This is the second part of the two-post series on selecting and categorizing key customers. In the first post, I covered why it is important to classify your accounts and which criteria you can use to differentiate them.
Today goal is categorizing key customers and build a two-by-two matrix to visualize the different types of customers. If you’ve had difficulty identifying and selecting your key distributors, this follow up guide is what you need.
Categorizing key customers
To successfully categorize key customers, you need to first build a two-by-two matrix that captures these two views:
- Your view of the customers based on the overall score of key account attractiveness, as described in this previous post
- The customer’s view of you expressed in terms of your attractiveness as a supplier
Understanding your attractiveness as a supplier
Your attractiveness as a supplier is the distributor’s view of your company relative to the other suppliers. Since this is the customer’s point of view, it is important to respect it and let the distributor decide the criteria, their importance, and how your company scores.
However, to start off your assessment of key customers you can “guess” what is important for them.
You should identify the criteria that each customer would consider meaningful and their relative weight. To be accurate, consider the distributor’s strategy, its market, and its objectives.
For example, some criteria could be market demand, selling cycle, reliable supply, payment flexibility, marketing support, sales force training, end-user marketing, consignment stocking, technical support, and local marketing cost sharing, etc.
After deciding the criteria, estimate how they would rate your company against each criterion based (as much as you can) on their perception.
The results of this estimation exercise should be verified with each individual customer asking directly their opinion regarding the assumptions you made.
Know that individual key customers will have different criteria with different relative importance. This is normal and is the essence of Key Account Management which incorporates the understanding that customers have different criteria for suppliers.
Building the Key Account portfolio matrix
Once you have the results for each customer of the key account attractiveness and the results of your attractiveness as the supplier you just need to plot the data in a matrix as shown below.
I used the BCG matrix as a base for modifying the data on the axis. For the vertical axis- the key account attractiveness, and for the horizontal axis- the supplier attractiveness, as expressed by the customer.
The size of the bubble can be used to represent the volume of the current business you have with the distributor.
The matrix allows you to visualize different groups of customers that require and respond to different strategies.
Question mark (High/Low)
These customers are possible future strategic accounts. They do not consider your company as a key supplier but you consider them interesting. You should investigate the reasons for this misalignment and invest in the relationship to change the position accordingly. A question mark distributor could be someone who doesn’t know how to capitalize on your products because they need commercial and communication support.
Star (High/High)
These customers are very important for your company. These are the key strategic accounts. You need to continue investing in the relationship to develop mutual value and expand the commercial opportunity. The most important and innovative project should be developed with these distributors. These distributors are already successful but still have potential and are keen to develop joint initiatives for mutual success.
Cash Cow (Low/High)
Often these customers were your strategic customers in the past. The relationship is good but the future is not so bright. Most of the time the size of these customers is relevant therefore you need to treat them well. At the same time, you need to manage costs and avoid investing too much resources in these relationships. A common mistake is to invest too much in these customers who are in a mature phase of the life cycle as they have a lower potential for growth.
Dog (Low/Low)
These customers do not find you appealing and consider you a secondary supplier. They ask for discounts and try to negotiate everything. If the size of the business is relevant to your company and you need the volume they can provide, you should manage them while keeping an eye on costs. Managing the customers in this position is straightforward regarding investments, pricing, and innovative strategies.
Key takeaways
The process of key customer selection is not as simple as making a list of the biggest accounts. Categorizing your key customers needs to be carried out methodically and involves a cross-functional team. The process should be objective and informed and as a supplier, it must include the view of the customer of your company.
The effort to build a Key account portfolio cannot be overestimated. This is because it provides better views and actionable insights you can use to manage the relationship with your distributors and make decisions.
How do you categorize your customers? Do you use a list? 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.