The Future of KAM and the Origami Model

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The Future of KAM and the Origami Model

What is KAM?

Sale is an overarching process across all industries. KAM or Key Account Management is specific to B2B companies with multiple offerings and long-term repetitive engagement. KAM requires a thorough understanding of the customer’s domain, situation, and challenge before crafting a solution. In sales, one would be offering an existing product line.

Key account management is how an organization plans and manages a mutually beneficial relationship with its most important customers. Key accounts are essential to an organization’s sustained, long-term growth. They require a substantial investment of time and resources. Salespeople must develop an effective strategy and plan for serving and growing their strategic accounts.

KAM Trends: Emerging Vectors in Retail

Trends have been shaking up the retail sector for some time now. According to McKinsey & Company, one such trend is structural changes in channels, embodied by the growth in hard-discount formats (e.g., Amazon) and e-commerce. This trend is causing retailers to lower their prices and reduce their gross margins. In Western Europe, the average retail gross profit margin is five percentage points lower than in the United States. E-commerce, which enables price transparency, has made these pressures worse. It’s therefore not surprising that retailers have been trying to protect their dwindling margins by negotiating more aggressively. Margin pressure is prompting more retailers to offer private label products, often at the expense of the biggest consumer brands. Online retailers and discounters represent new types of customers in the CPG industry. These customers’ strategies, operations, and partnerships differ from traditional retail stores, requiring significant changes in how CPG companies serve and handle their accounts.

The second trend is that the top FMCG brands are not contributing significantly to category growth anymore. The largest manufacturers account for 45 percent of sales but just three percent of the food and beverage industry growth. Growth today mainly comes from small manufacturers and private labels, which puts large fast moving companies at a disadvantage when negotiating with retailers.

Another trend is the advent of Big Data and Advanced Analytics in Retail. Most retailers can now gather and analyze data from consumers who use loyalty cards or shop online, thus diminishing the value FMCG manufacturers provide to retailers. Amazon employs more than 1000 prominent data professionals. Traditional retailers have made significant data investments as well. The top 10 US retailers now have an estimated average of about 70 prominent data analysts on their staff.

The overall effect of the trends described above is that the retailer-manufacturer relationship has become more challenging and complex. Retailers demand more significant service levels from suppliers and flexibly use their buying power to achieve these goals. In addition, for example, as mentioned, more than seventy senior leaders at the top 10 US retailers came from European firms, bringing with them more aggressively European-style negotiating tactics. In addition, some US retailers have also adopted a centralized system for strategic supplier management. In addition to, the central team, which typically includes finance, merchandise, and shopper insights, now holds much of the power that individual buyers once had. The significant team also takes on adequate preparation to run more complex and intense negotiations, for which many FMCG key-account teams find they are ill-prepared.

How KAM is changing

These developments have fundamentally altered how typical retail buyers perform their job. Many buyers have a great deal of customer information at their fingertips. They make business decisions based on data, advanced analytics, and next-generation machine learning.

The basic KAM model is similar across most consumer packaged goods companies. Retailers are segmented using revenue, profit, or growth potential, then resources such as marketing spending, product development, and manufacturing are allocated based on a tiering system. Each critical account team has essentially the same structures and capabilities. People are usually assigned an account based on their tenure, not their unique skills.


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The emergence of customer-portfolio management.

Customer segmentation is a prioritization exercise that is useful but not sufficient to ensure that CPG companies are adequately investing in their key accounts. Instead of having the FMCG sales organization determine the role each retailer plays within the portfolio of customers. According to McKinsey, more and more FMCG sales organizations focus on developing a portfolio management approach instead. Examples of roles might include growth driver, profit driver (or profit leader), scale builder, core customer (or core user), or future bet. This role then communicates the manufacturer’s profit-loss expectations, investment levels, collaboration styles, negotiation postures, and account-team capability requirements for that customer.

Customer-portfolio management helps an FMCG company differentiate between customer needs and allocate resources to align with their financial aspirations rather than simply growth targets. With a portfolio approach to e-commerce, five retailers previously in a similar customer segment or tier could potentially play five different roles.

New KAM capabilities

In this shifting landscape which are the key KAM capabilities that are emerging? Among others:

  • Collaboration. Key account managers should work together to develop a plan for future success by strengthening their business planning and nurturing a broader partnership that includes both cost efficiency and demand generation. KAMs should maintain their partnership mindset. With the increased speed that e‑commerce requires and the more significant complexities that come with a broader and more localized assortment, account teams now have the opportunity to help retailers solve problems every day. Open and frequent communication between the account team and the retailer will allow the account team to understand the retailer’s concerns and priorities throughout the entire value chain.
  • Broaden the focus beyond traditional cost and demand levers. Key account managers should initiate a formal process for collaborating with retailers on far-ranging initiatives in cost reduction and demand generation.
  • Bring in, functional experts. If managing logistics costs were a primary concern for the retailer, the sales representative would likely bring in a senior logistics expert to assist the retailer in optimizing logistics costs. The best account managers leverage experts to advise retailers on new opportunities like digital marketing and analytical tools in today’s world.
  • KAMs must also become savvier negotiators. Some retailers have established central functions for strategic supplier management. Manufacturers can also benefit from creating an integrated task force to develop standardized procedures and provide negotiation support to crucial account teams. It should comprise a combination of skillsets, including sales, finance, marketing, operations, and product management. The critical account negotiator will continue to lead negotiations for the client. Still, the task force will be able to assist each account team in tailoring their negotiation postures and tactics. The first step in tailoring this offer is understanding the retailer’s strategy and likely negotiating position. To develop this perspective, you must carefully analyze retailer performance, seek input from functional partners, then create a strategic mindset that brings it all together. The account team can decide which issues it wants to discuss, how it will approach each case, and when to reach an agreement.
  • Develop its insights capabilities. FMCG companies should strive to generate distinctive insights into areas that retailers care about: category performance, assortments, pricing and promotions, operational efficiencies, innovation, and shoppers and consumers. Predictive and prescriptive insights can help elevate a planning conversation with a merchant to a highly valued partner in any of these domains. Many companies are already leveraging advanced analytic techniques in one or more of the following domains, yielding significant benefits.

Ahead of the Curve: the Critical Ingredients for a KAM

According to Bain & Co., the best companies begin their work by mapping out all they know about their retail clients. More and more leaders in the segment track their contribution to each of their main customers’ KPIs like revenue, profit, and cash generation. Specifically, they know where and why those retailers make or don’t make money on their portfolio – down to the SKU level or in-store activity. They can compare it with their direct competitors’ estimates and forecasts from other adjacent categories. Moreover, they do not limit their analysis to a static view but instead, look at the evolution over time to learn from past performances and assess long-term trends. They use this knowledge and insight to determine the impact of new initiatives on customers’ economics, ensuring that their plans will help increase the joint profit pools.

In addition, FMCG leaders differentiate their plans from their competitors’ to target shoppers by creating a unique value proposition for the shoppers of their clientele. Their KAMs focus on building a compelling category story for the trade, win-win customer-specific plans, and a tailored marketing story, aiming to deliver sustainable value to the branded player, the retailer, and consumers.

The best brand marketers focus on understanding their customers’ strategies, needs, and challenges to achieve this. Branded players can generate banner or store-specific insights by monitoring the KPIs the retailers use. They understand their customers’ timeframes, and they can align themselves with the customer windows. Knowing how a banner’s shoppers differ from the average buyer, a brand can develop an individualized and targeted value proposition for each shopper. Understanding the customer’s needs will help you create innovative solutions for their business.

KAM - Origami Model

In conclusion: The Origami Model

At Amati & Associates, we use the Origami metaphor to describe KAM negotiations and support our clients’ transformation in assessing some of the trends described above. Why an origami? All origamis start as a simple sheet of paper, and they transform into a tridimensional shape, depending on the number and sequence of folds. In a negotiation, two parts are folding the paper, and if they do not work in a win-win and collaborative approach, the resulting Origami will be shapeless and shameful.

The Origami is also a reminder that – while the lead belongs to the KAM and the buyer – some of the folds are better defined through the expert view of financial and logistical departments. In addition to that, specific negotiation items might be easier than others to negotiate, so it is imperative to have an in-depth knowledge of the retailer’s strategy, which is the only way to understand what is behind any request from the client truly.

 

 

 

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