chapter 14 evaluating channel performance. 14 major topics for ch. 14 what is channel performance?*...
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Chapter 14Chapter 14
Evaluating Channel Performance
1414Major 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*
1414What is Channel Performance?*
I. Channel Performance: The extent to which the channel members meet the desired channel goals.
II. Dimensions of (Macro) Channel Performancea) 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
1414Scope & Frequency of Scope & Frequency of Channel Performance Evaluations Channel Performance Evaluations
DependDepend on* 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 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)
14141. Degree of Control1. Degree of Control
Control that a producer,manufacturer, or franchisor has
over members is based onstrong contractual agreements
Control that a producer,manufacturer, or franchisor has
over members is based onstrong contractual agreements
Channel managercan demand a great deal of
information on memberoperations
Channel managercan demand a great deal of
information on memberoperations
Manufacturer lacksstrong market acceptancefor its products & strong
channel control based oncontractual commitments
Manufacturer lacksstrong market acceptancefor its products & strong
channel control based oncontractual commitments
Manufacturercan exert little control
over channel members
Manufacturercan exert little control
over channel members
14142. Importance of Channel 2. Importance of Channel MembersMembers
Evaluation of channel members is more comprehensive for manufacturers who sell all of their
output through intermediaries
Evaluation of channel members is more comprehensive for manufacturers who sell all of their
output through intermediaries
Because the firm’s success in the market is directlydependent on the channel members’ performance
Because the firm’s success in the market is directlydependent on the channel members’ performance
Why?
14143. Nature of the Product3. Nature of the Product
The more complex the product, the broader the scope of evaluation
The more complex the product, the broader the scope of evaluation
For products of very high unit value, thegain or loss of a single order is
critical to the manufacturer
For products of very high unit value, thegain or loss of a single order is
critical to the manufacturer
+
14144. Number of Channel Members4. Number of Channel Members
Manufacturers who useintensive distribution
Manufacturers who useintensive distribution
Channel memberevaluation may
be cursory
Channel memberevaluation may
be cursory
Manufacturers who usehighly selective
distribution
Manufacturers who usehighly selective
distribution
Channel memberevaluation is
comprehensive
Channel memberevaluation is
comprehensive
Performance Evaluation versus Performance Evaluation versus MonitoringMonitoring
1414
Performance Evaluation
Day-to-DayMonitoring
Overall performancereviews that give
management a complete& objective analysis ofdistributor operations
Appraisals that assist management in
maintaining currentoperating control ofdistributors’ efforts
1414Channel Performance Audit*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
1414I. Key Criteria for I. Key Criteria for Channel Performance Audit*Channel Performance Audit*
• 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*
14141. Sales Performance1. Sales Performance
Criteria channel managershould use to evaluate sales data:
1.
Comparisons of thechannel member’s current
sales to historical sales
2.
Cross comparisons ofa member’s sales with
those of other members
3.
Comparisons of thechannel member’s sales
with predetermined quotas
14142. Inventory Maintenance2. Inventory Maintenance
1. Total level of channel member’s inventory2. Shelf or floor space devoted to inventory3. Shelf or floor space relative to competitors’
inventory4. Breakdown by particular products in units & dollars5. Comparison of figures with channel members’
estimatedpurchases of related & competitive lines
6. Condition of inventory & inventory facilities7. Amount of old stock & efforts made to move it8. Adequacy of channel member’s inventory control &
record-keeping system
Key Criteria for evaluating member inventory performance:
14143. Selling Capabilities3. Selling Capabilities
Manufacturer who obtains sales recordsfor channel members’ salespeople should
examine the following factors:
1.
Number of salespeoplethe channel member
assigns to manufacturer’sproduct line
2.
Technical knowledge and competenceof channel member’s salespeople
3.
Salesperson interestin manufacturer’s products
Ex) CISCO
Attitudes
44
Negative ones often addressed after they have contributed
to poor performance
4. Attitudes of Channel Members4. Attitudes of Channel Members
Should be evaluated independently of sales data
Not usuallyevaluated unless
sales performanceis unsatisfactory
14145. Competition5. Competition
Channel manager should consider two types of competition:
1.
Competition from otherIntermediaries(Inter-store)
2.
Competition fromother product lines
carried by the manufacturer’s ownchannel members
(Within-Store)
6. General Growth Prospects6. General Growth Prospects1144
Key issues for evaluating channel member growth prospects:
1. Past performance2. Overall performance3. Expansion or improvement of organization4. Level of growth and qualification in personnel5. Management, age, health, or succession
arrangements6. Adaptability & overall capacity to meet market
expansions7. Member’s estimates of its own medium- & long-range
outlooks
II. Applying Evaluation CriteriaII. Applying Evaluation Criteria1414
Three Approaches
1. Separate performanceevaluations on one or more criteria
2. Multiple criteria combined informallyto evaluate overall performance
qualitatively
3. Multiple criteria combined formallyto arrive at a quantitative index of
overall performance
1. Separate Performance 1. Separate Performance EvaluationsEvaluations
1414
Commonly used when the number of channelmembers is very large & when criteria arelimited to no more than sales performance,inventory maintenance, & possible selling
capabilities
Cf) PQD in purchasing performance evaluation
2. Multiple Criteria Combined 2. Multiple Criteria Combined InformallyInformally
1414
Operational performance measures obtained
Managerial judgment usedto combine performance measures
Qualitative judgment made aboutoverall channel member performance
14143. Multiple Criteria Combined 3. Multiple Criteria Combined FormallyFormally
5 Steps1. 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
1414III. Recommending Corrective III. Recommending Corrective ActionsActions
Channel manager should attempt tofind 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
1414Dimensions of (Micro) Channel Member
Performance*a) Sales Performanceb) Financial Performance*c) Reseller Competenced) Reseller Compliancee) Reseller Adaptationf) Reseller Growthg) End-Customer Satisfaction*
Three Dimensions: Capability, Behavior, Outcome
1414Measures of Channel
Member Financial Performance
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)
RETAILER TYPE
MAIN FOCUS ON MARGIN
OR TURNOVER?
BULK-BREAKING
SPATIAL CONVEN-
IENCE
WAITING & DELIVERY
TIME
VARIETY (BREADTH)
ASSORT-MENT
(DEPTH)
Department store (e.g., May Co.)
Margin 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., 7-Eleven)
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
A TAXONOMY OF RETAILER TYPES*
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
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