Chapter 14
Evaluating Channel Performance
Major Topics for Ch. 14
•What is Channel Performance?*
•Scope and Frequency of Performance Evaluations*
• Channel 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 (ex:
online channel); Customer Satisfaction (ex: Walk in
clinic)
c) Equity: Easy Access and Opportunity
Ex) U.S. versus Japan; L.A. and Indian Reservation
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Scope & Frequency of
Channel Performance Evaluations Depend on*
1. Degree of the manufacturer’s control over
channel members
2. Relative importance of channel members
3. Nature of the product
4. Number of channel members (channel intensity)
1. Degree of Control
Control that a producer,
manufacturer, or franchisor has
over members is based on
strong contractual agreements
Channel manager
can demand a great deal of
information on member
operations
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Manufacturer lacks
strong market acceptance
for its products & strong
channel control based on
contractual commitments
Manufacturer
can exert little control
over channel members
2. Importance of Channel Members
Evaluation of channel members is more
comprehensive for manufacturers who sell all of their
output through intermediaries
Why?
Because the firm’s success in the market is directly
dependent on the channel members’ performance
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3. Nature of the Product
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
Manufacturers who use
intensive distribution
Channel member
evaluation may
be cursory
Manufacturers who use
highly selective
distribution
Channel member
evaluation is
comprehensive
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Performance Evaluation versus Monitoring
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
Three Phases of Channel Performance
Audit
1. Developing evaluation criteria
Channel goals
2. Periodically evaluating the
performance against the criteria
3. 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
Criteria channel manager
should use to evaluate sales data:
1.
3.
Comparisons of the
channel member’s current
sales to historical sales
Comparisons of the
channel member’s sales
with predetermined quotas
2.
Cross comparisons of
a member’s sales with
those of other members
2. Inventory Maintenance
Key Criteria for evaluating member inventory performance:
1. Total level of channel member’s inventory
2. Shelf or floor space devoted to inventory
3. Shelf or floor space relative to competitors’
inventory
4. Breakdown by particular products in units & dollars
5. Comparison of figures with channel members’
estimated
purchases of related & competitive lines
6. Condition of inventory & inventory facilities
7. Amount of old stock & efforts made to move it
8. Adequacy of channel member’s inventory control &
record-keeping system
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3. Selling Capabilities
Ex) CISCO
Manufacturer who obtains sales records
for channel members’ salespeople should
examine the following factors:
1.
3.
Number of salespeople
the channel member
assigns to manufacturer’s
product line
Salesperson interest
in manufacturer’s products
2.
Technical knowledge and competence
of channel member’s salespeople
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
5. Competition
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Channel manager should consider
two types of competition:
1.
2.
Competition from other
Intermediaries
(Inter-store)
Competition from
other product lines
carried by the
manufacturer’s own
channel members
(Within-Store)
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6. General Growth Prospects
Key issues for evaluating channel
member growth prospects:
1.
2.
3.
4.
5.
Past performance
Overall performance
Expansion or improvement of organization
Level of growth and qualification in personnel
Management, age, health, or succession
arrangements
6. Adaptability & overall capacity to meet market
expansions
7. Member’s estimates of its own medium- & long-range
outlooks
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II. Applying Evaluation Criteria
1. Separate performance
evaluations on one or more criteria
Three
Approaches
2. Multiple criteria combined informally
to evaluate overall performance
qualitatively
3. Multiple criteria combined formally
to arrive at a quantitative index of
overall performance
1. Separate Performance Evaluations
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
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
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 weight for that criterion
5. Weighted criterion ratings summed to yield overall
performance rating for each member
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III. Recommending Corrective Actions
Channel manager should attempt to
find out why members have performed poorly
 Correction and enforcement
1. Develop concrete & practical approaches to actively
seek information on member needs and problems
2. Programs of member support must be congruent* with
member needs & problems
3. 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*
 Three Dimensions: Capability, Behavior, Outcome
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)
A TAXONOMY OF RETAILER TYPES*
RETAILER
TYPE
MAIN FOCUS
ON MARGIN
OR
TURNOVER?
Margin
BULKBREAKING
SPATIAL
CONVENIENCE
WAITING &
DELIVERY
TIME
VARIETY
(BREADTH)
ASSORTMENT
(DEPTH)
Yes
Moderate
Low wait time
Broad
Moderate/
Shallow
Specialty store
(e.g., The Gap)
Margin
Yes
Moderate
Low wait time
Narrow
Deep
Mail Order/
Catalog (e.g.,
Lands' End)
Margin
Yes
Extremely High
Moderate/ High
wait time
Narrow
Moderate
Convenience
store (e.g., 7Eleven)
Both
Yes
Very High
Low wait time
Broad
Shallow
Category killer
(e.g., Toys "R"
Us)
Turnover
Yes
Low
Low wait time
Narrow
Deep
Mass
Merchandiser
(e.g., Wal-Mart)
Turnover
Yes
Low
Moderate wait
time (may be
out of stock)
Broad
Shallow
Hypermarket
(e.g.,
Carrefour)
Turnover
Yes
Low
Moderate wait
time
Broad
Moderate
Warehouse
Club (e.g.,
Sam's Club)
Turnover
No
Low
Moderate/high
wait time (may
be out of stock)
Broad
Shallow
Department
store (e.g., May
Co.)
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