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The approach is beginning to move down to the account managers and the systems they use at the coal face, says James Radford at HP. "The impact on account managers can be electric, but there is a lot of resistance at first. We have started rewarding account managers on the profitability of the products they sell. Our East European team was very unhappy about this. They said that their products were, by definition, lower margin because they were lower price. They felt like victims. But they finally buckled down and eventually smashed the profitability target."
"We need to push responsibility for account management back up to senior management."
HP is now "blending profitability into the account management process. It takes time, but we are seeing success."
Radford now wants to measure present and future profitability: "We may be making good profits today with a retailer on our printers, but, if the retailer is taking steps in consumables which will jeopardise our future profitability, then we need to be aware of that now."
The next step is to actually share profitability data with the major retailers. Clifford is urging suppliers to do just this. Esselink at Philips was cautious, saying: "I am sure Dixons is serious with this offer. But I don’t think we will be taking it up for a few years!"
Suppliers need a clear strategy
One of the main items that Clifford is demanding from suppliers is a clear strategy. He says the ability to formulate and explain a long-term strategy is an area which remains a weakness for many suppliers.
This, says Vic Foti, operations manager at HP, is vital, and something that until recently many suppliers simply never thought through. "You have to know precisely what you as a supplier want to achieve. You have to know what markets you are aiming at and with what products.
You have to be able to take a story to the retailer. Fifteen years ago we were all just chucking half-baked cakes over the wall to the retailer, who would then put on the icing and the cherries. Those days have gone."
VIA director Michael White feels that the key to a successful strategy is the willingness to differentiate between different channels and, indeed, different accounts: "Every retailer will ask for an exclusive. Suppliers need to work out, starting at the end-consumer, which retail channels they want to work with and the specific actions they will take with different retailers. If your immediate response is to buckle to the demand for exclusives, you will find it almost impossible to come up with a meaningful strategy."
Beware the self-defeating mindset
Often, lurking behind these problems for suppliers is the self-defeating "buyers are wolves" mindset. Reporting on a workshop on account management at the conference, Jon Grimes, group sales and operations manager, Microsoft said: "Several workshop members said that they could not afford to put their best people into retail, because of its low profitability."
Grimes points out that this, of course, simply reinforces the perception that "retail account managers are just one step up from store salespeople and are all aspirants to selling enterprise products to large accounts."
"Fifteen years ago we were all just chucking half-baked cakes over the wall."
These status issues are also symptomatic of where decisions tend to be taken, says Peter Nolan. He claims that, all too often, the juniors at the coalface are not properly supported, or are left carrying the buck by senior management back at the ranch: "I saw a case recently where we had a problem with a major retailer and the account was being run by this guy on 50,000 euros a year and a company car. Fundamentally, it should have been the responsibility of his boss – the guy on 250,000 euros a year. So I told the senior manager that he was being paid that kind of money to sort out problems. We need to push responsibility for account management back up to senior management."
A focus on quarterly sales performance can be hugely damaging. A manager from a large and sophisticated supplier said: "Yes we formulate business models and plans. But what happens when a competitor cuts its prices, you have a heat wave and nobody buys or the quarter end is just soft. That is life-threatening – ‘I might lose my job’ stuff. At that point I am afraid the business models and planning gets thrown out of the window."
Ultimately, suppliers need to start counting the hidden cost of this sort of mindset. Nolan contrasted the care and professionalism with which investments were made in manufacturing and product development, with the approach adopted to large retailers.
"If you have a retail customer who sells $2billion worth of product a year for five years, you have a $10 billion deal. How many companies treat that with the care they would bring to an equal investment in manufacturing or product development?"
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