Evaluating Channel Member Performance Part 3: Managing the Marketing Channel Evaluating Channel Member Performance

Scope & Frequency of Channel Member Evaluations 2 The importance of channel member performance evaluation equals that of employee evaluations within the firm. 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 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 Member Evaluation More substantially use of intermediaries – greater need for evaluation because the firm’s success is directly dependent on it. The more complex the product – the broader the scope of evaluation because the process is more complicated. Higher unit value products – the greater the importance of evaluation because the impact of a single order is important to the manufacturer. The more exclusive the distribution strategy – the greater the need for comprehensive evaluation.

Discussion Question #5 Holiday Inn, a division of Inter Continental Hotels Group PLC, recently terminated 700 Holiday Inn franchise channel members. According to Holiday Inn, these channel members failed to meet Holiday Inn’s minimum standards. Over the years, the channel members did not make regular renovations and they were not willing to make the necessary investments in upgrades, such as new bedding, bathroom fixtures and other improvements, that would help to position Holiday Inn as a more upscale chain of hotels. Many of the channel members felt blindsided by what they saw as the franchisor’s stringent requirements and rigorous enforcement. Some of the franchisees had been associated with Holiday Inn for decades and felt that they had been loyal and productive channel members. They questioned the fairness of Holiday Inn’s negative evaluation of their performance. Do you think Holiday Inn’s termination of so many channel members was “fair”? Discuss from the point of view of the franchisor (Holiday Inn) and the franchisees (channel members).

Evaluation versus Monitoring 3 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 4 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: Sales Performance 1. Comparisons of the channel member’s current sales to historical sales Cross comparisons of a member’s sales with those of other members Comparisons of the channel member’s sales with predetermined quotas

Key Criteria for Performance Audit: Inventory Maintenance 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

Key Criteria for Performance Audit: Selling Capabilities 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 Technical knowledge and competence of channel member’s salespeople Salesperson interest in manufacturer’s products

Key Criteria for Performance Audit: Attitudes of Channel Members 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

Key Criteria for Performance Audit: Competition 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

Key Criteria for Performance Audit: General 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

Discussion Question #3 U.S. Jaguar dealers used to wait at least one week to receive parts from England. Parts were shipped in bulk by Jaguar to a U.S. warehouse where they were split up, repackaged and then shipped to individual dealers. Working closely with Federal Express, Jaguar initiated a new logistics system that shortened the time by four days. Under the new system, dealers order a part directly from Jaguar in England and the part is then air expressed via Federal Express. The time between order placement and receipt at the dealership is no longer than three days. Comment on the change in Jaguar’s logistics system in terms of its relevance for providing customer service and the possible trade-offs in higher costs.

Three Approaches to Applying Performance Criteria 6 Separate performance evaluations Multiple criteria combined INFORMALLY Operational measures obtained then Managerial judgement used to combine measures Qualitative judgement used to determine overall performance. Multiple criteria combined FORMALLY

Multiple Criteria Combined Formally 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