Stefan Wengler

Key Account Management in Business-to-Business Markets

GABLER EDITION WISSENSCHAFT

Business-to Business-Marketing

Herausgeber:

Professor Dr. Dr. h.c. Werner Hans Engelhardt, Universitat Bochum, Professor Dr. Michael Kleinaltenkamp; Freie Universitat Berlin (schriftfiihrend)

Herausgeberbeirat:

Professor Dr. Dr. h.c. Klaus Backhaus, Universitat Munster, Professor Dr. Joachim Biischken, Katholische Universitat Eichstatt-lngolstadt, Professorin Dr. Sabine FlieB, Fernuniversitat Hagen, Professor Dr. Jorg Freiling, Universitat Bremen, Professor Dr. Bernd Gunter, Universitat Dusseldorf, Professor Dr. Frank Jacob, ESCP-EAP Europaische Wirtschaftshochschule Berlin, Professor Dr. Wulff Plinke, Humboldt-Universitat zu Berlin, Professor Dr. Martin Reckenfelderbaumer, Wissenschaftliche Hochschule Lahr/AKAD Hochschulefur Berufstatige, Lahr/Schwarzwald, Professor Dr. Mario Rese, Universitat Bochum, Professor Dr. Albrecht Sollner, Europa-Universitat Viadrina Frankfurt/Oder, Professor Dr. Markus Voeth, Universitat Hohenheim, Professor Dr. Rolf Weiber, Universitat Trier

Das Business-to-Business-Marketing ist ein noch relativ junger For-schungszweig, der in Wissenschaft und Praxis standig an Bedeutung gewinnt. Die Schriftenreihe mochte dieser Entwicklung Rechnung tra-gen und ein Forum fur wissenschaftliche Beitrage aus dem Business-to-Business-Bereich schaffen. In der Reihe sollen aktuelle For-schungsergebnisse prasentiert und zur Diskussion gestelltwerden.

Stefan Wengler

Key Account Management in Business-to-Business Markets

An Assessment of Its Economic Value

With a foreword by Prof. Dr. Michael Kleinaltenkamp

Deutscher Universitats-Verlag

Bibliografische Information Der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnetdiese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet iiber <http://dnb.d-nb.de> abrufbar.

Dissertation Freie Universitat Berlin, 2005

I.Auflage September 2006

Alle Rechte vorbehalten © Deutscher Universitats-Verlag I GWV Fachverlage GmbH, Wiesbaden 2006

Lektorat: Brigitte Siegel / Sabine Scholler

Der Deutsche Universitats-Verlag ist ein Unternehmen von Springer Science+Business Media. www.duv.de

Das Werk einschlieSlich aller seiner Telle ist urheberrechtlich geschiitzt. Jede Verwertung auBerhalb der engen Grenzen des Urheberrechtsgesetzes ist ohne Zustimmung des Verla^s unzulassig und strafbar. Das gilt insbe-sondere fiir Vervielfaltigungen, Ubersetzungen, Mikroverfilmungen und die Einspeicherung und Verarbeitung in elektronischen Systemen.

Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme, dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei zu betrachten waren und daher von jedermann benutzt werden diirften.

Umschlaggestaltung: Regine Zimmer, Dipl.-Designerin, Frankfurt/Main Druck und Buchbinder: Rosch-Buch, ScheBlitz Gedruckt auf saurefreiem und chlorfrei gebleichtem Papier Printed in Germany

ISBN-10 3-8350-0517-0 ISBN-13 978-3-8350-0517-4

"The economic value of key account management"

Foreword

Key account management as an alternative organizational form of marketing

management became increasingly popular in many companies during the last years. In

its beginning, key account management was particularly applied in the consumer

packaged goods industry with respect to wholesalers as well as large department

stores; for some time, key account management has also been applied time by

suppliers in industrial markets as well as by companies offering product-related

services in order to serve their most important customers. Despite its practical

relevance in marketing management, the implementation of key account management

as well as its integration within the supplier's organization is hardly realized on an

adequate economic evaluation. Similarly, key account management controlling of an

already implemented key account management organization is also lacking. These

organizational units are, once implemented, neither controlled nor evaluated

concerning their economic performance.

With respect to these rather surprising findings in marketing management practice the

author develops a theory-based decision support model, which seems capable of

overcoming the previously described deficits. Based on a comparative analysis, the

efficiency of alternative key account management organizations is evaluated using

criteria developed from transaction costs economics. This decision model enables

companies to evaluate each organizational key account management alternative on the

basis of transaction cost economizing effects. In addition, set-up costs which arise due

to the implementation of the organizational unit are also included in the cost-benefit

calculation.

As a result it is pointed out that some key account management alternatives, which

may enable companies realizing larger transaction cost economizing effects, often

require high implementation costs. In consequence, the set of organizational key

account management alternatives will be reduced to a set of five to six, which can be

considered as relevant alternatives in marketing practice. Furthermore, the author also

hints at the application of the proposed decision model in the evaluation of already

implemented key account management organizations, which may require a minimal

adjustment of the model.

VI Foreword

Companies considering whether to implement key account management or not and if

so, in which scale and scope, are therefore offered a theory-based model supporting

their decision-making process. Also companies with already existing key account

management organizations are assisted in evaluating the performance of their key

account management units.

As the following publication analyzes a practically, as well as scientifically, relevant

aspect in marketing management, it would be certainly desirable if it were to gain

attention not only in marketing science but also the attention of marketing & sales

practitioners.

Prof Dr. Michael Kleinaltenkamp

"The economic value of key account management" VII

Preface

In times of fierce competition in business-to-business markets strong and economically

sound business relationships between a supplier and his customers become ever more

relevant. Companies, therefore, increasingly focus on business relationships with their

most important customers, their key accounts. In order to maximize the economic

value of their key account relationships, the majority of companies decide on

implementing key account management.

Interestingly, however, empirical research studies over the last couple of years have

been proving that relationship marketing and particularly key account management do

not achieve the economic value originally supposed. Although the research community

has identified various reasons for these performance deficits within companies'

marketing & sales organizations, it is neither able to offer any advice nor is it capable

of supporting the companies' management in their decision on the most appropriate

marketing & sales organization. Managers are thus still left on their own in their

determination of the economic value of the marketing management organization.

This publication, therefore, tries to provide a comprehensive answer to the question of

the economic value as well as the need for the implementation of key account

management. In addition to the overview on the recent status-quo of the key account

management literature it proposes the first uniform key account management

conception from the relationship marketing perspective, including its strategic,

fiinctional as well as organizational dimensions. Further, key account management

controlling literature is reviewed, the most relevant controlling tools are introduced

and evaluated with regard to their ability to support the implementation decision of

key account management. As the analysis shows, the existing controlling tools are not

capable of supporting a sound management decision.

In the approach to developing a comprehensive decision-making model concerning the

implementation of key account management, the focus is shifted to transaction cost

economics. The extension of transaction cost economics perspective with respect to

uncertainty/ complexity enables intraorganizational decisions, particularly with regard

to the company's marketing & sales organization. As the analysis will show, four

alternative key account management organizations seem to be economically sensible -

depending on the company's business relationship with its key account. Which

organizational alternative is deemed the most appropriate needs to be individually

assessed by the company's management.

VIII Preface

This publication is intended for academics as well as practitioners in their daily work:

whereas academics will gain a comprehensive overview on the discussion of key

account management as well as further ideas about its theoretical foundation;

practitioners will have the opportunity to extract the most important aspects of key

account management as well as the first uniform key account management conception

since the early 1980s. Furthermore, the application of the decision-making model

should not cause any difficulties: due to its rather simple structure, its qualitative

character as well as the comparative analysis, the model can be applied flexibly and

requires predominantly management estimates for its decision-making.

A publication of this kind does not come without any external support. I would

particularly like to thank my mentor and professor Prof Dr. Michael Kleinaltenkamp

for giving me the necessary liberty and intellectual stimuli for my own academic

development. My thanks also go to PD Dr. Michaela Haase for reviewing my

dissertation as well as for her collaboration within the project "Entrepreneurship in the

knowledge society". I owe four pleasant and extremely interesting years at the Free

University of Berlin, Germany, to my exceptional collegues of the Department of

Marketing. In particular I would like to thank Stefan Chatrath, Dr. Beate Dahlke, Dr.

Michael Ehret, Janine Frauendorf, Andrea Hellwig, Dr. Dorothea Kress, Astrid

Laseke, Sigrid Peuker, Ulli Reitz, Samy Saab as well as Petra Theuer for the various

articles, research and consulting projects we realized together.

Besides the members of the Department, I received positive support from my friends,

whom I have to thank in particular: Christof Dahl for supporting me in diffucult times

and sharing my passion of entrepreneurship, Gerd Finck for continuously pressing me

to finish my dissertation as well as Jan Miksch and Jom Herrmann who suffered the

same fate.

Most of all I am very grateful to my family for promoting and sponsoring me. Our

family values and virtues were both guidance and help at the same time: modesty and

hard work, humanistic education and fairness as well as curiosity and kindness have

been demonstrated by my dear grandparents, parents as well as my brother. Moreover,

my lovely wife Christina deserves particular thanks for showing me that life holds far

more than studying and working.

Stefan Wengler

"The economic value of key account management" IX

Contents

Introduction 1

1.1 Key account management - a seemingly evolutionary phenomenon 1

1.2 The efficiency of key account management 4

1.3 Objective and structure of the thesis 8

State-of-the-art of key account management in academia and science 12

2.1 Relationship marketing and the concept of key account management 12

2.1.1 From a transactional towards a relational understanding of marketing 13 2.1.1.1 The transactional marketing perspective 14 2.1.1.2 The relational marketing perspective 16 2.1.1.3 Relationship marketing as relationship buying and

relationship selling 17 2.1.2 Key account management in the context of relationship marketing. 19

2.1.2.1 Key account management as a part of relationship marketing 19

2.1.2.2 Key account management as a focused relationship-marketing-program 21

2.1.2.3 Developments and evolution in the conception of key account management 23

2.2 The conception of key account management 25

2.2.1 Definition of a key account management concept 25 2.2.2 Objectives of key account management 28 2.2.3 Dimensions of key account management 35

2.2.3.1 The strategic dimension of key account management 35 2.2.3.2 The functional dimension of key account management 38 2.2.3.3 The organizational dimension of key account

management 42 2.2.4 Integrating the customer by applying key account management 47

2.3 Research and empirical evidence on key account management 49

2.3.1 Conceptionalization of key account management 50 2.3.1.1 National account management and key account

management 51 2.3.1.2 Global and euro key account management 53

2.3.2 Key account managers and key account management teams 54 2.3.2.1 Individual key account manager 54 2.3.2.2 Key account management teams 56

2.3.3 Empirical research on key account management 59 2.3.4 The key account management conception and its performance

deficits 63

Contents

Key account management controlling 66

3.1 Defining the task and objectives of key account management controlling ..67

3.1.1 Tasks and objectives of marketing controlling 67

3.1.2 Key account management controlling 68

3.2 Tools in key account management controlling 71

3.2.1 Unidimensional criteria 71

3.2.2 Multidimensional criteria 81

3.3 Requirements of an implementation decision model 85

3.4 The theoretical foundation of the decision model 87

3.4.1 A systematization of organization theory approaches 87 3.4.2 A comparison of relevant modem organization theory approaches ..93

Analyzing key account management from the perspective of transaction cost economics 98 4.1 The fundamentals of transaction cost economics 99

4.1.1 Transaction cost economics in economic theory 100 4.1.1.1 Differences between transaction cost economics and

orthodox microeconomic theory 100 4.1.1.2 Transaction cost economics and the new institutional

economics 102 4.1.2 Core assumptions in transaction cost economics 103

4.1.2.1 Methodological individualism 103 4.1.2.2 Human factors 104 4.1.2.3 Environmental factors 107

4.1.3 Characteristics of transactions 108 4.1.3.1 Asset specificity 108 4.1.3.2 Uncertainty 110 4.1.3.3 Frequency I l l

4.1.4 Transaction costs 112

4.2 Applying the framework of transaction cost economics 114

4.2.1 Organizational failure framework 114

4.2.2 The governance structure in transaction cost economics 118

4.3 Bilateral governance and the relevance of the marketing organization 122

4.3.1 The fundamental transformation 123 4.3.2 Institutions in relational exchange 125

4.3.2.1 Private ordering 125 4.3.2.2 Credible commitment and relational norms 126

4.3.3 Long-term business relationships in transaction cost economics.... 127 4.3.4 The neglect of the internal organization in bilateral governance.... 131 4.3.5 The marketing organization in transaction cost economics 133

Contents Xl_

5 Challenging the organization: the implementation of key account management 135

5.1 The relevance of implementing key account management in marketing management 136

5.1.1 The continuum of exchange relationships in bilateral governance .137 5.1.2 Market orientation and the marketing organization 140 5.1.3 Implementing key account management as an organizational

consequence of relationship marketing 142

5.2 The implementation of key account management as a strategic marketing management decision 143

5.3 The (institutional) environment in transaction cost economics 147

5.3.1 The relevance of the environment in marketing management research 148

5.3.2 The transaction's embeddedness in the institutional environment..150

5.4 Institutional and organizational change in transaction cost economics 153

5.4.1 Institutions and institutional change in transaction cost economics 154

5.4.2 The (marketing) organization as a bundle of institutions 156 5.4.3 Intraorganizational change in transaction cost economics 158

5.5 The necessity of a comparative institutional analysis as a sound basis for deciding on the appropriate key account management program 163

6 Determining the economic value of key account management in business relationships 166

6.1 Design alternatives of the key account management programs 166

6.2 Defining the transaction cost relevant determinants 174

6.2.1 Asset specificity 176 6.2.2 Uncertainty 179

6.2.2.1 Primary uncertainty 180 6.2.2.2 Secondary uncertainty 181 6.2.2.3 Behavioral uncertainty 194

6.2.3 Frequency 196 6.3 The decision model 199

6.3.1 Structure of the decision model 200

6.3.2 A comparative analysis of key account management alternatives. .201

7 Management implications 218

7.1 Implementing key account management 218 7.1.1 Assessment of the costs and benefits of the key account

management decision alternatives 220 7.1.2 The relevance of key account management modes 229

XII Contents

7.2 Application of the decision model 237

7.2.1 The value of a preliminary efficiency assessment of key account management 238

7.2.2 The need for advanced key account management controlling 242

7.3 Assumptions and limitations of the decision model 244

7.3.1 The assumptions of the decision model 244

7.3.2 The limitations of the decision model 246

8 Conclusion 250

9 Bibliography 254

"The economic value of key account management" XIII

Figures

Figure 1: Findings on the use of criteria for the selection of key accounts 5

Figure 2: The logical context of the thesis 10

Figure 3: The selling concept 14

Figure 4: The marketing concept 15

Figure 5: Relationship buying and relationship selling 18

Figure 6: Typology of businesses in business-to-business-markets 21

Figure 7: The evolution of key account management 24

Figure 8: The relevant factors of the customer value 32

Figure 9: The dimensions of key account management 35

Figure 10: The Janus head of key account management 41

Figure 11: Alternative organizational designs of key account management 44

Figure 12: The ABC analysis and its Lorenz curve 73

Figure 13: Calculation of the customer contribution margin 74

Figure 14: The customer profitability analysis and the Stobachoff curve 76

Figure 15: The customer lifetime value 79

Figure 16: Developments in organizational science 88

Figure 17: Organizational failure framework 118

Figure 18: Governance costs as a function of asset specificity 120

Figure 19: The strategic decision-making process on the marketing

management organization 146

Figure 20: A layer scheme 151

Figure 21: Internal organizational alternatives 161

Figure 22: Relevant alternatives in the key account management decision process... 168

Figure 23: The structure of the decision model 201

Figure 24: The economizing effects of key account management alternatives 210

Figure 25: The relevance of the key account management alternatives 236

XIV "The economic value of key account management"

Abbreviations

ABC activity-based costing

CCM customer contribution margin

CLV customer lifetime value

KAM key account management

NAMA National Account Management Association

OEM Original Equipment Manufacturer

SAMA Strategic Account Management Association