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Chapter 14Chapter 14

Evaluating Channel Performance

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1414Major Topics for Ch. 14

What is Channel Performance?*

Scope and Frequency of PerformanceEvaluations*

Channel Performance Audit

Key Criteria for Performance Audit*

Applyin Evaluation Criteria

!ecommendin Corrective Actions

E"tra #opic$ %icro Channel Performance*

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1414What is ChannelPerformance?*

I. Channel Performance: The extent to which the

channel members meet the desired channel goals.

II. Dimensions of (Macro) Channel Performancea) Efficiency: Productivity; Profitability

b) Effectiveness: Stimulation of New Demand (ex:online channel); Customer Satisfaction (ex: Walk inclinic)

c) Equity: Easy Access and Opportunity

Ex) U.S. versus Japan; L.A. and Indian Reservation

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1414Scope & Frequency ofScope & Frequency of

Channel Performance Evaluations Depend on*Channel Performance Evaluations Depend on*

&' (eree of the manufacturer)s control over channel memers

+' !elative importance of channel memers

,' -ature of the product

.' -umer of channel memers /channelintensity0

&' (eree of the manufacturer)s control over channel memers

+' !elative importance of channel memers

,' -ature of the product

.' -umer of channel memers /channelintensity0

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14141. Degree of Control1. Degree of Control

Control that a producer,manufacturer, or franchisor hasover members is based onstrong contractual agreements

Control that a producer,manufacturer, or franchisor hasover members is based onstrong contractual agreements

Channel managercan demand a great deal ofinformation on member

operations

Channel managercan demand a great deal ofinformation on member

operations

Manufacturer lacksstrong market acceptancefor its products & strongchannel control based oncontractual commitments

Manufacturer lacksstrong market acceptancefor its products & strongchannel control based on

contractual commitments

Manufacturercan exert little controlover channel members

Manufacturercan exert little controlover channel members

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14142. Importance of Channel Members2. Importance of Channel Members

Evaluation of channel memers is morecomprehensive for manufacturers 1ho sell all of their

output throuh intermediaries

Evaluation of channel memers is morecomprehensive for manufacturers 1ho sell all of their

output throuh intermediaries

2ecause the 3rm)s success in the mar4et is directlydependent on the channel memers) performance

2ecause the 3rm)s success in the mar4et is directlydependent on the channel memers) performance

Why?

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14143. Nature of the Product3. Nature of the Product

#he more comple" the product5the roader the scope of evaluation

#he more comple" the product5the roader the scope of evaluation

For products of very hih unit value5 theain or loss of a sinle order isimportant to the manufacturer

For products of very hih unit value5 theain or loss of a sinle order isimportant to the manufacturer

+

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14144. Number of Channel Members4. Number of Channel Members

%anufacturers 1ho useintensive distriution

%anufacturers 1ho useintensive distriution

Channel memerevaluation maye cursory

Channel memerevaluation may

e cursory

Manufacturers who usehighly selectivedistribution

Manufacturers who usehighly selectivedistribution

Channel memberevaluation iscomprehensive

Channel memberevaluation iscomprehensive

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Performance Evaluation versus MonitoringPerformance Evaluation versus Monitoring1414

PerformanceEvaluation

Day-to-DayMonitoring

Overall performancereviews that give

management a complete& objective analysis ofdistributor operations

Appraisals that assistmanagement in

maintaining currentoperating control ofdistributors efforts

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1414Channel Performance AuditChannel Performance Audit

Three Phases of Channel PerformanceAudit

1.Developing evaluation criteriaChannel goals

2.Periodically evaluating theperformance against the criteria

3.Recommending corrective actions

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1414I. Key Criteria forI. Key Criteria for

Channel Performance Audit*Channel Performance Audit*

Sales performance of channel members

Inventory maintenance of channel members*

Selling/Service capabilities of channel members*

Attitudes of channel members

Competition faced by channel members*

General growth prospects of channel members*

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14141. Sales Performance1. Sales Performance

Criteria channel managershould use to evaluate sales data:

1.

Comparisons of thechannel members currentsales to historical sales

2.

Cross comparisons ofa members sales with

those of other members

3.

Comparisons of thechannel members saleswith predetermined quotas

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14142. Inventory Maintenance2. Inventory Maintenance

1. Total level of channel members inventory

2. Shelf or floor space devoted to inventory

3. Shelf or floor space relative to competitors

inventory4. Breakdown by particular products in units dollars

!. "omparison of fi#ures with channel members

estimated

purchases of related competitive lines$. "ondition of inventory inventory facilities

%. &mount of old stock efforts made to move it

'. &de(uacy of channel members inventory control

record)keepin# system

Key Criteria for evaluating member inventory performance:

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14143. Selling Capabilities3. Selling Capabilities

Manufacturer who obtains sales recordsfor channel members salespeople should

examine the following factors:

1.

Number of salespeoplethe channel member

assigns to manufacturers

product line

2.

Technical knowledge and competence

of channel members salespeople

3.

Salesperson interestin manufacturers products

Ex) CISCO

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Attitudes

44

Negative ones often addressedafter they have contributedto poor performance

4. Attitudes of Channel Members4. Attitudes of Channel Members

Should be evaluatedindependently of sales data

Not usually

evaluated unlesssales performanceis unsatisfactory

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14145. Competition5. Competition

Channel manager should considertwo types of competition:

1.

Competition from other

Intermediaries(Inter-store)

2.

Competition from

other product linescarried by the

manufacturers ownchannel members

(Within-Store)

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6. General Growth Prospects6. General Growth Prospects1414

Key issues for evaluating channelmember growth prospects:

1.Past performance2.Overall performance

3.Expansion or improvement of organization4.Level of growth and qualification in personnel5.Management, age, health, or successionarrangements

6.Adaptability & overall capacity to meet marketexpansions

7.Members estimates of its own medium- & long-range

outlooks

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II. Applying Evaluation CriteriaII. Applying Evaluation Criteria1414

#hreeApproaches

1.Separate performanceevaluations on one or more criteria

2. Multiple criteria combined informallyto evaluate overall performance

qualitatively

3. Multiple criteria combined formallyto arrive at a quantitative index of

overall performance

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1. Separate Performance Evaluations1. Separate Performance Evaluations1414

Commonly used when the number of channelmembers is very large & when criteria arelimited to no more than sales performance,inventory maintenance, & possible selling

capabilities

Cf) PQD in purchasing performance evaluation

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2. Multiple Criteria Combined Informally2. Multiple Criteria Combined Informally1414

Operational performancemeasures obtained

Managerial judgment usedto combine performance measures

Qualitative judgment made aboutoverall channel member performance

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14143. Multiple Criteria Combined Formally3. Multiple Criteria Combined Formally

5 Steps

1. Criteria & associated operational measures are decided on

2. Weights assigned to each of the criteria

3. Each member evaluated is rated on each of the criteria

4. Score on each criterion multiplied by eight for that criterion

!. Weighted criterion ratings summed to yield overall

performance rating for each member

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1414III. Recommending Corrective ActionsIII. Recommending Corrective Actions

Channel manager should attempt tofind out why members have performed poorlyCorrection and enforcement

1. Develop concrete & practical approaches to activelyseek information on member needs and problems

2. Programs of member support must be congruent* with

member needs & problems

3. onstraints imposed by interorgani!ational setting of

marketing channel must be understood

Dimensions of

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1414Dimensions of(Micro) Channel Member

Performance*a)Sales Performanceb) Financial Performance*c) Reseller Competenced) Reseller Compliancee) Reseller Adaptationf) Reseller Growthg) End-Customer Satisfaction*

Three Dimensions: Capability, Behavior, Outcome

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1414Member !inancial

Performancea) Strategic Profit Model*(a) Profit Margin(b) Asset Turnover (Turnover Ratio)

(c) Return on Asset(d) Leverage Ratio(e) Return on Investment

b) Economic Value Analysis: After-tax operating profit - total annual costof capital (equity & debt)

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A TAXONOMY OF RETAILER TYPES*

The Strategic Profit Model

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The Strategic Profit Model

Asset Turnover:

Net sales/

Total Assets

Profit Margin:

Net Profit/

Net Sales

Return on Assets:

Net Profit/

Total Assets

Leverage Ratio:

Total Assets/

Net ort!

Return On Invest"ent:

Net Profit/

Net ort!