Benefit Number Two: Strategic Account Management s Greater Account Loyalty

Benefit Number Two: Strategic Account Management's Greater Account Loyalty

Strategic account management can create greater customer loyalty, which in turn can create greater customer profitability. There has been a great deal of research into what customer loyalty can mean for a supplier. In The Loyalty Effect, Fred Reichheld makes a compelling case that a 5 percent increase in retention leads to a 35 percent to 95 percent increase in the customer's net present value. ^[1] While Reichheld bases his figures on retail relationships, the principle holds true in business-to-business relationships. Given the value of most strategic accounts, these loyalty numbers can become very dramatic over time. David Jones, a management consultant, provided us with both business-to-business and business-to-consumer examples:

• One of the world's largest telecommunications firms has clearly seen the benefits of establishing relationships with its strategic accounts. After it made the shift from a transactional to a relationship-based approach, its annual customer churn rates fell dramatically. For customers buying more than three products, customer retention was 99 percent compared with about 40 percent several years before.

• The value of relationships can also be seen in mass markets in the telecommunications industry. BellSouth's Complete Choice plan, for example, provides customers with an array of services such as call block, call waiting, caller ID, etc. for one monthly price. It also serves as an excellent base from which to sell cellular service, long distance, and other services. The Company has found that customers who buy even one additional service have "dramatically higher" than average retention rates." ^[2]

How can strategic account management drive greater loyalty and profitability? For the most complex relationships, where decentralized suppliers are serving decentralized customers, the number of possible errors rises geometrically, as do the number of actual errors. A strategic account manager, acting as the single point of ownership and given the right level of power to make decisions, can help solve these issues as they arise. At the same time, the account manager can think longer-term and start to set up systems and processes to limit recurring problems and make selling and buying a much easier proposition for both sides. Ease of doing business is an almost universal expectation of strategic accounts.

If the SAM has the firm aligned behind her, she will almost certainly be orchestrating relationships between her firm and the strategic account. Each of these function-to-function and executive-to-executive relationships (as well as being a compelling value equation) creates another tether between the two firms until, ideally, the bonds are exceedingly hard to break. We've already seen what can happen when there are few interfirm relationships: one transfer, one new buyer influence, one promotion, and the entire dynamics of the relationship can change—if not disappear. To increase loyalty and long-term customer value, the strategic account manager needs to ask himself continually how he can deepen and broaden the relationship with the account. Generally speaking, the more working relationships, the more layers of loyalty. The greater the loyalty, the greater can be the customer's value over time.

^[1]Reichheld, Frederick F. (1996). The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value (p.36). Boston: Harvard University Press.

^[2]David Jones, in an email to the authors, November 11, 2002.