Chapter 14

Part 3: Managing the Marketing Channel
14
CHAPTER
Evaluating Channel
Member
Performance
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Objective
Scope & Frequency
2 of Channel Member Evaluations
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 lacks

manufacturer, or franchisor has strong market acceptance
over members is based on for its products & strong
strong contractual agreements channel control based on
contractual commitments
Channel manager Manufacturer

can demand a great deal of can exert little control
information on member over channel members
operations
Importance of Channel Member Evaluation
1. More substantially use of intermediaries – greater

need for evaluation because the firm’s success is
directly dependent on it.
2. The more complex the product – the broader the

scope of evaluation because the process is more
complicated.
3. Higher unit value products – the greater the

importance of evaluation because the impact of a
single order is important to the manufacturer.
4. 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).
Objective
Evaluation versus Monitoring
3
Performance Day-to-Day
Evaluation Monitoring
Overall performance Appraisals that assist

reviews that give management in
management a complete maintaining current
& objective analysis of operating control of
each distributor’s distributors’ efforts
operations
Objective
Performance Audit
4
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
Key Criteria for Performance Audit:
Sales Performance
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
3. Comparisons of the channel

member’s sales with
predetermined quotas
Key Criteria for Performance Audit: Inventory Maintenance
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
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 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
2. Technical knowledge and

competence of channel
member’s salespeople
3. 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
1. Past performance
2. Overall performance
3. Expansion or improvement of organization
4. Level of growth and qualification in personnel
5. Management, age, health, or succession
arrangements
6. Adaptability & overall capacity to meet market
expansions
7. 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.
Objective
Three Approaches to Applying Performance Criteria
6
1. Separate performance evaluations

2. Multiple criteria combined INFORMALLY
1. Operational measures obtained then
2. Managerial judgement used to combine
measures
3. Qualitative judgement used to determine
overall performance.
3. Multiple criteria combined FORMALLY
Multiple Criteria Combined Formally
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

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Part 3: Managing the Marketing Channel

1. Degree of the manufacturer’s control over

2. Relative importance of channel members

3. Nature of the product

4. Number of channel members

Control that a producer, Manufacturer lacks

Channel manager Manufacturer

1. More substantially use of intermediaries – greater

2. The more complex the product – the broader the

3. Higher unit value products – the greater the

4. The more exclusive the distribution strategy – the

Do you think Holiday Inn’s termination of so many channel members

Overall performance Appraisals that assist

1. Developing criteria for measuring channel

2. Periodically evaluating the channel members’

3. Recommending corrective actions to reduce

1. Comparisons of the channel member’s

2. Cross comparisons of a member’s

3. Comparisons of the channel

1. Total level of channel member’s inventory

Manufacturer who obtains sales records

1. Number of salespeople the channel

2. Technical knowledge and

Not usually evaluated unless

Negative ones often addressed

Channel manager should consider

Comment on the change in Jaguar’s logistics system in

1. Separate performance evaluations

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