS:

Access to money Can release money Veto power

FOCUS:

Total organization Bottom line The Future

User Buying Influence ROLE:

To decide on how a purchase will affect job performance

CHARACTERISTICS:

Implementation oriented Use or supervise use of product or service

FOCUS: Tactical, not strategic The job to be performed

Technical Buying Influence ROLE:

To eliminate alternatives To recommend

CHARACTERISTICS:

Focuses on quantifiable aspects of product and service Gatekeeper Can only say “no,” not “yes”

FOCUS:

Product specifications Asks “What,” not “Why”

Advocate

ROLE:

Helps guide the sale

CHARACTERISTICS: May be inside or outside of the buying organization Furnishes and interprets information FOCUS:

Your success

Advocate:

Why Your “Winning” is a Personal “Win” PERSONAL

Wants you to win because they know you, they like you, and they’d like to see you be successful.

PROFESSIONAL Wins by doing their job better,

achieving their goals, and helping their companies meet objectives.

RECOGNITION

Wins by receiving recognition from their own organization.

NEGATIVE

Really wants someone else to lose.

Advocate:

Ways in Which an Advocate can Help 

Recommend selling strategies.



Build a groundswell of interest.



Refer you to other advocates.



Review your presentation.



Gain access to decision-makers.

(3) Building Account Relationships

Figure 4-4:

Stages in a Buyer-Seller Relationship

Relationshi p Stage

Description

Key Selling Objectives

Recognition that a supplier may be able to satisfy an important need.



A tentative, initial trial with limited commitments by both parities. This trail period may go on for an extended period of time. Expanding the rewards for each



Gain customer’s attention Demonstrate how the product/service can satisfy a need Gain initial acceptance.



Build a successful relationship.



Get to know customers and their businesses better. Expand ways to help the customer. at levels between Interaction

AWARENESS

EXPLORATIO N

EXPANSION

party in the relationship COMMITMENT The commitment by both the buyer and seller to an exclusive relationship



 



DISSOLUTION

Total disengagement from the relationship. This may occur at any point in the relationship.

  

the buyer’s and seller’s organizations. Early supplier involvement in development process. Long-term focus to the Look for warning signals. relationship. Attempt to reinitiate the relationship.

Business Expansion Questions 

What limits current operations?



What makes them more difficult than they need to be?



Which of these are most important?

 

What worst What do do managers managers see needastotheir make theirproblems? operations better?



What do they want to make their life easier and more pleasant?

POSSIBLE SOLUTION S



What does the client think might be possible?



Which do they favor?

POSSIBLE NEW USES



What new operations do they believe might be possible?



Which do they favor?



In supporting any solution, what would the business and personal criteria be?

EXISTING USE

POSSIBLE NEEDS

DECISION CRITERIA

Thomas’s

Five Conflict Management Approaches A S S E R T I V E N E S S

• Confrontatio n

• Confrontation • Compromise

•

• Accommodatio n

Avoidance

COOPERATION

A “Reasonable” Salesperson Fortkamp Construction had a major contract delayed due to equipment failure. With a deadline quickly approaching the company called Rogers, a salesperson for Acme Supply. They requested an immediate delivery of replacement supplies so that Fortkamp could meet its promised deadline. Eager to break into this new account, Rogers agreed to generous credit terms and to absorb air freight charges to get the equipment to the customer as quickly as possible. These concessions, however, reduced his company’s net profit of 20% to below 10%.

A “Reasonable” Salesperson When asked by his sales manager why the sale should be made at such a low profit margin, Rogers explained, “I felt I needed to be reasonable with this account. I wanted their business in the future. I was there when they needed help, the deal was struck quickly, and they’d remember and thank me later with new business. I think the concessions were justified.” How would you respond to Rogers if you were his sales manager?

Account Relationships Exploration Stage: Pricing Flexibility

Consider the following Salesforce Market Conditions:     

Demand is highly price elastic Product/service offering is complex A heterogeneous customer base Large number of product lines Products are perishable

Which of the following is the best alternative:

Account Relationships Exploration Stage: Pricing Flexibility

Alternative Management Systems  Low Pricing Authority:

Management approval required for all price discounts

 Medium Pricing Authority: A specific limit placed on discounting (e.g., 10% below list price)

 High Pricing Authority: Base commissions on gross margins to control price discounting

Account Relationships Pricing Flexibility: Research Results 

Highest gross margins



Highest sales growth



Highest return on assets

MEDIUM AUTHORITY



Highest sales/salesperson



Average return on assets

HIGH AUTHORITY



Lowest gross margins



Lowest sales growth



Lowest return on assets

LOW AUTHORITY

Considerations When Choosing a Partner POTENTIAL FOR IMPACT COMMON VALUES

GOOD ENVIRONMENT FOR PARTNERING CONSISTENCY WITH SUPPLIER’S GOALS





Is there some real value for both parties that can come out of partnering that could not be achieved from a traditional supplier relationship? Is there sufficient commonality of values? In particular, it is important that both companies be ethical and look at quality and the quality process similarly.





How does each party look upon the partnership long-term relationship versus profit on the sale, future oriented or present? Are there frequent interaction and transactions between the two companies? Is a partnering relationship with this customer consistent with our own product and market strategy, and with our overall direction as a company?

Dissolution Stage: Warning Signals     

Missing information Uncertainty about information Uncontacted buying influence Customer personnel new to the job Reorganization

(4) Account Relationship Binders

Account Relationships Relationship Enhancers  Creating Value: Acceptable conduct and performance

 Meeting Expectations: Measures of performance levels

 Building Trust: Importance of trust

Customer Value Creation in the Purchasing Process High Custom er Value

Low

Recognition of Needs

Evaluation of Alternatives

Purchas e Decision

Implementati on and Evaluation

Figure 4-5: Customer Value Creation in the Purchasing Process

Accuracy of Salespeople’s Customer Perceptions Measures of Performance Levels   



 



Number of sales calls per year Advance notice on price change (days) Average lead time for custom products (days) Acceptable delay for custom products (days) Acceptable delay for stock items (days) Minimum acceptable fill rate for stock items (%) Hold inventory for project delays (days)

Accuracy of Salespeople’s Customer Perceptions Results 

Salespeople’s estimates of expected performance levels are not very accurate (average of 50% error).



The performance of individual salespeople was directly related to the accuracy of their estimates.



Telemarketers were more accurate in their estimates of performance expectations than outside salespeople.



Salesperson age and industry experience level were inversely related to performance expectation accuracy.



The amount of sales training a salesperson received was directly related to their estimate accuracy.

The Importance of Trust Selected Research Findings 





Research has established that trust facilitates cooperation. A recent experiment demonstrated that when a seller was expected to be more trustworthy, there was also a higher level of buyer-seller cooperation.¹ Once a salesperson has gained customer trust, the role of the salesperson changes to less emphasis on sales and more on service.² Once trust is gained, the customer: – – – – –

Becomes more cooperative; Becomes more receptive to suggestions; Allows more time for sales presentations; Allows more access to other people in the organization; and Informs the salesperson about future buying needs.²

¹Paul Schurr and Julie Ozanne (1985), “Influences on Exchange Processes: Buyers’ Perceptions of a Seller’s Trustworthiness and Bargaining Toughness,” Journal of Consumer Research,11 (March), 939-953. ²John Swan and Frederick Trawick,Jr. (1987), “Building Customer Trust in the Industrial Salesperson: Process and Outcomes,” Advances in Business Marketing, 2, 81-113.

Earning Buyer Trust What is Most Important? Trust Earning Components LIKEABLE

Sample Questions  “The manufacturers’ rep is an individual who people enjoy knowing.”

COMPETENT

 “The manufacturers’ rep knows what he/she is talking about.”

DEPENDABLE

 “The manufacturers’ rep is very dependable.”

CUSTOMER ORIENTED

 “The manufacturers’ rep puts the buyer’s interest ahead of his/her own.”

HONEST

 “The manufacturers’ rep is one of the most honest persons in the business.”

Account Relationships Relationship Enhancers Earning Buyers Trust Trust Earning Components

Sales People

Buyers

LIKEABLE

5

5

COMPETENT

2

2

DEPENDABLE

1

1

CUSTOMER ORIENTED

3

3

HONEST

4

4

Source: Hawes, Mast & Swan (1989) JPS&SM: 193 Salespeople; 173 Purchasing Agents

A “Valued” Customer Jacobs is about to close the sale when the buyer mentions, “There’s been $5,500 worth of breakage because of your lousy packaging, but I’m willing to split it with you if you give the word right now. I’ve another appointment beginning in a few minutes.” Jacobs suspects that the breakage was the fault of the buyer’s handling equipment, but cannot prove it. Thinking that splitting the difference is always a reasonable way out, Jacobs decides to agree with the buyer and to get the contract signed. Do you agree with Jacobs’ reasoning? What would you advise Jacobs to have done, if you were her sales manager?