A framework for key account management and revenue management integration

Xuan Lorna Wang, Ross Brennan

Industrial Marketing Management

source: here


I already analysed one of Wang’s articles, which I found very interesting. The fate made her read my review and she then shared with my this one. It took me some time to finally read it but I don’t regret it at all. It not only explained me further the relation between Revenue Management and Customer Relationship Management but also showed that nowadays business doesn’t align with the theory. The approach to Key Account Management might one of the areas. This was also mine observation as my journey with Revenue Management I started with extensive literature review by reading hundreds of articles and dozens of books. Only afterwords I set my first steps as Revenue Analyst in Hilton. In my professional life I realized that (as often) the theory and practice are like two trains. Both are going in the same directions but somehow on different tracks.


 

Introduction

The need for Wang and Brennan research was caused by lack of studies that would show how the Revenue Management (RM) and Key Account Management (KAM) co-existing together. The literature to that point divided those two matters, forgetting that in business they exist together. They question is how does it work? We all know that modern Revenue Management is focused on achieving short term revenue growth what can possibly harm carefully designed relationship management strategy. To explore this relationship, the article has three objectives: a) creating a framework for KAM and RM that will solve the possible conflict between them; b) understand how RM can contribute to KAM; c) changing the focus of RM from short-term revenue maximization to optimizing profit yield and sustaining long-term relationship with customers.

 

To begin exploring this relationship let’s start with with the definition of key account. I especially like one by Cheveraton (1998) that emphasize on the nature of the relation between company and customer. It states that “customers are seen as investment made by supplier in its own future and in many cases this require short term sacrifice for prospective long-term gains'” (Wang, Brennan, 2014, pp.1173). Long term relationship with valuable key accounts might be also seen as company’s competitive advantage (Fliedner, Vokurka, 1997). The two most popular tools to validate the value of customer are Customer Profitability Analysis (CPA) and Customer Lifetime Value (CLV). However, the truth is that they are not enough to measure the total value of key account as KA value should also include such a factors as reference, learning and innovation benefits (Ryals, 2002), which are difficult to measure but certainly real.

 

In global hotel chains, it’s a common knowledge that departments are working not very close to each other, therefore a conflict of priorities can arise when key account managers emphasize relationship development while revenue managers emphasize short-term revenue (Wang, 2012a). What would be in practice the bone of contention? Revenue Managers (RMgr) wanted to maximize market opportunity might increase the contract rates, block room availability, imposed contract restrictions and offer cheaper rates publicly than for key accounts (Wang, 2002b). On the other hand, Key Account Managers(KAMgr) might sign contract with certain entities with conditions that are not aligned with RM policies, e.g. special rates, special availability, extra bonuses. However, when we apply Barrett (1986, pp. 22) definition of KAM as “targeting major customers … providing them with special treatment in the field of marketing, sales administration and service”, we can see that the conflict between RMgr and KAMgr is natural.

 

Research

The next step of this research was to conduct a case study that would let them understand the complexity of this problem. The research object was an international hotel chain. The qualitative fieldwork was carried out in the centralized Sales and Marketing units at the Head Office (HO) and at four hotels (H1, H2, H3, H4).  The empirical study was divided into 3 phases:

  1. Research the hotel HO policies and practices regarding RM and KAM
  2. Evaluate the effectiveness and operational applications in the individual hotels
  3. Research the key customers opinions of how RM has affected their relationship with hotel

In order to increase validity and reliability of research, authors used multiple data collection methods, that included:

  1. Collection of documents such as: corporate policies, hotel practices, training manuals, minutes of meetings, internal memos, management reports, clients contracts.
  2. Non-participant observation by shadowing 6 participants (including RMgr and KAMgr) and attend relevant meetings.
  3. 37 in-depth interviews (8 – RMgr,GMgr; 10 – KAMgr; 9 – key customers) with the same set of semi-structured questions, including three key ones:
    1. Who are the top three key accounts (or suppliers) for your company and how do you identify them?
    2. What information did/do you use to select and assess the value of these key accounts (or key suppliers)?
    3. How has RM contributed to or affected relationship with these key accounts (or they key suppliers)?

When it comes to analysis of data collection, authors decided to use strict analytical procedures and protocols that enhanced the reliability of findings. However, this part of the research and the method used created my interest. Therefore, instead of trying to describe it generally I would rather recommend three literature sources mentioned in this article:

  1. Template Analysis by King (King, 1998) – which was used in this research
  2. Content Analysis by Weber (Weber, 1985)
  3. Grounded Theory by Strauss and Corbin (1990)

 

Findings

The findings of this research might be divided into 4 groups:

1) Corporate and hotel’s documentation audit

2) RMgr’s view

3) KAMgr’s view

4) Key Customers’ view

 

Ad1. The findings of the first phase of the study, showed surprisingly little or no specific guidelines about KAM in HO or in properties. However, some evidences shows that Sales and Marketing units tried to implement KAM, by assessing the key customers based on the annual Room Nights they booked. Unfortunately, it was the only criteria that was taken into consideration. Other criteria, important from KA perspective could be: strategic resources, company’s share of the customer’s purchase or profitability of customer (Campbell and Cunningham, 1983).

Ad2. The other important evidence that shows discrepancy between mindset of RMgr and KAMgr regarding key accounts is that, RMgr selected valuable customers for property, while KAMgr would rather select valuable customers across the company. However, even if the revenue and volume of the business were the most important criteria choosing key accounts by all RM, interesting is a small deviation that occurred in H3 and H4, where RMgr used additional factor. The RMgr in H4, listed three airlines as key three key accounts as those airlines provided stable and secure yielding base in her hardly to fill 800 rooms hotel. The RMgr in H3 chose three key customers from three key segments (airline, corporate and leisure), to emphasize the importance of the the market mix strategy.

RM citeria

Ad3. The Key Accounts Managers used slightly different and more interesting method of accessing key customers, as their set of criteria was different for each market. While revenue and and volume of the business were always important factor. For corporate sales they also mentioned account potential and business pattern and for Leisure important were business seasonality. ancillary revenue and block allocation usage.

KA citeria

Ad4. The key customers from the key markets presented their main factors that are used in decision making process and there are more complex than RMgr perception (where the volume and revenue is the most important) and it also emphasizes the importance of KAMgr. Besides factors that are independent from RMgr and KAMgr like location, all key customers mentioned service (special treatment, incentives and security) as important factor to determine key relationship. it’s also important that the common practice is to offer discounts on other facilities (e.g. gym, television), additionally to discounted rates.

KC citeria

 

Discussion

One of the general finding made by authors I found especially interesting. The literature states profitability as one of the main factor assessing the value of customer (Buttle, 2004),  (Campbell and Cunningham, 1983), (Sheth and Sharma, 2001).  However, neither RMgr nor KAMgr mentioned it. And from business point of view, this is very disturbing, especially when the studies shows that part of customers are unprofitable, even 60% or 70% (Hill and Harland, 1983), (McCormick, McMahon, Kenne, 1986). Therefore, profitability should be consider as crucial factor when determining the value of the relationship.  This shows how big is the gap between the industry literature and the common practice in business. The other important finding from this study is that, the reason of conflict if interest between RMgr and KAMgr is lack of clear guidelines and policies regarding evaluation of KA. Therefore, the most important take-away from this research would be the framework for integration between RM and KAM, which is presented below

conceptual model

The line A symbolizes the RM approach that concentrate in the current revenue return from the company’s fixed asset. The line B on the other hand symbolizes the CRM effort to improve long-term profit yield for KA. The two sides red and blue demonstrate the different priorities RMgr and KAMgr have. The four boxes on each side of the diagram contrasts the difference in management interests between revenue-driven RMgr and relationship-driven KAMgr. The inner circle shows customers as function of revenue value (RV) and relationship value (RSV). Such an approach classify key customers into four categories:

  • True KA – high RV and high RSV
  • Potential KA – high RV but low RSV
  • Account with potential – low RV but high RSV
  • Account – low RV and low RSV

Of course all firms would like to have only True KA and no low value accounts, but the biggest challenge is two address two crucial groups: Potential KA and Accounts with potential and it will require combined effort of KAMgr and RMgr. “An integrated account management practice would enable company managers to clarify the situation by including ‘guest straying profile’ and ‘account potential’ as added added decision-making factors” (Wang and Brennan, 2014, pp.1179). This research has a high practical value and opens new areas for further investigation. Also, the limitations stated by authors are weak and therefore didn’t biased the findings, what makes this study reliable and comprehensive.

 

 My Comment

From academic point of view I wouldn’t have much to say as this research is well prepared and conducted. I would rather add some of my personal opinion about some of the aspects of this research.

I might understand where the lack of profitability-thinking comes from. Nowadays, international corporations are organized like Swiss watches. Every ratchet has certain function and exists to fulfill its fate. Maybe in comparison to corporation it is a bit exaggerated, but not that much. In practice it means, that certain departments have their own measures that define their success or failure. When it comes to RMgr it might be Revenue, ADR, RevPar, YoY growth or market share. But all are basically a function of money and volume. KAMgr success is also defined my function of money but in slightly different terms, e.g. volume and length of contract. We also have marketing team, that rarely measure return on their strategy in revenue, rather they focus on keeping costs under certain level. On the other side of the building we have finance team, where finance and controlling managers evaluate the the money by the function of revenue and costs, but they don’t care about the volume or even the revenue in absolute figure but the final bottom line, meaning profit. This division is so soaked in the organisational culture, that even heads of those departments don’t evaluate their departments in more measures that are used inside them. This makes the corporation not living organism in which each part is dependent on other and they co-exist naturally. But rather a robot, that is built with many different parts and even if is more reliable (it can work without a hand), his moves are not so fluent and efficient.

 

 

 

References:

Main Article: Wang, Xuan Lorna, and Ross Brennan. ‘A Framework For Key Account Management And Revenue Management Integration’. Industrial Marketing Management 43.7 (2014): 1172-1181. Web.

 

  1. Barrett, John. ‘Why Major Account Selling Works’. Industrial Marketing Management 15.1 (1986): 63-73. Web.
  2. Buttle, Francis. Customer Relationship Management. Amsterdam: Elsevier Butterworth-Heinemann, 2004. Print.
  3. Campbell, N. C. G., and M. T. Cunningham. ‘Customer Analysis For Strategy Development In Industrial Markets’. Strat. Mgmt. J. 4.4 (1983): 369-380. Web.
  4. Cheverton, Peter. Key Account Management. London: Kogan Page Limited, 1999. Print.
  5. Fliedner, G, and R Vokurka. ‘Agility: Competitive Weapon Of The 1990S And Beyond.’. Product Invention Management Journal 38.3 (1997): 19-24. Print.
  6. Hill, G. V., and D. A. Harland. ‘The Customer Profit-Centre.’. Journal of the Institute of Physical Distribution Management 2.2 (1983): 1-5. Print.
  7. King, N. ‘Template Analysis’.  Qualitative methods and analysis in organisational research — A practical guide (1998): 118-134. Print.
  8. McCormick, J. M., S.P. McMahon, and C.B. Kuenne. ‘Sealing The Ladder To Marketing Excellence’. Banking Strategies 72 (1996): 46-52. Print.
  9. Ryals, Lynette. The Total Value Of The Customer And Targeted Marketing Strategies. Boston Spa: British Library Document Supply Centre, 2002. Print.
  10. Wang, Xuan Lorna. ‘Relationship Or Revenue: Potential Management Conflicts Between Customer Relationship Management And Hotel Revenue Management’. International Journal of Hospitality Management 31.3 (2012): 864-874. Web.
  11. Lorna Wang, Xuan. ‘The Impact Of Revenue Management On Hotel Key Account Relationship Development’. Int J Contemp Hospitality Mngt 24.3 (2012): 358-380. Web.
  12. Weber, Robert Philip. Basic Content Analysis. 1985. Print.
  13. Sheth, Jagdish N, and Arun Sharma. ‘Efficacy Of Financial Measures Of Marketing: It Depends On Markets And Marketing Strategies’. J Target Meas Anal Mark 9.4 (2001): 341-356. Web.
  14. Strauss, Anselm L, and Juliet M Corbin. Basics Of Qualitative Research. Newbury Park, Calif.: Sage Publications, 1990. Print.

 

Author: Mateusz Konopelski

 

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2 thoughts on “A framework for key account management and revenue management integration

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