Are your biggest accounts deserving of all the extra time, special effort, added concessions, and complimentary support you provide?
Possibly so, but probably not.
My experience shows that companies that segment their most important (strategic) customers based only on volume are not receiving the benefit they believe they are. Often, many of these very big accounts are their least profitable customers* when all the true costs are added in, such as priority access to your top personnel, special volume discounts, immediate response to any issues or questions, no penalty late payments, and especially all the days and weeks of deeply discounted or “complimentary” services and support and consulting.
Investigate Before You Designate
Avoid this massive marketing mistake by considering five other factors besides size before calling an account “strategic.”
All six factors are listed below in The Strategic Account Criteria Screen, a simple, straightforward tool that helps you make sure you are investing your limited resources where you have the potential for the greatest return today and tomorrow. All six criterion should be considered in analyzing an account. Rate your customers on a scale of 1 to 5, with 1 being those that have the least potential and 5 being those with the greatest potential to impact your business.
The Strategic Account Criteria Screen
1. Importance: They see our type of offerings and capabilities as critical to their success. The more important an account views your offerings and capabilities, the more time and energy they will invest. Does this account view your type of offerings and capabilities as vital to their success? If so, this account is at least a 4, and probably a 5, on the criteria screen. If your offerings and capabilities are seen as nice to have but not important to their big picture, the appropriate score is probably a 1 or a 2.
2. Attitude: They value a business partner relationship. Every organization has an attitude or philosophy as to how they view supplier relationships. Does this account value a business partner? If you strongly agree, this account scores a 5. Does this account see suppliers as replaceable vendors? A score of 1 or 2 is probably appropriate.
3. Credibility: They possess a strong brand in the marketplace. Having accounts with strong brands as customers makes it easier to land other important accounts. How credible is this account in the marketplace? If seen as the anchor store of the shopping mall, it is a 4 or 5. If it’s seen as just another pretzel booth in the food court, it is probably a 1.
4. Potential: We have the possibility of big, long-term business growth. If things go well, what is the long-term business you anticipate from dealing with this account? Here is where size does matter. Don’t eliminate medium-size or even small organizations that have huge potential. Has the account’s growth been flat and its outlook dim? Then it is probably a 1. Has its growth been exponential in a high trajectory segment? Sounds like a 5 here.
5. Innovation: We can learn from them. Accounts strong on innovation push their suppliers to think and act differently, often speeding mutual success. What can you learn from this account? Does this account experiment with the offerings of its suppliers, often finding different and new applications? The score should probably be a 4 or a 5. Is the account just another off-the-shelf, business-as-usual type of organization? It probably deserves a 1.
6. Cultural Fit: Our organizations share common norms and ways of thinking. Attempts at relationship-building between organizations that possess different cultures are more prone to flounder than flourish. When cultures align, there is an opportunity to shine. When cultures oppose, the progress slows. How closely do you share common norms and ways of thinking with the account? If high, a 4 or 5. If low, a 1 or 2.
Quantify Before You Qualify
1. Determine (or at least estimate) your true cost of doing business with large accounts. You may be surprised when you add in all the “extras.”
2. Put your existing important accounts through The Strategic Account Criteria Screen. Looking at your findings, you will probably want to adjust your investment model.
3. Use The Strategic Account Criteria Screen to qualify all potential accounts. You may find dropping efforts from very large but low-scoring accounts makes great business sense. Even better, recommend these accounts to your competitors–let them waste their money on “nags” while you pursue “race horses.”
There are a lot of big dogs out there, but not all of them hunt. Use The Strategic Account Criteria Screen to choose the picks of the litter.
*Many years ago a CEO asked me to help him determine why profitability was declining while sales volume was growing 15% each year. The analysis showed that when all the costs were figured in, he was losing money on his three biggest accounts that represented 45% of his revenues. Yikes!