Strategic Account Management
Introduction
Rapid technological advancement and ongoing globalization brought both advantages and disadvantages for the businesses. It became easier to reach the customers all over the world without moving the assets to the foreign market, but at the same time, the businesses have to become more flexible, adaptable, and innovative to attract and retain customers. As the barriers for entrance were lowered in a lot of fields, the competition increased drastically. Consequently, many companies are searching for the new strategies to attain organizational goals. In the modern business environment, a lot of businesses try to obtain competitive advantage and attain suitability by using the strategic collaborations with their clients. One of the most significant types of strategic alliance is Strategic Account Management (SAM). SAM became one of the approaches that enables the businesses to ally with their customers and produce long-term outcomes preserving the relationship between the parties and making sure that all stakeholders are satisfied.
SAM is a multilayered systematic program for managing not only strategically important clients, but to take care of all customers through mutually benefiting collaboration. This approach is relationship-oriented and requires the company to take care of the clients in terms of creating a profit for both parties. According to DiMisa (2015), SAM is critical for the businesses that have to buy a wide range of services or products, maintaining a long-term mutually benefiting collaboration, and/or producing substantial revenue within a long-term period. At the same time, SAM requires a certain investment of resources, both financial as well as human, to implement SAM’s main principles effectively.
Company Introduction
Dell is one of the largest companies in IT field today that was formed in 1984 by Michael Dell (Dell). Today, the company sells, supports, and repairs hardware, including PCs, laptops, tablets, miscellaneous electronic equipment, and their components. While Dell was created in the U.S., today it is a multinational business with offices all around the world. The company has revenue of $54.9 billion and it is the America’s fourth largest private company (Dell). Throughout the years, the firm tried to create an effective relationship with the customers by targeting their needs by designing customized products and complying with the demand in the market.
Literature Analysis
It was noticed earlier that SAM is one of the newest frameworks to the customers at a larger scale where the companies are provided with the chance to develop long-term benefiting relationships. Not in all cases, the approach considers the one-time buyers, but it does not exclude them from the equation. SAM may be compared with the Trojan Horse, but not in terms of the conquering of the clients, but rather penetrating their accounts. As the Development of Odyssey, SAM aims at targeting resourceful and reliable customers who would be willing to not only buy the products but to stay with the business in terms of a long-term collaborator. According to the research conducted by Gosselin & Bauwen (2006), SAM can generate essential competitive advantages for businesses that are able to find and develop alignment with important and well-selected clients. The outcome is usually achieved through the strategic approach to the customers and a thorough analysis of the client base. In addition, Gosselin (2002) emphasized six driving factors that serve as the main basis for SAM implementation, including:
Characteristics of revenue framework in business;
The processes of globalization;
Reduction of the number of suppliers;
Increase of competition in the market;
Difficulties in retention of loyal customers;
Technological evolvement that leads to mass production of certain goods or services.
In general, each of these factors considers the external changes in the business environment that concern the increase of the power or buyers as well as suppliers. In this situation, the company, despite its size, encounters with a problem of how to attract and retain loyal customers. It is not enough to focus only on the product or service, it is also crucial to concentrate attention on the clients and partners. SAM proposes an approach that can provide long-term relationship and increase profits of both the company and the client. At this point, it has to be noted that SAM focuses on the relationship with the clients that are based on partnership rather than one-sided relationship. Therefore, this approach proposes to use Customer Portfolio Analysis as a tool that may help the businesses to analyze their clients and develop a strategy that will allow the firm to create an efficient relationship.
Customer Portfolio Analysis (CPA) is a concept used for assessing the client-business relationship to assist managers in organizing company’s resources (Eng, 2004). CPA claims that the most appropriate composition of the customer relationship is specified by analyzing the potential relevance of customer relationship regarding the relative competitive position of the organization (Cooper, Edgett, & Kleinschmidt, 2000). Also, some studies agree that managers have to calculate the costs required for investing in customer relationship and its potential for both parties (Rajagopal, 2005; Hernandez & Biasiotto, 2001). Moreover, it has to be noted that a particular customer portfolio model relies on “customer behavior, the nature of the product, the industry, the characteristics of the company, and the preference of its management” (Eng, 2004, 49). CPA may be performed with the help of different tools, for example, Boston matrix portfolio or Product Life Cycle that help to systemize the knowledge on customers or products/services of the company and, thus, generate the guidance framework for the managers.
Customer Portfolio Analysis for Dell
Dell is a particularly successful company that has been on the market for a long time. Considering the development of IT industry and constant demand for the electronics and gadgets, Dell gains a lot of profits and plans to continue to perform at the same level. At the same time, the company faces major competitors, for example, Hewlett-Packard, Lenovo, IBM, and Apple that also became particularly successful in the last several years. In general, IT industry is not quite stable in terms of the possibility to make a prediction, as it tends to evolve very fast. In these circumstances, Dell has not only to consolidate its relationship with the loyal customers but to attract new ones. While the company may focus attention on the products and services, its relationship with the clients and partners is the most valuable at this point.
As Dell sells highly demanded products, its primary focus is on the customers who buy them for different purposes. For example, the organization still pursues its agenda of customizing its laptops by producing the products for gamers (Alienware series), users who require high performance and usability (Inspirion series), and those who demand mobility and universality (XPS series) (Dell). By customizing the products, the company can build a long-term relationship with the regular buyers, who will return to buy another product if the initial device will satisfy the consumer. In the conditions of high competition retaining the clients in IT industry is problematic, as the competitors tend to rely on the same pattern when it comes to customization of the products. Therefore, it may be a short-term relationship between the company and the clients. This field has its pros and cons. From one hand, the customers will not return if the device serves for a short period of time, yet, due to constant updates and innovations in IT, the clients may want to buy a newer version of the product. At the same time, constant investments into the newer and innovative devices may cost a company too much, which will result in the unjustified expenditures in the case when the buyers do not purchase a new device.
Consequently, Dell has to concentrate attention on the mutually benefitting partnership with the clients and attract the corporate customers that may bring more profits. For instance, Dell has a long-term partnering relationship with Microsoft. The company buys software from Microsoft and the last usually helps Dell in multiple ways, like in 2013 when Microsoft provided a $2 billion loan for the company (Dell). In this case, Dell benefits from the deals made with Microsoft and vice versa. Both companies serve as clients to each other and execute long-term profitable collaboration. It is quite difficult to make certain predictions, but it is highly unlikely that Dell will terminate the partnership with Microsoft due to the absence of competitors for the last in the field of operational systems for the PCs. Microsoft will not break the deal with Dell due to the huge loss of profits. Therefore both companies are interested in maintaining the same level of relationship in the future and find new ways of collaboration.
Boston Matrix Portfolio (BMP)
The following scheme represents a Boston Matrix for Dell by comparing customer profit and customer cost:
Figure 1: BMP
As it was mentioned earlier, Dell operates in a highly competitive business that has to satisfy the clients by unique products that will be customized according to the needs of all users. The industry requires the company to invest in the constant innovations and updates, making a lot of Dell’s customers “stars”. Stars are the clients who buy company’s products constantly, but as a lot of users nowadays they crave for innovations and ongoing updates that cost Dell a lot of human and financial resources usually spent on R&D, production, and marketing. There are also a lot of Question Marks, as there are clients who would buy Dell product once and then switch to another customer due to various reasons, from the basic dissatisfaction to the change of trend in a particular segment. Both of these categories require substantial investments and dedication which may or may not be justified. IT industry and changes in technological advancements may be unpredictable, thus, Dell has to concentrate attention on its relationship with Cash Cows.
Cash Cows for Dell include its list of long-term relationship with partners who also play role as clients, including Citrix, Microsoft, Oracle, RedHat, SAP, and SanDisc who supply software, serve as partners in multiple IT solutions, provide financial support, and use Dell’s services as the hardware developer (Dell). As the majority of these companies have been the clients and partners for a long time, they do not require additional investments into the relationship. There are also the possibilities to increase the amount of the Cash Cows by searching for low key companies that may propose unique solutions in the field of software and hardware. In this case, Dell may look for more partners to increase its quantity of cash cows increasing the profits of the company and optimizing its operations.
Finally, dogs are in the minority in Dell, as there are not a lot of clients that cost the company revenues. At the same time, there were several shortages in terms of a supply chain with the old partners who proved to be difficult to handle. For example, in 2000 Dell experienced supply shortage of Intel goods, which resulted in $500 million of losses and there were other issues associated with the collaboration with Intel that had Dell to reconsider the partnership (Scouras, 2000). It is difficult to rely on a partnership that causes serious financial damages and requires certain investments in the future. Thus, the company may revisit its approach to the customer relationship.
The Differences between Key Account Management (KAM) and SAM
For a long time, Key Account Management (KAM) was considered the renovation of usual account management and was perceived as a solution to the problem of the customer relationship. The major difference between KAM and SAM is their approach to the customers. KAM is all about individualized strategy when a particular client is linked to the company by a specific manager providing customized approach but failing to sustain the long-term relationship (Fei, Thoo, & Hamid, 2015). In the case of Dell, KAM could be a one-sided relationship, for example, with Oracle, a developer of a wide range of the software. In this case, a particular manager would communicate with Oracle representative of the same level of management. The main issue here is communications. For instance, the Dell representative tries to set up a deal with Oracle manager and each of them will have to come to a certain decision by negotiating with the CEOs of the companies and in a case of any emergencies or absence of these managers, the deal could be failed. In this case, Oracle could be treated as a star customer rather than a cash cow, as KAM does not have tools in dealing with the Customer Portfolio Analysis approach.
In the case of Dell, the company has to implement SAM when dealing with the cow cash customers and decreasing the number of dogs. Yet, it is still possible not to break the relationship with dogs customers, but to minimize the deals or revisit the contracts. SAM can be applied in the company by developing two-sided collaborations with cash cows and creating a sustainable production of goods for the stars customers. Question marks may be researched better and approached as the potential stars customers or even cash cows when the company will be able to enjoy mutual collaboration.
Recommendations
The analysis revealed that Dell has developed a wide range of loyal customers and long-term partnership that can support the company by providing the financial help or supplying it with the innovative solutions. The cash cows of Dell are major businesses that considered being the leading companies in their respective fields. There are also some dogs customers who require attention as well as question marks that may cost a lot of financial losses. In this case, Dell has to pay closer attention to stars customers by calculating the costs and profits, if the revenues are more than the expenditures, it is possible to create a more sustainable approach to the R&D and the production to target the investment issues. In this case, the majority of the stars clients are regular buyers and together with question marks, who tend to be less loyal to the brand, they may become a problem if Dell does not release demanded technology or innovative products. However, Dell has a solid reputation as a producer of high-quality products that tend to be more expensive comparing to their competitors. In this case, Dell will acquire more cash cows if it sticks to its loyal clients instead of pursuing the question marks.
It is possible to recommend that Dell concentrates its attention on cash cows and stars customers that tend to be the largest group. If the venture will choose to pursue question marks, there is a threat that it will eventually lose cash cows and stars customers due to the shift of focus. Dell may choose to invest into the question marks and generate a unique technology or device that will attract new consumers and shift them to the cash cows or stars status. In all cases, Dell will have to invest in the technology and marketing to attract new cash cows and sell more products to question marks and stars. It may require certain research and development processes to target these goals.
Finally, Dell has to reconsider its relationship with the dogs who are not profitable for the company and may harm its financial assets, as it was shown on an example with Intel. The company will have to revisit the deals made with the dog clients and will either minimize the relationship with such customers or renegotiate its initial contracts. There is a possibility to shift dogs customers to cash cows or at least stars in order to prevent the damage to company’s business. It is more effective to reconsider the agreements instead of losing the clients and partners due to the high competition and shortage of suppliers in the IT market. Dell cannot afford to lose such client and a partner as Intel in the reason of their long-term partnership and power of suppliers in the market, therefore, Dell can either look for a new cash cow in the similar segment or renegotiate the deals with such companies. Overall, the situation in Dell is positive, as it has a large number of the long-term allies that can support the company in the difficult situation. Yet, there are several issues the company may revisit if it strives for expansion.
Conclusion
SAM is a uniquely innovative approach to customers that allows the companies to become more flexible at many levels. By categorizing the client base and calculating the investments and profits correlation, it is possible to create a strategic plan for resolving the most difficult issues. SAM may be suitable for both Small and medium enterprises as well as large multinationals, as it does not operate on the basis of internal factors, but focuses on the external effect on the organization. By using different approaches provided by Customer Portfolio Analysis, it is possible to distinguish between the clients, recognize their needs, and resolve various problems, including the investments, communications, product development, and marketing. By applying proper accounting measures, the companies acquire the ability to revisit the approach to the customers and provide them with better products, services, and support.
At the same time, SAM allows the businesses to concentrate attention on the larger customers who are willing to invest into the relationship with the company and create a long-term relationship that would satisfy both parties. It is clear that SAM perceives partners as the customers as well, showing that the businesses can have business-to-business collaboration with the suppliers and customers. In such field as IT, it is difficult to predict the emergence of new technologies or the increase of demands for certain products, thus, Dell has to continue its investments in R&D sector and analysis of the market. Company’s approach to Cash Cow customers has to remain the same where the businesses may collaborate on the development of innovative projects and develop productive deals. Its relationship with the stars customers and question marks has to be revisited by investing into the research and customization of a broader spectrum of consumers. Approach to dogs customers has to be changed in the nearest time by either refusing to collaborate with them or reconsidering the obligations in the contracts. In general, it is impossible to underestimate the value of SAM in consumer relationship, as this approach enables the businesses to focus primary attention on the customers.
References
Cooper, R. G., Edgett, S. J., & Kleinschmidt, E. J. 2000. New Problems, New Solutions: Making Portfolio Management More Effective. Research-Technology Management, 43(2), pp. 18-22.
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DiMisa, J. 2015. Strategic Account Management. Essentials of Team Leadership, 14(3), 1-3.
Fei, W. H., Thoo, A. C., & Hamid, A. B. 2015. Key Account Management - A Review. Asian Social Science, 11(24), pp. 192-208.
Gosselin, D.P. (2002). Strategic Account management. Journal of Selling and Major Account Management, 5(1), pp. 11-31.
Gosselin, D. P. & Bauwen, G. A. 2006. Strategic account management: customer value creation through customer alignment. Journal of Business & Industrial Marketing, 21(6), pp. 376–385.
Hernandez, T., & Biasiotto, M. 2001. Retail Location Decision-Making and Store Portfolio Management. Canadian Journal of Regional Science, 24(3), 399-447.
Rajagopal, R. S. 2005. Analysis of customer portfolio and relationship management models: bridging managerial dimensions. Journal of Business & Industrial Marketing, 20(6), pp. 307 – 316.
Scouras, I. 2000. Dell says Intel processor shortage hurt 4Q earnings. EE Times. [Online] (updated 26 Jan. 2000) Available at: <http://www.eetimes.com/document.asp?doc_id=1267007> [Accessed 31 Jul. 2016].
