Strategy for key account management of duong minh phuc company

In recent months, sales have been declining and losing customers based on the number of sales of the company since early 2017.. We gain some “high sales volume but low profit margin” cus

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-Vo Hoang Dai Duong

STRATEGY FOR KEY ACCOUNT

MANAGEMENT OF DUONG MINH PHUC COMPANY

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2018

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-Vo Hoang Dai Duong

STRATEGY FOR KEY ACCOUNT

MANAGEMENT OF DUONG MINH PHUC COMPANY

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Prof Tran Ha Minh Quan

Ho Chi Minh City – Year 2018

SUPERVISOR’S REPORT ON THE THESIS PROPOSAL SUBMITTED

FOR DEGREE OF MASTER of BUSINESS ADMINISTRATION

The thesis proposal title: STRATEGY FOR KEY ACCOUNT MANAGEMENT OF DUONG MINH PHUC COMPANY

Student name: Vo Hoang Dai Duong

Supervisor: Dr Tran Ha Minh Quan

1 General comments:

• Remarks on the student’s attitude:

• Remarks on the assignment’s academic quality:

2 Overall assessment:

 Meet requirement for submitting

 Not meet requirement for submitting

Executive Summary

Duong Minh Phuc Co.td (DMP) is a young company established two years, specializing in LPG In recent months, sales have been declining and losing customers based on the number of sales of the company since early 2017 With that situation, we have conducted several interviews to evaluate the internal as well as interviews with existing clients and former DMP clients to identify shortcomings in the company's business processes

Recognizing the current weak point is weak management and no policy to support industrial customers make the situation does not increase the company's new

customers The data and interviews will be combined with the theory of problem

management in the enterprise that can describe the direction in addressing this

problem

Finally, recognizing the core issue, we have outlined some of the solutions that can help DMP escape these problems

1 INTRODUCTION

1.1 Sector background

The economy of our country is in the first phase of market economy with the state management The transition of the economy from central planning to the functioning

of the market economy has opened up a new era of development opportunities as well

as great challenges for economic sectors, enterprises in Vietnam Various industrial and service sectors are formed and developed through each stage Keeping up with the current trend of globalization, our country has some opening policies for more multinational companies easily penetrate, which has created a fierce competitive environment for the domestic market The gas market is also one of the most competitive markets, especially in big cities Therefore, gas has played a significant role as domestic equipment has a huge impact on the daily life of Vietnamese residents LPG stands for Liquefied Petroleum Gas referred to as simply propane or butane, are flammable mixtures of hydrocarbon gases used as fuel in heating appliances, cooking equipment, and vehicles… In civil use, LPG is widely used in daily life: used for gas stove, oven There are also many LPG applications in residential lighting systems, lighting, laundry

For commercial applications, the use of LPG in commercial is similar to that of civil use but at a much larger scale Consumers use LPG in restaurants for industrial stoves, ovens, hot water boilers Manufacturers from big companies are also potential customers when they use large volumes of LPG for public ovens with great capacity Additionally, gas companies can exploit customers in the food processing industry such as roasting meat, smoked meat, processing potatoes In industry, LPG is widely used in many industries: metal processing, welding and cutting of steel, glass processing and processing, silicate furnace, canning disinfection, incinerator, paint coating, battery, fiber fabric

Recognizing the importance of gas in individuals’ daily lives and in production, the number of gas companies in the market increased over the past decade, resulting in the difference of supply and demand is likely to be large Customers have more choices when there are many types of companies producing cylinders of gas with different

quality and price Therefore, LGP companies must constantly change and develop their products and services in order to gain market share in the market

According to consumption purposes, LPG customers are divided into two groups, which are industrial customers – business purposes, and household customers – cooking purpose This thesis concentrates on the group of industrial customers to analyze since the company’s main segment is industrial customers Institutional clients have large scale gas consumption for their production, especially is owner the restaurant or factory operations and processing operations while household customers are relatively small in consumption and are concentrated in each area

1.2 Company background

Duong Minh Phuc Company limited (hereafter referred to as “DMP”) established

in March 2015 specializing in distributing high-quality LPG for household & industrial customers DMP headquarter based in HCMC, so DMP focuses Ho Chi Minh City market DMP is still at an experimental stage of tweaking its products and services to response its customers’ reaction and well-adapt the market

DMP’s mainly customers is small and Medium Enterprises (SMEs) such as new restaurant, school… with company organization is about 10 employees Due to new established company, DMP’s organization structure is simple to help it operate more flexible and efficient, operational cost is low The organization chart described as below:

Director: 1 person

Sales and Marketing: 2 persons (1 person in charge for Industrial, and 1 person in charge for House Holds)

Accounting: 1 person

Logistics: 2 persons

Engineer: 2 pensions in part-time

Mission:

• Committing to deliver the high-quality products to customers

• Enhancing consumers’ perception of safety in using LP Gas to avoid the risks The category of customers:

• Geography: Industrial Zone, Industrial Park…

• Type of using purpose: cooking, fuel consumption for machine, forklifting…

• Income: high

Products and services:

• Products: LPG & related equipment (LPG regulators, valves…)

• Services: Consulting, Designing, Constructing, Installing, Maintaining, Repairing, Fixing… LPG system for factories, restaurants, schools, hotels…

Figure 2.1 Monthly LPG amount of consumption (2017)

According to sales volume, it showed that from June and to October, the sales increased steadily However, the number of customer increased from June to August, and it decreased from September to December, but the sales trend still increased from September to October, and then decreased from November due to company get new

Jun Jul Aug Sep Oct Nov Dec Napoli Pizza - - 687 1.560 1.231 1.350 1.430

Yeeboo - - 1.787 3.667 4.584 4.633 4.732 Baby Spoon - 252 287 300 277 250 -

high volume customer Even sales volume increased but the number of customer decreased

Figure 2.2 Number of customers from June to December (2017)

In August, we had 11 customers, but in September, we only had 10 customers remaining Even we got 1 new customer (Ebisu), however we lost 2 customers (Bali and Aoi) The next month (October), we lost 1 more customer (Akari), and the December, we only had 5 customers We gain some “high sales volume but low profit margin” customers, but we lost “low sales volume but high profit margin” customers The loss of customers also makes DMP a certain financial difficulty in terms of revenue

Figure 2.2 Cost of goods sales and Sales Revenue from June 2016 to June 2017

The presented figure gives data on cost of goods sales and sales revenue at DMP from June 2017 to December 2017 It shows that both Sales revenue and Cost of goods sold (COGS) increased and decreased with same margin, which is profit margin However, the number of customer graph shows different trends with sales revenue and COGS The trend of Sales Revenue and COGS increased from June to November, but the trend of number of customer only increased from June to August then decreased from August to December In August, the company got high consumption customers, but when we focused to big customers, we lost small customers with high profit margin However, we have not checked the number of customer at that time, we only focused the sales revenue and we saw that Sales revenue still increased New

Jun Jul Aug Sep Oct Nov Dec Sales revenue 34.237.947 49.395.709 140.559.205 198.884.698 234.697.013 242.396.619 226.894.105

COGS 25.026.672 35.157.375 101.872.353 148.067.755 178.795.520 187.731.770 177.269.479

2 4 6 8 10 12

Sales Volume & COGS 2017

Sales revenue COGS Number of cust.

customers cannot change total amount of consumption to new supplier immediately, so the first month they change, they change a part of total amount, and then they change all consumption amount to us so our sales revenue increased The new amount is bigger than total amount of small customers So that we did not recognize that, we were losing customers when we only checked sales revenue and profit At the end of December, we figured out that revenue trend started decreasing; we checked all company data and found that there were problems with customers’ relationship We started investigating to find problems

In brief, the above figures show convincing evidences that DMP’s strategy of building relationship with customers is a main issue for the company’s development

It is definitely important to seek solutions for this issue and improve the situation In order to find out feasible solutions, DMP’s board of directors need to understand the causes of losing customers

3 PROBLEM IDENTIFICATION

Based on the symptoms of reducing sales for couple of months in DMP, company organized a mind map to figure out the problems All information-based theories and models apply to small and medium enterprises We held meeting and interviewing with random 5 customers (currently and past) to check what happened with DMP’s products and services They informed that there were two main problems is (1) the high competitors in this market and they create the price war in LPG price (2) DMP lack of the services aftersales

First problem is we came into the tough time of market, with so many competitors tried to expand their market share They sold product with low quality, illegal filling into cylinder… in order to reducing cost of goods sold, then they could sell LPG cylinder with the cheap price According to initial interviews, develop new customers but cannot keep current customers, not expand new market and reducing on number of existing customer leads to reducing sales and profit in the end of 2017 Specifically, when a large number of small businesses join the distribution system traders will lead

to price phenomenon in the market turbulence, virtual fever Especially, when the

price of LPG on the world market tends to decrease continuously or the situation is not enough reserves, these companies will stop trading to cut losses, causing LPG supply

to the region is not good and lack of supply

Second problem is our after sales services was not good enough in service aftersales, we do not have enough work force to provide extra services for customers such as oven repairing, oven cleaning… Customers have to wait in the care of equipment as committed since the contract is signed once a month They often find employees' delays and attitudes, unacceptable behaivior for the customer’s concerns over their use The main problem in weak Sale strategy and sale staff management and training occurs

Customers also feedback to us that we do not have promotion for them, comparing with other LPG shop within area The discount or commission programmed for loyalty costumer is non available of DMP’s policy

In order to develop sustainable DMP’s business, it is crucial to figure out the reasons for its inability to maintain the key clients and its consequences

Ineffective B2B Sales Management

Low commitment for loyalty customer Lack of quality staff

Low customer satisfaction and trust Price competition

3.1 Price competition

The price is controlled by government and some import companies which are allowed by government Facing unfair competition of illegal LPG filling, DMP hardly provides its customers with low prices as some of competitors do Price competition is especially beneficial for consumers as it contributes to price formation in line with supply costs, as this implies that markets operate effectively in resource allocation and push Inefficient, high-cost suppliers leave the market

In the other hand, another government department also controls this LPG market, for example, Market police department, firefighting department… this factor caused intangible cost for suppliers in this field If the price for the current field should be specified to take a field of the volume to be want to sale fast to return the capital, the low price will be affect the profit of the income, make the doubt in the user Quality competition

Companies importing products or services from abroad guarantee a high-quality range of products, which cause fierce competition to DMP In Vietnam market, we have two sources of LPG

One source is from Dung Quat oil refinery which is domestic cargo with low quality, their price is lower than the other source, but the products are not clean, they contain olefin about 30% in LPG mixture, this may cause lots of soot to kitchen oven, for long time using, this may consume more LPG fuel for cooking and using It reduces the lifetime of equipment

LPG market in Vietnam in general, in HCM city in particular is very competitive, competitors try to reduce cost price, in order to reduce sales price They ordered from illegal filling station, the illegal filling station takes domestic cargo with the cost price

is cheaper 30% than import cargo (1)

There are 18 LPG trading companies in Vietnam This market is considered as potential but extremely limited for 18 companies in the same business Total estimated consumption of 2001 is 288,000 tons, this market is very cramped for companies in the industry In 18 companies, Shell gas, totalgar Mobil unique have enormous potential

they have long experience in the petrochemical business, strong financial strength, and now they are applying the main Business books, sales very flexible through which we see competition is extremely fierce, companies want to stand firm in the market must have long-term policy plans, the current appropriate

In addition, DMP also encountered a number of difficulties with some of the competitors unfair business practices that affect the price, affecting the correct recognition of customers for the product (LPG)

According to the Association of Gas in Vietnam Oil and Gas Report (24), up to now, this agency has in hand a list of a series of companies that commit wrongdoing in the process of fighting, prevention of illegal gas production and trading Specifically, in the North, the number of primary traders not qualified under Decree 107 / ND-CP reached nearly 30 establishments Particularly, there are four localities such as Thanh Hoa have four violations of the brand into the "focus" of the Association Most of the status, behavior, common violations are still not enough bottles of enterprise-owned

3.2 Low customer satisfaction and untrusted

According to Philip Kotler (2), customer satisfaction is the level of a person's sense of place that results from comparing the results obtained from the consumption of the product / service with those of the consumer his expectations Expectations here are considered human wishes or expectations, which stem from personal needs, past

experiences, and external information such as adverts, word of mouth

communications, and friends

Preliminary studies of customer satisfaction for years by experts such as Churchill and Surprenant, 1982; Cronin and Taylor, 1992; Johnson et al., 1996; Syzmanksi and Henard, 2001; Swan and Combs, 1976; Taylor and Baker, 1994; Westbrook, 1981; Zeithaml et al , 1988 have considered it to be driven by three main factors They are service quality served by employees, product quality, and value-for-money Meeting customers’ expectations on these elements, the company will gain satisfaction of customers (3)

At present, the most challenges seen at DMP are few customer services brought

to its key accounts As a result, one of its potential customers, Coffee Lounge, has not felt fulfilled and switched to another supplier

Mr Bui Tien, who is purchasing manager of Akari Restaurant, said that:

Sometimes we forgot the last time when we ordered to exchange new cylinders Hence, we had to interrupt our business to wait for DMP’s personnel to change cylinders This extremely frustrated us and DMP needs to improve if they wish

to serve their customer better They can remind us about the expired date when

we should call for filling more gas

Furthermore, Mr Nguyen Trong Q., who is General Director of Yeeboo Restaurant, stated that:

One of reasons his business stopped using DMP’s products is that DMP did not check out his LPG system periodically, offer free cleaning services as their competitors did, etc In short, DMP has not maintained good communication to understand our needs next to monthly orders of providing LPG

Moreover, DMP has not built up its appropriate strategy for its key accounts such as promotion programs, discounts, or other advertisement

Mr Tran Thanh T, who is the director of Factory XYZ, shared that:

DMP offers transparent discounts to the factory for long-term cooperation However, there are few promotion programs DMP’s person in charge explained because of promotion policy issued by DMP’s suppliers

In order to survive and develop, organizations and enterprises must strive to constantly improve the quality of products and services for customers, because customer satisfaction is the first factor leading to public The importance of customer satisfaction is one of the important tasks that any business need to do and follow strictly

Trust is a crucial element in B2B relationships Many definitions of trust given by marketing researchers such as Anderson; Weitz, 1992, Anderson, et al., 1994, Doney;

Cannon, 1997; Moorman, et al., 1993 can be briefly understood that a firm will be reliable to its partner if it performs actions, which benefits both parties (6) The point here is that building trust is not a day or two, or it can be done with gimmicks Companies that have lost the trust of consumers know this very well When these companies try to fix their image, they realize that pouring money into advertising can not block negative thinking in the minds of consumers

The trust of the customers is not natural but that is the result of a process of building credibility, building the brand promise not only with the customer but with the stakeholders Clearly, trust in the credibility of the business is now seen as a valuable asset to be preserved, representing the competitive strength of the business, which is almost impossible to imitate It is very difficult to rebuild

DMP’s key accounts mainly come from relatives, colleagues, and other business acquaintances, which have put, to certain extent, great trust in DMP’s products and services In spite of maintaining strong relationships with these key ones, it is still a considerable challenge for DMP to start and sustain new accounts because DMP appears to be a relatively young startup, lately penetrating into the market

Engineers’ professional practices and skills of also impact customers’ trust For instance, ABC’s cook truly showed his opinion:

Observing the method of running, repairing, or replacing spare parts performed by DMP’s skillful engineers, we have no any concerns or doubt about LPG systems That is the feeling of “safety” they bring us

3.3 Low commitment of loyalty customer

As defined by Kumar, et al., 1994 (4), a relationship is developed and maintained because the company finds hard to change its current business partner or achieve its goals or use same resources outside its present cooperation When it comes to targeting

a business, commitment is often seen as a prerequisite for success For example, when

a business invites a partner to consult on its organizational restructuring, the consultant

immediately mentions a requirement that the business leader commit to cooperate closely Follow up with them to make the project successful The commitment is not shaped, not color, but is very important role A strong relationship between firms is more likely established on commitment to each other and viewed as a strategic cooperation in future

Commitment can be a source of sustainable competitive advantage to a firm because it offers cost reduction, enhanced profits, positive word-of-mouth and the prospect of sales at a premium price (Hur et al , 2010) As a result of the nature of telecommunication services, customers are more susceptible to exhibit commitment behavior towards firms that come closest to meeting their expectations (5)

Mr Tran Minh T gave his opinion:

We have a great diversity of suppliers with the same quality and price in the field We have not truly satisfied with DMP’s products and services that makes

us desire to have long-lasting relationship with them Specifically, there is a supplier now propose for an attractive payment discount policy Accordingly,

we can flexibly arrange our financial resources We are considering this proposal seriously and may switch to this supplier after reviewing pros and cons

According to Hau LN, Thuy PN, 2012 (7) about Loyal customers are the people who bring long-term and sustainable income to the business because of the high value of life cycle (Customer Lifetime Value) For example, a customer using your product / service a month on average with 4 million per month, the life cycle (or average

revenue of this person) will be 4 million Still 4 million VND per month, but if this customer uses in 12 months, the value of their life cycle will be 48 million The loyalty strategy will ensure that your existing customers continue to trust and use the product / service for many years to come In terms of cost, attracting a new customer costs 5-6 times more than maintaining an old customer Not to mention, if you have attracted this new customer then, if you continue to keep them with flexible strategies, you will lose a significant advantage because the value of their life cycle is not high

The currently DMP’s strategy is just focus on attracting new customers as a way to increase their revenue streams, but the fact that the most predictable source of revenue comes from existing customers The average spend of an existing customer can be up

to 67% more than a new customer Attracting new customers is really expensive In fact, the cost to acquire a new customer can be 5-10 times the cost of keeping an

existing one

According to research of James P (2002) (12), 20% of existing customers of the

company can generate 80% of a company's profits If the truth is only 50% of those studies, we still have to acknowledge that the key to any successful and successful business is not just based on attracting new customers but It is more important to build

a sustainable revenue stream with existing customers Explaining why the fake gas business "healthy living," Mr Thanh said: making gas is super-profitable, only after the drug traffickers, so the object regardless of all tricks Cutting the ear, grinding the shell, converting the bottle to create a brand new bottle for yourself is also aimed at extracting illegally produced gas, lacking in quantity and quality These behaviors contribute to lowering the cost of products, in order to knock consumers away by cheap gas

3.4 Lack of quality staffs

At DMP, with the small business model, the Director has just joined the company and plays the role of Sales and Marketing, leading to the management of the business has not been effective, not focused on the research development strategy as well as not enough time to look at the problem comprehensively

Both of engineers of company is just the part time job, so they do not really care about customer services attitude First of all, based on the studies of Browell (1998) (8) because of the need to do a new job in a new environment, the time is not long enough

to make it hard for the workers to grasp the whole process, which may result in poor productivity wait Work related to the technical system of production can also cause

problems in occupational safety and generally, seasonal workers are not entitled to full benefits and benefits as long-term employees

The low sale target of DMP could base by the lack of sale person Salespeople are a unique job position It is difficult to determine the criteria that determine success (9) The position of "sales staff" is difficult to attract many candidates to choose

Businesses often have to spend a small budget to advertise recruitment Or actively seek information online candidates It is never easy for a small business to have a consistent employee It is never easy for a small business to have a consistent

employee

"Sales staff" according to Simintiras AC (10) is a very large and frequent recruiting position It accounts for 40% of the demand of businesses But supplies only meet a very small part One of the main reasons is the low level of stability in the job

Candidates are often reluctant to apply The nature of work such as moving a lot, dealing with many types of people not everyone can adapt The current status of the sales team is losing the "color of the shirt", especially in small and medium

enterprises, the sales team has not been invested and trained properly, leading to

ineffective Especially in the conditional business like LPG market, sales staff are more difficult than ever because they have to challenge the trust of customers in a more competitive environment price and quality of LPG products

Besides the saleperson factors, the problem is all about the weak sale strategy of

Direction First of all, small businesses usually do not have investment planning

departments Sales and sales of these businesses usually focus only on their primary job of selling and developing their business networks, but they rarely come up with annual plans for the enterprise, from development market, product, finance to human resources (11) Business owners are too busy with their day-to-day management and business, and there is no time to focus on developing a business strategy and target Therefore, business planning, if done, is often not feasible

One important reason is that small businesses often lack information, do not have enough staff to monitor the competition in the market, do not apply information

technology, especially the Internet, to synthesize, analyze Information on domestic and

international markets They also do not pay much attention to the support of many organizations supporting small businesses in Vietnam and take advantage of the

resources and management methods they provide

Because small businesses often do not have the financial resources to buy market information from market research firms, small businesses often follow large

corporations to develop their business and product ideas The most fundamental reason

is that many businesses do not have the ability to plan their business, which does not mean that they are bad, but vice versa But if there is no specific business strategy and business plan, small businesses are still struggling to make ends meet, especially when faced with new investment opportunities Important decisions about personnel,

finance, organization Business owners will be embarrassed because they do not know if their decision is correct, can bring profit or not

4 CAUSE VALIDATION

Based on the above research, the potential cause of the symptom is weak sale

management

Poor communication Low quality

Poor promotion Poor

Low Price customer services

Uncertainty about Switch to competitors the quality

We ak Sale Management

Se le cting and

re cruiting qualifie d staff

Ine ffe ctive B2B Sale s Manage me nt

Low Commitme nt

Lack of quality staffs

Se tting KPI

Low Satisfaction

High

Compe tition

Adding more value of products and service after sale

Maintaining the custome r info

DMP’s strength is its effort in providing the best services and the highest-quality products to customers, which helps to retain certain loyal customers since its establishment in 2015 However, there are still intense constraints in keeping relationships with its key customers

Based on the cause and effect tree, theories informed, and in-depth interview 3 respondents categorized into 3 main groups: customer’s key accounts, customer’s purchasing officers, and a former customer, it can be seen that the main causes leading

to losing key accounts or no new accounts established are customer satisfaction and trust In order to enhance the services and maintain the business for further growth, DMP has to improve their weaknesses by taking actions urgently The main problem is here is DMP had the infective B2B Managemt and it caused from the weakness of sale management

The weakness of sale management

Sales management reflect the results of the production, marketing and sales of the business (13) More than that, high sales demonstrate that the product or service of the business suits the taste of the consumer With small businesses, sales are also a driving force for capital mobility, enabling financial growth for small businesses

Concerning fierce price competition, Vietnam’s state performs the price management under the market mechanism that producers and traders in the field have a consistent and common framework of price with a very small difference Moreover, cost of good prices in a trade enterprise like DMP depends on suppliers Specifically, Petrolimex has been dominating entirely fuel market in Vietnam, which supply capability takes more than 95% of demand It is impossible for DMP to offer significantly competitive

to its customer Thus, the challenge in price competition is unavoidable

The transparent effects of customers’ satisfaction, commitment, and trust are thus demonstrated clearly Of which, customers’ satisfaction plays a pivotal role controlling the rest of two due to the following explanations

Firstly, most purchasing managers state that they take great pleasures to buy products and services from sellers who seriously pay their attention to customers, keep in touch