1. Part II SALES FORCE ACTIVITIES Chapter 4: Account Relationship Management

2. AccountPurchasingProcessAccountPurchasingProcess Figure 4-1: Account Relationship Management Concepts TheBuyingCenterTheBuyingCenterBuildingAccountRelationshipsBuildingAccountRelationshipsAccountRelationshipBindersAccountRelationshipBinders Account Relationship Management Concepts

3. Implementation and Evaluation Implementation Value Added Role of Sales Force: Figure 4-2: The Typical Purchasing Process PurchaseDecisionPurchaseDecisionEvaluation of Options Evaluation Recognition of Needs Recognition 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. Support the purchase decision by showing customers how to install and use the product, replenish, and evaluate value.

4. (% of respondents) PURCHASING - Survey Results Yes55% 9%N.A. No16% Yes84% No36% (% of respondents) Do you track supplier performance? Do you single out certain suppliers as “preferred”?

5. PURCHASING - Survey Results Yes51% 9%N.A. No40% (% of respondents) Do you have multiple tiers for ranking suppliers?

6. Yes77% No23% PURCHASING - Survey Results (% of respondents) Have any suppliers attained and lost top-level status?

7. Traits of Top-Performing Suppliers (% of respondents) PURCHASING - Survey Results <5% 5% 7% 8% 12% 14% 28%.......................................... Others............................ Good Management................... Good Response/Flexibility.................... ISO 9000 Certification......................... Service............... On-Time Delivery Quality.......................................... Others............................ Good Management................... Good Response/Flexibility.................... ISO 9000 Certification......................... Service............... On-Time Delivery Quality

8. Tier Type of Supplier Nature of the Relationship 1In Traditional “arms length” relationship, usually established at an individual level over time. Standardized, non-strategic, products for which there are may qualified suppliers. 2Preferred Relationship centers on suppliers’ products and services, but there is a high level of familiarity and trust between the supplier and the customer. 3Extended The relationship typically involves a breadth 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. 4Partner 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. Figure 4-3: Tiering of Suppliers

9. Standard Questions in a Value Analysis Study Value Analysis – Focus: TOTAL COST 1.Can the item be eliminated? 2.If item not standard, can standard item be used? 3.If item standard, does it completely fit application or misfit? 4.Does item have greater capacity than required? 5.Can its weight be reduced? 6.Is there a similar item in inventory that can be substituted? 7.Are tolerances specified closer than necessary? 8.Is unnecessary machining performed on the item?

10. Standard Questions in a Value Analysis Study Value Analysis – Focus: (continued) 9.Are unnecessary fine finishes specified? 10.Is commercial quality specified? 11.Can item be manufactured cheaper in-house 12.If manufactured in-house can it be purchased cheaper? 13.Is item classified to obtain lowest shipping rate? 14.Can packaging costs be reduced? 15.Are suppliers asked for suggestions to reduce costs?

11. 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. Total Cost of Repetitively Used Items

12. 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.

13. 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.

14. Buying Center: The term buying center refers to all of the people formally or informally involved in the purchasing decision.

15. 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. MANUFACTURING Manufacturing is responsible for determining the feasibility and economic considerations of producing end products. RESEARCH AND DEVELOPMENT Is involved in the initial development of products and processes and set broad specifications for component and materials criteria, minimum end-product performance standards, and occasionally manufacturing techniques. GENERAL MANAGEMENT Top management is likely to be involved when the purchase situation is unusual for the firm or when the decision is likely to have major consequences on the firm’s operation. PURCHASING 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.

16. 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

17. 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

18. 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”

19. Advocate ROLE:  Helps guide the sale CHARACTERISTICS:  May be inside or outside of the buying organization  Furnishes and interprets information FOCUS:  Your success

20. 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.

21. 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.

22. Relationship Stage Description Key Selling Objectives AWARENESSRecognition that a supplier may be able to satisfy an important need. Gain customer’s attention Demonstrate how the product/service can satisfy a need EXPLORATIONA tentative, initial trial with limited commitments by both parities. This trail period may go on for an extended period of time. Gain initial acceptance. Build a successful relationship. EXPANSIONExpanding the rewards for each party in the relationship Get to know customers and their businesses better. Expand ways to help the customer. COMMITMENTThe commitment by both the buyer and seller to an exclusive relationship Interaction at levels between the buyer’s and seller’s organizations. Early supplier involvement in development process. Long-term focus to the relationship. DISSOLUTIONTotal disengagement from the relationship. This may occur at any point in the relationship. Look for warning signals. Attempt to reinitiate the relationship. Figure 4-4: Stages in a Buyer-Seller Relationship

23. Business Expansion Questions EXISTING USE What limits current operations? What makes them more difficult than they need to be? Which of these are most important? What do managers see as their worst problems? POSSIBLE NEEDS What do managers need to make their operations better? What do they want to make their life easier and more pleasant? POSSIBLE SOLUTIONS 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? DECISION CRITERIA In supporting any solution, what would the business and personal criteria be?

24. Thomas’s Five Conflict Management Approaches ASSERTIVENESS Confrontation Confrontation Compromise Compromise Avoidance Avoidance Accommodation Accommodation COOPERATION

25. Dissolution Stage: Warning Signals Missing information Uncertainty about information Uncontacted buying influence Customer personnel new to the job Reorganization

26. 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

27. 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? A “Reasonable” Salesperson

28. Considerations When Choosing a Partner POTENTIAL FOR IMPACT Is there some real value for both parties that can come out of partnering that could not be achieved from a traditional supplier relationship? COMMON VALUES 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. GOOD ENVIRONMENT FOR PARTNERING 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? CONSISTENCY WITH SUPPLIER’S GOALS Is a partnering relationship with this customer consistent with our own product and market strategy, and with our overall direction as a company?

29. Account Relationships Relationship Enhancers  Creating Value: Acceptable conduct and performance  Meeting Expectations: Measures of performance levels  Building Trust: Importance of trust

30. High Customer Value Low Figure 4-5: Customer Value Creation in the Purchasing Process Customer Value Creation in the Purchasing Process Recognition of Needs Evaluation of Alternatives Purchase Decision Implementation and Evaluation Relationships: ___ Enterprise ---- Consultative..... Transactional

31. Figure 4-6 Account Intelligence Market Intelligence: Which of the customer’s products are most important in terms of revenue and profit contribution? What markets do they serve, and which are the most important? Who are their major competitors? Financial Intelligence: When does the annual capital budgeting process begin? When does it end? Who initiates capital project requests? What hurdle rate is required to win approval? What is the projected capital spending for the year? Organizational Intelligence: What reporting relationships in each department influence purchasing decisions? What are the top business objectives each relevant department manager is expected to achieve in the current year?

32. Figure 4-6 Continued Operational Intelligence: What are the details of the process used by Operations to produce results (e.g., raw materials coming in, processing equipment, budget to produce finished goods, etc.)? Are there specific measures of performance for your products or services? Personnel Intelligence: Who are the people having a direct or indirect influence on buying decisions for your products? What are their formal responsibilities? How often have you met with them in the past year? What is your relationship with each person? Who are their friends and enemies with the account? Competitive Intelligence: Which of your competitors have an installed bas position in the account? What is the account share for each competitor? Which ones are likely to gain share?

33. Figure 4-7: Account Relationship Strategy and Relationship Binders Transactional Relationship Consultative Relationship Enterprise Relationship Create Value A good product that can be conveniently purchased. A solution to an important problem A supplier that will increase the share holder value of the organization. Meet expectations Buyer has a clear set of expectations as to the conduct of the relationship. Buyer knows a problem exists but is unsure of the solution of what will be involved in addressing the problem. Buyer’s expectations are strategic in nature, though the process for achieving strategic objectives may not be known. Build Trust A supplier would do what has been promised. A supplier will do what is necessary to solve the problem. A supplier will do everything possible to increase the buyer’s competitive advantage in the marketplace.

34. 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) Premium for emergency order (%)

35. 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. Accuracy of Salespeople’s Customer Perceptions

36. 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. The Importance of Trust Selected Research Findings

37. Trust Earning Components Sample Questions LIKEABLE  “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.” Earning Buyer Trust What is Most Important?

38. 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?