Key account selection is the first step of key account management. In this post and the next one, I will share useful ideas for medical device suppliers needing to implement the key account management strategic approach to their distributors.
Even today, some medical device companies do not classify their accounts or use only very basic classifications. A common way to select customers is by listing them according to the business generated and classifying them as customers A, B, and C. Although better than nothing this key account selection method is very elemental and has few disadvantages.
The approach described in this post enables medical companies to build a better view of their distributors, get actionable insights, and make informed decisions. Compared to a customer list in which the customers are classified only considering the current sales, this approach is much more realistic because it contemplates several dimensions.
Criteria for selecting customers
First of all, let me clarify that when using your criteria for key account selection you should identify the most valuable customers in terms of potential and not just in terms of current results.
The current size and the profit generated are important but considering only these elements will put too many resources into customers in a mature stage of the relationship. This way of selecting puts your company at risk of missing growing opportunities.
The goal of the selection is to identify the customers that have the potential to help your company achieve its strategic plan.
Selection criteria should be chosen and their importance weighted by a cross-functional team which should include members of the senior management. The senior management involvement is fundamental to ensure that the criteria are aligned with the company strategy. The score for each criterion should be done by people who know the customer.
You should work with three to five account selection criteria that allow you to have a set of balanced criteria that reflect the attractiveness of the distributor with a 2- or 3-year timeframe.
The criteria for the selection belong to these three main categories:
Customer outcomes
These elements are normally hard and require quantitative data. This includes revenues, purchases, margin, contribution, and profit generated by the customer.
Belonging to this category, there are also factors related to the customer that are not modifiable by you, such as the customer size in terms of people, the total turnover of its business, and the market’s growth. It also includes the number of its suppliers, the market share, complementary products, reputation and image, value-added marketing strategy, KOL network, market penetration, market coverage, cost to serve, etc.
Customer-Supplier alignment
These criteria are a measure of the alignment of the strategy between the supplier and the distributor. Some criteria in this category are access to new segments, cross-sell opportunities and pricing policies.
For example, if your focus is to expand the use of your product in a specialty and your distributor has the same commercial strategy the score in this criterion will be higher.
Conversely, if you want to launch a new product which is an implantable device and your distributor doesn’t have experience with this type of product the score will be lower.
Customer characteristics
These criteria reflect the relationship with the customer. These elements are softer compared to the previous categories but can be quantitatively evaluated.
For example, it considers factors like how the customer may behave in the relationship e.g. the win-win approach or the win-lose.
Other examples are a cultural fit, decision-making process, attitude to the relationship, willingness to partner, risk sharing, attitude toward innovation, information exchange, solidarity, planning behavior, ease of doing business, and value sharing.
Customer characteristics are also specific elements of the customer that are considered important for your company such as “development partner”, “subject expert partner” and “market leader”. These criteria are useful but should be applied with caution because they can easily be used to include unprofitable customers.
Scoring selection criteria
Once the 3 to 5 criteria have been selected, the cross-functional team should define for each criterion which metric should be used to assess each customer.
Moreover, to select the metric the team must define the relative importance of each criterion
For example, if the criterion is the market potential of the distributor, the metric used to assess could be the total market size of its territory. Otherwise, if the criterion is profitability, the metric could be the total margin generated in one year.
The cross-functional team should assign weights from 1 to 10 to the key account selection criteria. Then every customer should be evaluated against them to assess the attractiveness as a potential key account. The total score is the customer’s overall attractiveness score.
Conclusion
Measuring your distributors against your key account selection criteria will give you evidence of their potential not only today but also in the medium term.
More so, rating customers allows you to compare distributors with different profiles. A distributor could have a very good score on revenues, but score lower in attitude to the relationship.
Conversely, another distributor could be smaller but better to work with and the overall score for both distributors may turn out similar. The value for the supplier generated by each distributor is similar to what the overall score should show.
Defining the relative attractiveness scores of your key accounts is only the first part of the process; the next step is considering their view, this will be the topic of the next post.
Which criteria do you think are the most useful for your company? Share your thoughts in the section below, and if you like the content of this blog, don’t forget to subscribe or connect on LinkedIn.