Evaluating Channel Performance

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Chapter 14

• Evaluating Channel Performance

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Major Topics for Ch. 14

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• What is Channel Performance?
• Scope and Frequency of Performance Evaluations
• Performance Audit
• Key Criteria for Performance Audit
• Applying Evaluation Criteria
• Recommending Corrective Actions
• Extra Topic Micro Channel Performance

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What is Channel Performance?

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I. Channel Performance The extent to which the
channel members meet the desired channel
goals. II. Dimensions of (Macro) Channel
Performance a) Efficiency Productivity
Profitability b) Effectiveness Stimulation of
New Demand, Customer Satisfaction c) Equity
Easy Access and Opportunity Ex) U.S. versus Japan

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Scope Frequency of Channel Performance
Evaluations Depend on
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1. Degree of the manufacturers control
over channel members 2. Relative
importance of channel members 3. Nature of
the product 4. Number of channel members
(intensity)
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1. Degree of Control
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Control that a producer, manufacturer, or
franchisor has over members is based on strong
contractual agreements
Manufacturer lacks strong market acceptance for
its products strong channel control based
on contractual commitments


Channel manager can demand a great deal
of information on member operations
Manufacturer can exert little control over
channel members
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2. Importance of Channel Members

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Evaluation of channel members is more
comprehensive for manufacturers who sell all of
their output through intermediaries
Why?
Because the firms success in the market is
directly dependent on the channel members
performance
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3. Nature of the Product
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The more complex the product, the broader the
scope of evaluation

For products of very high unit value, the gain or
loss of a single order is important to the
manufacturer
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4. Number of Channel Members
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Manufacturers who use intensive distribution
Manufacturers who use highly selective distributio
n

Channel member evaluation may be cursory
Channel member evaluation is comprehensive
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Evaluation versus Monitoring

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Performance Evaluation
Day-to-Day Monitoring

Overall performance reviews that give management
a complete objective analysis of distributor
operations
Appraisals that assist management in
maintaining current operating control
of distributors efforts
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Channel Performance Audit

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• Three Phases of Performance Audit
• Developing evaluation criteria ?Channel goals
• Periodically evaluating the
• performance against the criteria
• Recommending corrective actions

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I. Key Criteria for Channel Performance Audit

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• 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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1. Sales Performance
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Criteria channel manager should use to evaluate
sales data
3. Comparisons of the channel members
sales with predetermined quotas
1. Comparisons of the channel members
current sales to historical sales

2. Cross comparisons of a members sales
with those of other members
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2. Inventory Maintenance

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Key Criteria for evaluating member inventory
performance

• 1. Total level of channel members inventory
• 2. Shelf or floor space devoted to inventory
• 3. Shelf or floor space relative to competitors
  inventory
• Breakdown by particular products in units
  dollars
• Comparison of figures with channel members
  estimated
• purchases of related competitive lines
• Condition of inventory inventory facilities
• Amount of old stock efforts made to move it
• Adequacy of channel members inventory control
• record-keeping system

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3. Selling Capabilities
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Manufacturer who obtains sales records for
channel members salespeople should examine the
following factors
1. Number of salespeople the channel
member assigns to manufacturers product line
3. Salesperson interest in manufacturers
products
2. Technical knowledge and competence of channel
members salespeople
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4. Attitudes of Channel Members



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Attitudes
Not usually evaluated unless sales performance is
unsatisfactory
Negative ones often addressed after they have
contributed to poor performance

Should be evaluated independently of sales data
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5. Competition







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Channel manager should consider two types of
competition

1. Competition from other Intermediaries (Inter-s
tore)
2. Competition from other product lines carried
by the manufacturers own channel
members (Within-Store)
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6. General Growth Prospects



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Key issues for evaluating channel member growth
prospects

• Past performance
• Overall performance
• Expansion or improvement of organization
• Level of growth and qualification in personnel
• Management, age, health, or succession
• arrangements
• Adaptability overall capacity to meet market
• expansions
• Members estimates of its own medium-
  long-range
• outlooks

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II. Applying Evaluation Criteria





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• Separate performance
• evaluations on one or more criteria

2. Multiple criteria combined informally to
evaluate overall performance qualitatively
Three Approaches
3. Multiple criteria combined formally to arrive
at a quantitative index of overall performance
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1. Separate Performance Evaluations





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Commonly used when the number of channel members
is very large when criteria are limited 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 Informally





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Operational performance measures obtained
Managerial judgment used to combine performance
measures
Qualitative judgment made about overall channel
member performance
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3. Multiple Criteria Combined Formally
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• 5 Steps
• Criteria associated operational measures are
  decided on
• Weights assigned to each of the criteria
• Each member evaluated is rated on each of the
  criteria
• Score on each criterion multiplied by weight for
  that criterion
• Weighted criterion ratings summed to yield
  overall
• performance rating for each member

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III. Recommending Corrective Actions
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Channel manager should attempt to find out why
members have performed poorly ? Correction and
enforcement

• Develop concrete practical approaches to
  actively seek information on member needs and
  problems
• Programs of member support must be congruent with
  member needs problems
• Constraints imposed by interorganizational
  setting of marketing channel must be understood

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Dimensions of (Micro) Channel Member Performance

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a) Sales Performance b) Financial Performance c)
Reseller Competence d) Reseller Compliance e)
Reseller Adaptation f) Reseller Growth g)
End-Customer Satisfaction

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Measures of Channel Member Financial Performance

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a) 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 cost of
capital (equity debt)

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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 Worth
Return On Investment Net Profit/ Net Worth