ARELLANO UNIVERSITY

Distribution Management
Chap. 14. Evaluating Channel
Member Performance

Professor: Dr. Ronaldo A. Poblete, CFMP

 Learning Objectives
 Evaluating member performance
 Scope and frequency of
evaluations
 Evaluation versus marketing
 Performance audit
 Key criteria for performance audit
 Applying performance criteria
 Recommending corrective action
 Evaluating Member Performance
1
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.
2 Scope & Frequency of Evaluations

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
Channelmanager
manager Manufacturer
Manufacturer
can
candemand
demandaagreat
greatdeal
dealof
of can
canexert
exertlittle
littlecontrol
control
information
informationon
onmember
member over
overchannel
channelmembers
members
operations
operations
Importance of Channel Members
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
Because the
the firm’s
firm’s success
success inin the
the market
market isis
directly
directly dependent
dependent on on the
the channel
channel members’
members’
performance
performance
Nature of the Product

The more complex the product,

the broader the scope of evaluation

And

For products of very high unit value, the

gain or loss of a single order is
important to the manufacturer
Number of Channel Members

Manufacturers who use Manufacturers who use

intensive distribution highly selective
distribution

Channel
Channel member
member Channel
Channel member
member
evaluation
evaluation may
may evaluation
evaluation isis
be
be cursory
cursory comprehensive
comprehensive
 Evaluation versus Monitoring

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
 Performance Audit
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
5 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

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

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
 Inventory Maintenance
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 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
 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
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:
1.
Competition from other
intermediaries

2.
Competition from
other product lines
carried by the
manufacturer’s own
channel members
General Growth Prospects

Key issues for evaluating channel

member 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
Applying Performance Criteria

Three Approaches

1. Separate performance evaluations on

one or more criteria
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

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

Operational performance
measures obtained
Managerial judgment used
to combine performance
measures

Qualitative judgment
made about
overall channel member
performance
 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
Recommending Corrective Actions
Channel manager should attempt to
find out why members have
performed poorly

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
 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).
 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.