Evaluating channel performance ppt @ bec doms bagalkot

1. Evaluating Channel Performance

2. Measurement of
Channel Performance
Performance may be define as‘ the sum of all
processes that will lead managers to taking
appropriate actions in the present that will
create a performing organisation in the future’
or in other words, ‘ doing today what will lead to
measured value outcomes tomorrow’
2

3. Macro or societal perspective
Micro or managerial perspective

4. Macro
Does distribution cost too much?
Are there people who are disadvantaged by the
current distribution system?(inner city & rural
areas)
How do channel members at various levels of
distribution compare, in aggregate, in terms
productivity per employee?
Has productivity been increasing more rapidly in
manufacturing, wholesaling, or retailing?

5. Performance
Measuring channel performance Measurement
Performance measures
Effectiveness Efficiency
Equity
5

6. Performance
Measurement
Channel performance
Effectiveness : Providing the required service most cost effectively.
c. Delivery : A short term, goal oriented measure of on time
delivery
e.g – Number of times the order was serviced OTIF.
f. Stimulation of demand: What are the efforts made by the
channel member to increase customer base or increase the
usage of the product.
example: The cross marketing effort of Khimji & Sons,
Kalamandir & Panda enterprises in Marriage season.
Selling Maruti through Nalco Co-operative by Orbit Motors.
6

7. Performance
Measurement
Channel performance
Equity : Extent to which marketing channel serves problem ridden
markets and market segments, such as disadvantaged or
geographically isolated consumers.
Examples:
Providing sales & after sales service to remote places
like Malkangiri by CD distributors ( even at credit ). Higher freight
Payout by the manufacturer & greater effort by distributor.
Providing After sales service to the Coke ( NCFC ) refrigerators
required tremendous training effort & investment in infrastructure.
7

8. Performance
Measurement
Channel performance
Efficiency: Output / Input
3. Productivity : The efficiency with which the output is generated
from the resources and inputs. Operational efficiency.
a. Manpower productivity: Productive call %
Sales volume per call
b. Productivity of vehicle: Number of outlets covered
10. Profitability: Essentially financial efficiency w.r.t R.O.I.
a. Stock turns & margins
b. Control on overhead costs
c. Cost & use of funds
8

9. Performance
Measurement
Measuring performance of marketing channels
Normally tracked by H.O.
1. Productivity tracking of manpower ( call reports, DSR )
2. Profitability tracking ( branch level contribution / prod. Mix ).
3. Market Penetration tracking ( Network expansion objectives ) .
4. Market share tracking ( ORG studies, internal reports ).
5. Budget Vs actual.
Internal data analysis.
Dependence on market research.
Objectivity of measurement.
9

10. Micro
Question here focus on profitability & cost relative
to figure out
Which channel member are solid run
Which channel seems to produce highest returns
Which suppliers/intermediaries will help the firm
generate the greatest end user satisfaction
which of the marketing flows is best performed by
specific channel member

11. Managerial point of view
We look at how an individual channel member
should go about evaluating its own performance
How the channel member (Manufacturer)will
evaluate the performance of another channel
member (wholesaler)
How an individual channel member might measure
& compare the various channel it employs

12. Measuring financial performance
Cost, revenue, & distribution channels can be
used by a firm to determine the relative
profitability and financial performance of
channels
As a result of the financial analysis one or more
appropriate managerial action may be taken.
May be seek operational changes that would
result in changes in profitability.
Changes in frequency of sales calls, the size of minimum order,
promotional expenses might lead to changes in profitability.

13. Distribution channel segmentation
(a)
Corporate Profitability
Channel segmentation
Direct channel Indirect channel
Product A Product B Product C Product A Product B Product C
(a) Segmentation analysis by channel & product category

14. (b)
Corporate Profitability
Channel segmentation
Direct channel Indirect channel
Territory segmentation
East West East West
A B C A B C A B C
A B C Product segmentation
(b)Segmentation analysis by channel, territory and product category

15. Revenue Cost Analysis
Revenue and cost associated with each segment
must be analyzed
Direct selling cost
Indirect selling cost
Advertising
Sales promotion
Transportation
Storage and shipment
Order processing products with serving specific channels,
Identify the cost associated
territories, and

16. Contribution margin approach
CMA requires all cost be identified as fixed or
variable according to behavior of the cost
Income statement in the CMA method of
analysis can be prepared that identify
probability for each segment by determination
of fixed, variable, direct and indirect cost

17. Contribution Margin Income Statement By Channel Segment
Health care Retail channel Total company
channel
Revenue 100,000 150,000 250,000
Less: Variable Cost of goods sold 42,000 75,000 117,000
Variable Gross Profit 58,000 75,000 133,000
Less: Variable direct cost 6,000 15,000 21,000
Gross segment contribution 52,000 60,000 112,000
Less: fixed direct cost 15,000 21,000 36,000
Net segment contribution 37,000 39,000 76,000
Less: indirect fixed cost 41,000
Net profit 25,000
Net segment contribution 37% 26% 30.4%

18. Net profit approach
Net profit approach to financial assessment of
segments requires that all operating costs be charged
or allocated to one operating segment. all of
company's activity exists to support the production
and delivery of goods & services to customer.
Furthermore most of the costs that exists in a firm are,
in fact, joint or shared cost. In order for the true
profitability of a channel, territory, or product to be
determined, each segment must be charged with its
fair share of these costs.

19. Profits by commercial distribution channel
Contract Industrial Government OEM Total commercial
suppliers
Gross profit 27371 10284 136 2461 40256
Selling expenses
Commissions
Advertising
Catalog
Co-op advertising
Sales promotion
warranty
Sales administration
Cash discount
total
General & Admin expenses
Operating profit
Operating margin

20. Strategic profit Model
SPM is an analytic tool frequently used to
determine ROI in a business firm. It is a tool that
incorporates both income and balance sheet
data and demonstrates how these data relate to
each other to result in RONW (return on net
worth)& ROA (return on assets)
Strategic objective of a firm is ROI

21. Gross margin Sales
Net profit (-)
Cost of
goods sold
Net profit margin
÷
%
sales Variable
Total expenses
Net profit/ expenses
net sales
(+)
Return on net Financial Return on assets
worth Fixed
Leverage
expense
= x %
Net profit/ Sales
Net profit/net Total assets /
net worth total assets Assets turnover
worth Inventory
Current
÷ assets (+)
Net sales/ Accounts
total assets
Total assets (+) receivable
Fixed (+)
assets
Other
Strategic Profit Model current
assets

22. Net profit margin- is defined as % net profit divided by net
sales how ever net profit margin actually measures the
proportion of each sales rupees that is kept by firm as net
profit
Asset turn over- is a ratio of total sales divided buy total
assets. It actually measures the efficiency of management in
utilizing assets. Its shows how mush money in total sales
volume is generated by each dollar that the firm has spent.
Leverage – the result by multiplying net profit margin
percentage times asset turnover ratio in return on
assets(ROA). For OR, ROA is a critical measure of performance
because it especially tells how well they have used all the
resources at their disposal to achieve profit