1. Chapter 14
Evaluating Channel Performance

2. 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*

3. What is Channel Performance?*14
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

4. Scope & Frequency of Channel Performance Evaluations Depend on*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 (channel intensity)

5. 1. 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

6. 2. Importance of Channel Members14
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

7. + 3. Nature of the Product The more complex 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
critical to the manufacturer

8. 4. Number of Channel Members14
Manufacturers who use
intensive distribution
Manufacturers who use
highly selective
distribution
Channel member
evaluation may
be cursory
Channel member
evaluation is
comprehensive

9. Performance Evaluation versus Monitoring14
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

10. Channel Performance Audit*14
Three Phases of Channel Performance Audit
Developing evaluation criteria
Channel goals
Periodically evaluating the
performance against the criteria
Recommending corrective actions

11. I. Key Criteria for Channel Performance Audit*14
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*

12. 1. 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

13. 2. Inventory Maintenance14
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
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 member’s inventory control &
record-keeping system

14. 3. Selling Capabilities 14 Ex) CISCO
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

15. 4. 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

16. 5. Competition 14 Channel manager should consider
two types of competition: 1.
Competition from other
Intermediaries
(Inter-store) 2.
Competition from
other product lines
carried by the
manufacturer’s own
channel members
(Within-Store)

17. 6. General Growth Prospects14
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

18. II. Applying Evaluation Criteria14
II. Applying Evaluation 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

19. 1. Separate Performance Evaluations14
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

20. 2. Multiple Criteria Combined Informally14
Operational performance
measures obtained
Managerial judgment used
to combine performance measures
Qualitative judgment made about
overall channel member performance

21. 3. Multiple Criteria Combined Formally14
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

22. III. Recommending Corrective Actions14
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

23. Dimensions of (Micro) Channel Member Performance*14
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

24. Measures of Channel Member Financial Performance14
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)

25. A TAXONOMY OF RETAILER TYPES*

26. 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
Net sales = gross sales + promotion allowances - customer return
Net profit = gross margin – total expense (operating expense + interest expense)
Gross margin = Net sales – cost of goods sold
Net worth = total asset – total liability
Return On Investment:
Net Profit/
Net Worth