Are transactional accounts bad?
“Cutting prices or putting things on sale is not sustainable business strategy.”
Many companies discover their largest accounts are transactional. They generate high revenues; however, place minimal value on the relationship and minimal value on your company’s products and services. They are not interested in developing a strategic relationship with your executive team, and if they do it is only to discuss getting reduced prices. Generally, the relationship should sit with procurement or at an operational level.
Often companies get frustrated with this. However, rather than accepting the reality of the type of relationship they mistakenly persist with trying to change the type of relationship. So, they invest more into the relationship. They entertain them more; they give them priority with introducing new products and services and other innovations. The result is higher costs, relationship management costs, and higher operational and strategic investment costs, for zero return. These investments would have been better targeted at other kinds of accounts.
A top 3 account that had been difficult to manage, always wanted more for less, managed to find things wrong with almost everything the company did, and every time a new negotiation was approaching they had a habit of bringing out a shopping list of issues. They had been this way for as long as anyone could remember. The executive team convinced themselves that if they invested more in the relationship and worked harder to reach the account’s lofty expectations they would change.
The account responded favourably; they said all the right things and they thought they were on the right track. When the contract renewal was imminent the account continued to respond positively. Working closely to communicate their strategic needs, they provided insights into how the renewal decision would be managed within their business and engaged closely for many months.
However, gradually rumours emerged in the market that they had decided to award their business to another supplier. They denied this and continued to engage closely. Eventually, the business was awarded to another supplier, at a substantial discount. The account had been using them to lever a better price out of another supplier. All the time and energy invested in the account over many years was a waste of time.
If you have a large account with a long history of behaving transactionally be very wary – the chances they will change are close to zero.
“The one who loves the least controls the relationship.”
Companies feel bad when they fail to build a partnership relationship with their largest accounts. Stop feeling bad – these type of accounts are common and a fact of business life. The account’s behaviour is deeply rooted in their culture and no matter what you do, their behaviour will not change. Rather than try to change transactional accounts, accept them for what they are, manage them accordingly, and invest your scarce time, energy and resources with other value-oriented accounts.
If you have some accounts you think might fall into this category the following questions are good indicators that they are transactional:
- Are they a high volume/low margin account?
- Do they demand extended payment terms that they consistently exceed?
- Do they want dedicated resources or your team to take on more of their traditional activities for free?
- Are your revenues flat yet they push for and get increased savings?
- Are you giving more and more and getting less and less?
- Does the account operate at the operational/tactical level but enjoy strategic account benefits?
- When your account and management team discuss this account, are the discussions mainly about problems and demands?
If you answer yes to most of these questions then the account is definitely transactional. So, your strategy for the account must be to minimise the cost of doing business with the account and meet contracted expectations: no more, no less.
If you answered no to the questions and truly believe you can and should improve your relationship with this account then check out Negotiating: How to resist price pressure.
Another strategy that can be applied effectively is to purposely encourage your transactional accounts towards your competitors. Clearly, you must have the financial capacity to manage this or another account ready to replace the transactional account. Replacing high demanding, unprofitable accounts with accounts where the relationship is better balanced and business more profitable makes strategic sense. There is also something highly satisfying about leaving your competitors to deal with the most difficult and unrewarding accounts.
For more detailed insights on transactional accounts check out chapter 2 of Browne and Peacock’s book Managing B2B customers you can’t afford to lose.