Chapter 14 Evaluating Channel Member Performance

Evaluating Member Performance Objective 1: 14 Evaluating Member Performance The importance of channel member performance equals that of employee evaluations within the firm. Except The channel manager works with individual firms rather than with individual employees. The setting is interorganizational rather than intraorganizational.

Scope & Frequency of Evaluations Objective 2: Scope & Frequency of Evaluations 14 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

Degree of Control 14 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

Importance of Channel Members 14 Evaluation of channel members is more comprehensive for manufacturers who sell all of their output through intermediaries than for manufacturers who rely less on intermediaries. Why? Because the firm’s success in the market is directly dependent on the channel members’ performance

+ Nature of the Product 14 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

Number of Channel Members 14 Manufacturers who use intensive distribution Manufacturers who use highly selective distribution Channel member evaluation may be cursory Channel member evaluation is comprehensive

Evaluation versus Monitoring Objective 3: Evaluation versus Monitoring 14 Performance Evaluation Day-to-Day Monitoring Overall performance reviews that give management a complete & objective analysis of each distributor’s operations Appraisals that assist management in maintaining current operating control of distributors’ efforts

Performance Audit 14 Three Phases Objective 4: 14 Three Phases Developing criteria for measuring channel member performance Periodically evaluating the channel members’ performance against the criteria Recommending corrective actions to reduce the number of inadequate performances

Key Criteria for Performance Audit Objective 5: Key Criteria for Performance Audit 14 Sales performance of channel members Inventory maintenance of channel members Selling capabilities of channel members Attitudes of channel members Competition faced by channel members General growth prospects of channel members

Sales Performance 14 Criteria channel manager should use to evaluate sales data: 3. Comparisons of the channel member’s sales with predetermined quotas 1. Comparisons of the channel member’s current sales to historical sales 2. Cross comparisons of a member’s sales with those of other members

Inventory Maintenance 14 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 provided 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 on hand & efforts made to move it Adequacy of channel member’s inventory control & record-keeping system

Selling Capabilities 14 Manufacturer who obtains sales records for channel members’ salespeople should examine the following factors: 1. Number of salespeople the channel member assigns to manufacturer’s product line 3. Salesperson interest in manufacturer’s products 2. Technical knowledge and competence of channel member’s salespeople

Attitudes of Channel Members 4 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

Competition 14 Channel manager should consider two types of competition: 1. Competition from other intermediaries 2. Competition from other product lines carried by the manufacturer’s own channel members

General Growth Prospects 14 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 Member’s estimates of its own medium- & long-range outlooks

Applying Performance Criteria Objective 6: 14 Applying Performance Criteria 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

Separate Performance Evaluations 14 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

Multiple Criteria Combined Informally 14 Operational performance measures obtained Managerial judgment used to combine performance measures Qualitative judgment made about overall channel member performance

Multiple Criteria Combined Formally 14 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

Recommending Corrective Actions Objective 7: Recommending Corrective Actions 14 Channel manager should attempt to find out why members have performed poorly 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