Key Account Management as a Differentiator in Trade-offs: The Case of Universal Heater Industries

Discussion Questions

On a Friday, the second week of December 2017, Mr Kamlesh, the national projects head of Universal Heater Industries (UHI), was sipping his tea when he got a call from Mr Abdul, the Regional Manager of Mumbai.

Abdul sounded harried while communicating the new tender released by Bodha Constructions (Bodha). The tender for water heaters will lead to a three-year price agreement starting in 2021, with an estimated 80,000 water heaters for their residential projects spread across Mumbai, Thane and Hyderabad. Kamlesh was disturbed and rushed to Mr David, the CEO and shared this information. David was equally bewildered and asked Kamlesh to get more details. Meanwhile, Abdul sent a copy of the tender to Kamlesh.

Background

In 2014, Bodha floated a tender for 0.1 million water heaters and awarded the price agreement contract on five models with the agreed specification to UHI and Smith Heating Solution (a competitor of UHI) after a due diligence process with a billing indication of 50,000 heaters for each company. Mr Amol from Bodha was involved in the process and verbally indicated a 15% price rise after three years, subject to performance. On the insistence of UHI, Bodha put up the price rise clause in writing, and the relationship traversed smoothly. This agreement had Mr David (CEO of UHI), Kamlesh (National Projects head-UHI) and Mr Amol (Sr Purchase Manager—Bodha) as signatories.

Universal Heater (UHI)—An MNC with European Roots

Universal Heater was established four decades ago in Pune. ¹ In 1993, a European MNC took over the business. UHI had 300 plus stock-keeping units with sizes, brands, and orientations based on the plumbing requirements. The product portfolio includes water heaters, kettles, dispensers and solar water heaters.

Distribution Network

UHI sold its products across India through different channels. While the end-user was a consumer, the flow of goods and transactions combined business-to-business (B2B) and business-to-consumer (B2C) models. The segments are as follows:

General trade: Distributors and direct dealers who, in turn, distribute the products to sub-dealers/outlets from where the consumers pick up. Typically, consumers purchase a few items based on the number of bathrooms or water heaters substituted. Characteristics of this segment involve dealing with a channel and display of products at the outlet level. The product travels two tiers before the consumer picks up the product.

Modern trade: Modern trade outlets pertained to an organized chain of stores with a layout and a format that enhanced the consumer shopping experience. Assisted sales promoters, merchandising and display were vital characteristics. The product travelled only one tier before the consumer picked up the product.

E-commerce players: Aggregators who established relationships with organizations like UHI and fulfilled orders based on customer requirements. The product travelled one or two tiers based on the number of players involved and demonstrated typical business-to-consumer transactions.

Direct customers: Builders, construction companies and maintenance companies came in this category of direct customers. Characteristics like the volume of purchases, specifications of products and annual price contracts were critical drivers of decisions. In this business relationship, the quality of managing the association could act as a crucial differentiator when product differentiation was virtually absent or nil, thereby qualifying as a complete business-to-business transaction (refer to Exhibit 1 on the flow of goods).

Product portfolio and pricing played a crucial role in managing sensitivities in the marketplace to eliminate/minimize comparison by consumers and channels. UHI had 250 franchises operated by the service team for after-sales service.

The New Team @ UHI

In 2015, the global leadership recognized India as one of the emerging markets. Consequently, UHI made sizeable investments in upgrading the plant, creating newer models from global markets and implementing a complete overhaul of the management team in India. In the latter part of 2015, David took over as UHI’s country manager and CEO. He got a new team with a vision of augmenting the presence of UHI in India.

Focus on B2B

David’s vision was to lead the organization to a revenue market share of 20% while sustaining the contribution at around 27–28% (refer to Exhibit 2/2a). They felt the organization needed to revamp its structure and approach the market quickly. The UHI leadership team (CEO and the functional heads) brainstormed at an off-site location and built a five-year plan. The plan was to strengthen the focus around the B2B comprising builders, construction and contracting companies, institutions and emerging channels (modern trade/e-commerce) to complement the drive of distribution in general trade.

In the sales organization, they led the focus and initiatives on the emerging channels of modern trade and e-commerce (refer to Exhibit 3). However, the legacy management at UHI was uncomfortable bringing in a structure that directly serviced the B2B segment to avoid conflicts with the current trade dealers and distributors.

David’s view was that this segment had huge potential. UHI could leverage its technological strength and dig into the global portfolio to bring out innovative products/models that were in vogue but had not seen the Indian shores. David felt these could be the differentiators to pitch to the B2B market, act as price protectors in a typical B2B business and minimize conflict with the trade. The move was to serve the large customers directly, eliminating the trade margin and using it as a cushion to participate in price bids. There were hiccups and rumblings in the trade as UHI started serving their customers directly; however, as time flew, these faded.

Focus on the B2B market was built by introducing a national project head position. B2B targets were co-owned by the national project head and the regional managers to eliminate any non-support issues at the regional level. The role of the national project head was to strategize on the project business, build tractions from large and medium-sized builders, build a pipeline of leads and drive execution through the project executives in the region. The role had to deliver the top line for the B2B segment, manage the pipeline and build the project team’s capability. The regional project executive had a straight-line report to the national project head and a dotted report to the regional manager. For towns not covered by the project executive, the respective sales executives of trade would step in.

The structure had its initial challenges; however, within six months, the organization felt it was moving in the right direction. By the end of 2017, vis-à-vis 2015, UHI’s project business had grown more than six times, and the share of growth from the project business was 67% (refer to Exhibit 2a).

UHI Relation with Bodha

Up to 2014, Bodha was consuming small quantities of UHI products from vendors in the marketplace (trade); neither Bodha nor UHI was keen on building a direct relationship. Bodha, a large B2B consumer of building material products, did not demonstrate affiliation or preference for UHI. Bodha had no traction or leverage with UHI products on supplies or price to be considered a preferential brand. They were consuming products in small quantities as needed in the open market.

The year 2014 marked the initiation of a direct relationship with Bodha, and UHI participated in a tendering process and got into an agreement on price, exclusive models and terms of trade. This agreement unleashed the potential of Bodha, and the relationship moved from an insignificant status to a key account status for UHI. Bodha started treating UHI as a key vendor.

From an initial estimate of 50,000 units for the three years, Bodha picked close to 70,000 units, which was facilitated by the quality of products, reliability of service and seamless account coordination. Bodha was delighted by the key account status and the experience, which led to mutual trust and respect. The exceptions and commitment from both ends demonstrated the affinity when processing orders and payments. The spirit of the relationship and the focus on the B2B business process led to a win–win scenario. UHI also practised a robust key account management template (refer to Exhibit 4) that ensured regular visits by the national project head, VP of sales and the CEO. At the exit of 2017, Bodha billed 24,000 heaters, 5.8% of national and 53% of project sales. The key account team led by Abdul ensured that they had taken exception approvals and gone out of the way to forge and strengthen the relationship (refer to Exhibit 5).

Kamlesh’s call to Amol @ Bodha

Amol did not attend Kamlesh’s call. However, he sent a text message that he had left the office and would connect on Monday. Kamlesh took a printout of the new tender to comb the document in detail. He observed Bodha’s mild change in specification with an additional non-returnable valve (refer to Exhibit 6 for the exploded view on the water heater and the position of non-returnable valve) and a new set of commercial conditions to comply with. He spoke to David to fill him in on the message from Amol and shared a broad understanding of the new tender.

David was surprised and taken aback by the new specification (a spare part addition), and a new tender would mean a lower price or the same price. UHI approached Bodha as a critical strategic account, invested time and focus and used a penetrative pricing model to get into the consideration set during the first tender. UHI invested effort and offered strategic prices. UHI operated on wafer-thin margins with a long-term view of building traction.

He felt something was amiss in Bodha’s approach of rolling out a new tender instead of giving a price hike per the contractual agreement. David was upset about the above development of the latest tender; David and Kamlesh were mulling and wondering if their key account strategy went awry, which could lead to a relook at the approach in other B2B accounts. The discussion ended with Kamlesh sharing that he would head to Bodha’s office on Monday and meet Amol to understand further.

Around 11:00 am on Monday, Kamlesh and Abdul arrived at Bodha’s office, surprising Amol. Instead of leading them inside as usual, Amol directed them to a meeting room near the entrance, which felt unusual. Pleasantries were exchanged, but there was an uneasy atmosphere. Amol explained a change in Bodha’s purchase leadership, emphasizing a new focus on cost-saving and prompting a fresh tender with revised specifications. Kamlesh questioned the need for such changes, suggesting they could have simply requested additional spares as before.

Amol remained silent, suggesting UHI participate in the new tender process based on their past performance. This suggestion angered Kamlesh, who pointed out Bodha’s double standards despite UHI’s excellent service. Amol defended Bodha’s actions, citing alignment with leadership goals. The meeting ended with Amol hinting at competition from three other bidders, leaving Kamlesh speechless.

Amol reminded Kamlesh of pending purchase orders that needed urgent attention before Kamlesh left with Abdul. Reflecting on their work with Bodha, Kamlesh returned to the corporate office in Pune. Over the past three years, UHI had delivered close to 70,000 water heater units to Bodha, exceeding initial estimates. Kamlesh also noted the upcoming tender submission deadline.

In the following days, Kamlesh meticulously reviewed the tender document, involving finance and legal teams for due diligence. He updated the CEO and arranged a meeting with David and the CFO to discuss the tender details. Kamlesh shared market intelligence, including ongoing legal disputes and Bodha’s market research activities.

While dealers approached UHI for quotations, UHI’s product and pricing policies ensured compliance with their B2B model. Kamlesh also noted the pending order of 9,000 units and Abdul’s report indicating Bajaj’s team’s frequent visits to Bodha’s office.

Despite objections from the CFO regarding servicing previous orders at old prices, Kamlesh insisted on billing at the old rate, anticipating approval for a price increase soon.

Alas, he was not an oracle.

The following questions/dilemmas were dogging Kamlesh and UHI.