Chapter 14

Evaluating Channel Member Performance

Objective 1:

Evaluating Member Performance

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The importance of channel member performance equals that of employee evaluations within the firm. Except

1. The channel manager works with individual firms rather than with individual employees. 2. The setting is interorganizational rather than intraorganizational.

Objective 2:

Scope & Frequency of Evaluations

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1. Degree of the manufacturers 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

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Channel manager can demand a great deal of information on member operations

Manufacturer can exert little control over channel members

Importance of Channel Members

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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 firms success in the market is directly dependent on the channel members performance

Nature of the Product

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The more complex the product, the broader the scope of evaluation

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For products of very high unit value, the gain or loss of a single order is important to the manufacturer

Number of Channel Members

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Manufacturers who use intensive distribution

Manufacturers who use highly selective distribution

Channel member evaluation may be cursory

Channel member evaluation is comprehensive

Objective 3:

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Evaluation versus Monitoring

Performance Evaluation Day-to-Day Monitoring

Overall performance reviews that give management a complete & objective analysis of each distributors operations

Appraisals that assist management in maintaining current operating control of distributors efforts

Objective 4:

Performance Audit

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Three Phases 1. Developing criteria for measuring channel member performance 2. Periodically evaluating the channel members performance against the criteria 3. Recommending corrective actions to reduce the number of inadequate performances

Objective 5:

Key Criteria for Performance Audit

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

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Sales Performance
Criteria channel manager should use to evaluate sales data:

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1. Comparisons of the channel members current sales to historical sales 2. Cross comparisons of a members sales with those of other members

3. Comparisons of the channel members sales with predetermined quotas

Inventory Maintenance
Key Criteria for evaluating member inventory performance: 1. Total level of channel members inventory 2. Shelf or floor space devoted to inventory 3. Shelf or floor space provided 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 on hand & efforts made to move it 8. Adequacy of channel members inventory control & record-keeping system

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

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Attitudes of Channel Members

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
Channel manager should consider two types of competition:

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1. Competition from other intermediaries

2. Competition from other product lines carried by the manufacturers own channel members

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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. Members estimates of its own medium- & long-range outlooks

Objective 6:

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Applying Performance 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

Separate Performance Evaluations

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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

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Operational performance measures obtained

Managerial judgment used to combine performance measures

Qualitative judgment made about overall channel member performance

Multiple Criteria Combined Formally

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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

Objective 7:

Recommending Corrective Actions

Channel manager should attempt to find out why members have performed poorly

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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