Abstract
The case highlights the efforts of a key account manager in renewing a crucial annual contract with one of their largest customers. This contract holds significant financial and operational implications for both business partners, setting the foundation for the following year’s agreement. As Mahnoor Piracha reviews Prizmax’s performance at Sunshine, she notices that year-to-date sales growth is only 7%, far below the 25% commitment made compared to last year. This shortfall in sales gives Sunshine increased leverage during contract negotiations, allowing them to demand higher margins to offset the lower growth. To complicate matters further, rising global inflation has led Prizmax to prioritize profitability as a key strategic objective. This focus on profitability has been passed down to Prizmax Pakistan and, consequently, to Mahnoor’s targets, making it even more difficult to get margin approvals for any of her accounts. Mahnoor now faces the challenge of meeting the expectations of both Prizmax and Sunshine while convincing both parties to renew the contract before the new year begins. With both entities having traded merchandise worth PKR 2.25 billion, failing to renew the contract could result in losses similar to those experienced during the Nike vs. Footlocker dispute in the early 2000s, where both companies suffered significant financial setbacks. Key account management is a developing discipline in Pakistan’s FMCG sector. While this case focuses specifically on FMCG key accounts, the principles and challenges discussed here are applicable to managing key accounts across various industries.
Discussion Questions
Define key account management and its key fundamentals. Please apply these fundamentals to the case study.
Why is key account management different from conventional sales management in FMCG companies?
What led to the emergence of key accounts in Pakistan’s retail landscape?
Short-term and long-term challenges faced by a key accounts manager (KAM).
What is a joint business planning (JBP) and understanding of key components of a JBP?
What key organizational strengths are leveraged by suppliers and customers during a negotiation?
Considering Prizmax is the market leader, can Mahnoor arm twist Sunshine into a one-sided agreement that is in line with Prizmax’s strategic objectives?
Discuss pros and cons of proposed decision options.
In early October 2022, Mahnoor Piracha, KAM at Prizmax, one of Pakistan’s largest FMCG companies, found herself in a challenging position (Exhibit 1 discusses typical KAM deliverables and day-to-day challenges). She was responsible for renewing the annual joint business planning (JBP) contract with Sunshine Hypermarket, one of Prizmax’s most significant clients (Exhibit 2 discusses key components of a Joint Business Plan). Sunshine Hypermarket was a major international modern trade (IMT) retail chain with a strong presence across Pakistan. The relationship between Prizmax and Sunshine was anchored in an annual JBP—a comprehensive partnership agreement outlining mutually agreed-upon goals and targets. This plan was crucial for aligning both companies’ objectives and fostering a collaborative approach to achieving shared success.
Mahnoor knew the renewal process would be complex and demanding. The JBP contract not only addressed sales targets and promotional activities but also included commitments related to product assortment, shelf space allocation and marketing support. Given the high stakes, securing the renewal required careful planning, strategic negotiation and a thorough understanding of both Prizmax’s and Sunshine’s business priorities.
During a quarterly review meeting, Sunshine Hypermarket’s management expressed dissatisfaction with Prizmax’s underperformance. Sales growth for the Prizmax portfolio was only 7% as of September 2022, significantly below the 25% target set in the 2021 JBP. This shortfall occurred despite Sunshine providing prime visibility for Prizmax categories, as agreed in the contract. As a result, Sunshine received a lower total margin payout, which frustrated their management, who had expected stronger demand for and sales of Prizmax products when the contract was initially signed. Exhibit 3 shows the breakup of margins earned by Sunshine.
The low sales growth was caused by a combination of macro and microeconomic factors, including lower consumer disposable income, increased taxes on packaged products and intensified local competition. Sunshine relied on Prizmax to generate demand and create brand pull to drive sales, but the failure to meet growth targets placed additional pressure on Mahnoor. Convincing Sunshine to renew the contract with the same margins and commitments now seemed daunting.
To make matters more challenging, Mahnoor’s annual objectives, aligned with Prizmax’s five-year strategy, focused on improving the profitability of her major accounts, adding another layer of complexity to the contract renewal process.
Despite the challenging circumstances, Mahnoor drew on the valuable lessons from her MBA programme, where she had worked through numerous case studies alongside some of the brightest minds in the country. This experience had sharpened her problem-solving skills. Reflecting on this background, she began considering different scenarios to find a viable solution to the contract renewal dilemma.
Company Background
Prizmax Pakistan Limited was a subsidiary of Prizmax Global, a prestigious multinational corporation headquartered in the United Kingdom. Founded in the early 1900s, Prizmax had a rich history of growth and transformation, consistently evolving to meet the changing needs of consumers worldwide. Over the decades, the company developed a diverse portfolio of household brands, particularly in health, hygiene and over-the-counter medicines. This ability to remain relevant and innovative solidified Prizmax’s reputation as a trusted leader in the consumer goods industry.
In 2021, Prizmax Group reported impressive global revenues of £12.8 billion, with 90% of this income generated from its health and hygiene sectors. This financial success highlighted the company’s dominance in these critical areas, reflecting its dedication to improving the well-being of its customers. Prizmax’s strategic focus on these categories had driven substantial revenue growth and strengthened its position as a pioneer in delivering high-quality, reliable products. The company’s commitment to understanding and anticipating consumer needs had been key to its sustained global success.
Prizmax was also known for its ability to create new market categories by building strong, recognizable brands. In Pakistan, one of its notable achievements was the successful establishment of the bathroom cleaning category, which it built from the ground up. Prizmax owned a diverse portfolio of brands in this category, showcasing its market leadership and innovation.
In 2021, Prizmax Pakistan Limited reported annual revenues of approximately PKR 60 billion, with Sunshine Hypermarket contributing PKR 2.25 billion. A 3.75% contribution from a single customer was considered significant, making Sunshine a strategic business partner for Prizmax in Pakistan.
Competitive Landscape
Prizmax faced intense competition from two major multinational companies in the hygiene category: OmniStock and Lucas & Cooper (Exhibit 4). Both companies had diverse product portfolios and were well-established in the market, enjoying strong consumer trust and loyalty.
In 2021, OmniStock reported annual sales of PKR 37.7 billion, reflecting its solid market presence. The company had further solidified its position in Pakistan with a significant $120 million investment aimed at expanding operations. This investment demonstrated OmniStock’s commitment to the Pakistani market and its strategic intent to increase production capacity, enhance distribution networks and introduce products tailored to local consumer needs.
Similarly, Lucas & Cooper reported annual sales of PKR 30.4 billion in 2021. The company showed dedication to the Pakistani market by investing over $50 million in a new manufacturing plant for household care products. This investment was expected to enhance Lucas & Cooper’s production capabilities, streamline supply chain efficiency and support the introduction of innovative products that aligned with the evolving preferences of Pakistani consumers.
The substantial investments from these global competitors underscored the growing significance of the Pakistani hygiene market. Both OmniStock and Lucas & Cooper were leveraging their global expertise and resources to capture a larger market share, posing a serious challenge to Prizmax. As these companies focused on improving product quality, innovation and customer engagement, the competition was likely to become more intense.
Prizmax would have to continue to innovate and refine its strategies to stay competitive. By capitalizing on its strong brand recognition and deep understanding of local consumer preferences, Prizmax could successfully navigate this competitive landscape and further grow its market share in Pakistan.
Sunshine Overview
Sunshine Hypermarket, headquartered in Italy, was a leading IMT retail chain and a pioneer in Pakistan’s modern retail landscape. It had a strong presence in all major metropolitan cities, operating multiple hypermarkets, each averaging 100,000 square feet. The chain offered a wide range of products, including food, groceries, apparel, home appliances, electronics, furniture and power tools. Sunshine was well-known for providing a diverse product assortment that catered to various customer preferences, featuring both locally produced and high-quality imported goods, making it a go-to destination for many shoppers.
In addition to its vast product range, Sunshine was renowned for delivering a premium shopping experience. Its stores were designed with spacious aisles, organized product displays and exceptional customer service, creating a comfortable and enjoyable shopping environment. This dedication to offering a superior shopping experience had set Sunshine apart from other retail chains in Pakistan.
Sunshine’s product variety, premium shopping atmosphere and prime store locations helped establish it as a trusted and popular brand among Pakistani grocery shoppers. From Prizmax’s perspective, Sunshine Hypermarket was chosen as a key partner for several compelling reasons (Exhibit 5). First, Sunshine placed large orders, providing Prizmax with consistent demand and substantial sales volume. Second, Sunshine’s spacious and well-organized stores enhanced the visibility and appeal of Prizmax’s products, making it an ideal platform to showcase the brand. Finally, the cost of servicing Sunshine was lower than that of traditional trade outlets, offering Prizmax a more efficient and profitable partnership. This strategic collaboration aligned with Prizmax’s objectives of expanding market reach and optimizing operational efficiencies.
Pakistan’s Retail Sector
Historically, Pakistan’s grocery retail sector was dominated by small, family-owned shops known as ‘kirana stores’. These stores were deeply embedded in local communities and offered a personalized shopping experience, often extending credit facilities to customers. Kirana shops were known for their close relationships with customers and for stocking a limited assortment of products based on local preferences and daily shopper needs.
However, with globalization and rapid urbanization—marked by a 93% increase in urban population between 1990 and 2010 (Exhibit 6)—Pakistan witnessed a gradual shift in consumer behaviour towards modern trade channels. This transformation began in the mid-2000s with the emergence of supermarkets and hypermarkets in major cities. These modern retail formats offered a wider range of products, including imported goods, all under one roof and are typically located in easily accessible urban areas. The self-service format of these stores provided a convenient and premium shopping experience, appealing to the growing urban middle class and changing the traditional grocery shopping landscape.
Despite the growth of modern trade, traditional Kirana stores, though declining, continued to hold a significant share of the grocery retail market (Exhibit 7), particularly in smaller towns and rural areas. The coexistence of both traditional and modern retail formats highlighted the diverse and evolving nature of Pakistan’s grocery retail landscape.
E-commerce also entered the FMCG landscape in 2015, but for Prizmax, it only accounted for a 3% channel share over the last seven years. This limited share could be attributed to several factors:
B2C E-Retailers (e.g., Foodpanda, Airlift): The FMCG category had a low average order value on these platforms, making it difficult to justify the cost of last-mile delivery. B2B Marketplaces (e.g., Bazaar, Retailo, Jugnu): These players aimed to disrupt the traditional FMCG distribution model with online marketplaces but faced challenges in penetrating traditional retail and replacing conventional distributors.
At the shopper level, IMT channels gained market share from traditional stores by offering a superior shopping experience and lower prices compared to other channels. IMTs achieved this through:
A large assortment of products and spacious, self-service stores that provided a premium shopping experience. Efficient warehousing practices and supply chain management, allowing IMTs to purchase in bulk directly from manufacturers, eliminating distributor margins and securing additional discounts. Direct purchases from manufacturers due to their large order sizes and organized distribution capabilities.
As a result, manufacturers began prioritizing IMT customers and dedicated teams to manage these accounts. The success of IMTs led local retailers such as Al-Qutb, Bilal Sons and JKB to modernize their stores, offering shopping experiences comparable to those of IMTs, thereby reshaping Pakistan’s retail landscape.
FMCG Key Account Management
From Prizmax’s perspective, managing key accounts differed significantly from handling traditional trade channels due to the following factors.
Centralized Ordering and Warehousing: In traditional trade, Prizmax relied on a geographically dispersed network of third-party distributors to store and deliver products. However, Prizmax adopted a more centralized approach for key accounts, directly managing supply to these accounts. This shift streamlined logistics but placed more responsibility on the company itself, requiring careful coordination between the key accounts team and the supply chain.
Absence of Distributor: Unlike traditional trade, where distributors handled functions like case fill rate (CFL) 1 management, billing and order planning, Prizmax’s key accounts team managed these tasks internally. This required a high level of efficiency and tight integration with the company’s supply chain and financial operations to ensure smooth product deliveries and minimized disruptions.
Unique Assortment Needs: Key accounts often had unique shopper demographics, necessitating tailored stock-keeping units (SKUs). For instance, Prizmax might produce exclusive products, such as a 2-litre bathroom cleaner, solely for a key account like Sunshine. This customization helped meet consumer demand more effectively, enhancing the overall shopping experience and boosting Prizmax’s brand presence in these key locations.
Marketing Support: Key account stores experienced high shopper traffic, making them ideal for brand activations and marketing campaigns. Prizmax took advantage of this by deploying brand ambassadors and conducting in-store activations to drive product awareness and encourage trials. A portion of the marketing budget was allocated to these activities, as they led to immediate consumer interaction and purchase, maximizing brand visibility and sales impact.
Supply Chain Complexity: Managing the supply chain for key accounts was complex, especially with Prizmax’s policy of dispatching only full truckloads. This posed challenges when smaller loads needed replenishing, such as during promotions or unexpected demand spikes. The key accounts team had to be adept at ensuring an optimal CFL to maintain product availability and avoid stockouts, which could lead to lost sales and eroded customer satisfaction.
Finance Support: Financial processes for key accounts differed from traditional trade. Prizmax required payment before dispatching orders to suppliers, which could lead to delays if suppliers were late in making payments. This could result in frequent stockouts at key account stores, negatively affecting Prizmax’s shelf presence. The key accounts team needed to carefully manage these financial interactions to ensure timely payments and a steady flow of products to key partners.
These operational and financial distinctions were also reflected in the profit and loss (P&L) statements for key accounts versus traditional trade channels (Exhibit 8). Key accounts demanded more direct involvement and tailored strategies but also presented significant opportunities for driving brand growth and market share.
Contract Signing Process at Prizmax
The contract finalization process at Prizmax was structured and methodical, ensuring all terms aligned with the company’s strategic goals, including profitability improvements. Here’s a breakdown of the steps.
Preliminary Review (2+ Months Before Contract Signing): The process started at least two months before the deadline. During this phase, the key accounts team, led by Mahnoor Piracha, reviewed the existing contract with the customer (in this case, Sunshine Hypermarket). This involved analysing past performance, sales trends, profitability metrics and compliance with Prizmax’s five-year strategy.
Internal Alignment: Piracha collaborated with key internal stakeholders, including finance, supply chain and marketing teams, to ensure that the proposed contract aligned with Prizmax’s business goals. She had to address concerns regarding back margins and ensure that any changes made to the agreement would lead to profitability improvements for her channel, as per her given task.
Negotiation of Terms: Once internal alignment was achieved, Piracha entered negotiations with Sunshine. In this case, Sunshine was seeking a higher payout due to the decline in Prizmax’s front-margin sales last year. However, Piracha must advocate for a lower back margin, consistent with her goal of improving profitability. This phase could involve intense discussions to balance Prizmax’s need for profitability with Sunshine’s expectations for higher returns.
Legal and Compliance Review: The contract was sent for legal and compliance review after the terms had been agreed upon in principle. Prizmax’s legal team ensured the contract adhered to all corporate guidelines and local regulations. They also ensured the contract was fair and mitigated any potential risks for the company.
Final Approval: Once the legal team approved the contract, it was forwarded to senior management for final approval. Given the strategic importance of Sunshine as a key account, Piracha might need approval from high-level executives, especially if there were significant changes to the margins or other terms.
Contract Signing: After all internal approvals, the contract was signed by both Prizmax and Sunshine, ensuring it was finalized before the year-end deadline (1 January). This ensured smooth operations in the following year without disruptions to supply or sales processes.
Steps for Contract Finalization at Prizmax.
Contract Signing Process at Sunshine
Exhibit 9 shows the revenue streams of a modern trade store. Since these contracts with big FMCG companies were a major source of revenue for Sunshine, they spent a lot of time negotiating and ensuring they grew it year after year.
At the Sunshine hypermarket, the deadlines were not very stringent when it came to signing annual contracts with suppliers. Hence, Sunshine’s commercial director had an advantage while negotiating since there was no pressure to lock the contract on a specified date.
Steps Followed for Contract Locking at Sunshine.
JBP Decision-Makers
Exhibit 10 outlines the decision-making unit (DMU) at Sunshine Hypermarket and Prizmax, highlighting key players involved in the JBP contract. At Sunshine, the final signing authority rested with Commercial Director Peter N. Socher, who managed high-level decision-making. However, given his strategic focus, Peter relied heavily on his category team to approve contracts, making the Head of the Category, Bilal Tufail, the key decision-maker in this process. Bilal, responsible for all FMCG accounts at Sunshine, had a deep knowledge of Prizmax’s competitors and their margin offers, which put him in a strong position to negotiate. His primary goal was to secure the highest possible back margin from Prizmax to maximize Sunshine’s profitability. With 12 years of category management experience, Bilal’s expertise and understanding of Prizmax’s limitations made him a critical figure in the negotiations.
On the Prizmax side, National KAM Faisal Khan held the authority to sign off on the contract. He supervised the growth and profitability of the key accounts channel, with his key performance indicators focused on year-over-year sales growth and margin improvement. Piracha also needed approval from Anam Fatima, the Commercial Finance Business Partner at Prizmax, for the contract to proceed. Anam’s role revolved around ensuring profitability across all sales channels, and she would only approve the contract if it maintained or enhanced Prizmax’s profitability. Once the contract terms were aligned between Faisal and Anam, it moved to the Head of Sales, Babar Aslam, for final sign-off, completing the internal process at Prizmax.
In navigating this process, Piracha faced the challenge of reconciling Bilal’s demand for higher margins with Prizmax’s internal objective of improving channel profitability. To successfully finalize the contract, she must secure the support of both Bilal at Sunshine and her internal stakeholders, Faisal and Anam, ensuring that the agreement met the profitability expectations on both sides.
Decisions
Following the protocol, Piracha started devising the first draft in the first week of October. She faced a difficult situation in drafting a joint business plan proposal, which could have been approved without tough conversations between both parties. Prizmax brands were not able to deliver the agreed growth of 25% LY despite getting all the agreed deliverables from Sunshine in their contract. This had given Sunshine a better position to ask for higher margins against the same deliverables as last year.
While it was undeniable that Prizmax held a market leadership position in the hygiene category, Sunshine was also a significant contributor to Prizmax’s sales. Consequently, Mahnoor must find a balanced approach to ensure a win–win situation for both sides.
Being an experienced sales resource, Piracha had to create a balance between Prizmax and Sunshine’s expectations. Prizmax sales leadership’s expectations were the same for better contractual deliverables at a lower total margin, whereas Sunshine wanted to increase the back margin because last year’s Prizmax sales declined.
Based on these challenges, Piracha pondered the following options: she needs to develop a proposal that ensures a sustainable relationship between Prizmax and Sunshine. After much contemplation, she came up with the following options:
Increase back margin to 4% vs. 3.5% last year and an optimistic growth commitment of 15% with the same JBP components. This would help her in finalizing the contract within the Prizmax timelines. However, she would have to face much criticism from Prizmax’s sales leadership team, which could have a negative impact on her career. Drop back margin to 3%, conservative growth commitment of 10% and improved JBP components
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vs. LY. This would pacify internal criticism to some extent from Prizmax’s team, but she will face a lot of resistance from Sunshine’s team, and it could potentially lead to a delay in the contract locking timeline. Keep the back margin at 3.5%, the same as LY, with a realistic growth of 12%. Both leadership teams will resist this. However, Piracha felt this proposal would help her create a balance between the two business partners.
In 2022, the total payout was PKR 304 mn with a back margin of 3.5% and a front margin of 10%, with full-year sales estimated at PKR 2.25 billion.
Piracha was short on time and had to make a quick decision. She knew that any decision made in this contract would have a substantial impact on the future of the company’s business in years to come. She was also concerned about proving her mettle as an experienced professional and leaving a positive impression on her superiors. It was 6 pm, and she had yet to finalize the decision and start working on the first draft of JBP, which would be shared with Prizmax sales leadership for initial approval.
Footnotes
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.
Appendix
For a customer to qualify as a key account with Prizmax, they must meet the following criteria:
Customers must purchase at least PKR 3 million worth of Prizmax products monthly.
The customer must operate a self-service store with a minimum retail area of 40,000 square feet.
If the customer operates a chain of stores, they must have a central warehouse with the capability to replenish stock efficiently.
The customer must be able to make payments either in cash or through Interbank Fund Transfer.
The customer must comply with Prizmax’s global partner policies. By meeting these criteria, a customer demonstrates the capability and reliability required to be considered a key account for Prizmax.