Evaluating Channel Performance PPT _ BEC DOMS BAGALKOT by BabasabPatil


									Evaluating Channel Performance
             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’

Macro or societal perspective
Micro or managerial perspective
Does distribution cost too much?
Are there people who are disadvantaged by the
current distribution system?(inner city & rural
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?
Measuring channel performance               Measurement

                Performance measures

Effectiveness                          Efficiency

   Channel performance
Effectiveness : Providing the required service most cost effectively.

a. Delivery : A short term, goal oriented measure of on time
   e.g – Number of times the order was serviced OTIF.

b. 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.


  Channel performance
Equity : Extent to which marketing channel serves problem ridden
markets and market segments, such as disadvantaged or
geographically isolated consumers.


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.

     Channel performance
Efficiency: Output / Input

1.   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

2.   Profitability: Essentially financial efficiency w.r.t R.O.I.

          a. Stock turns & margins
          b. Control on overhead costs
          c. Cost & use of funds

       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.
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
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
 Measuring financial performance
Cost, revenue, & distribution channels can be
used by a firm to determine the relative
profitability and financial performance of
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.
   Distribution channel segmentation

                         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
                        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
          Revenue Cost Analysis
Revenue and cost associated with each segment
must be analyzed
Direct selling cost
Indirect selling cost
Sales promotion
Storage and shipment
Order processing associated with serving specific channels,
          Identify the cost
          territories, and products
     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
                      Contribution Margin Income Statement By Channel Segment

                                                Health care      Retail channel         Total company

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%
             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.
                       Profits by commercial distribution channel
                            Contract   Industrial   Government   OEM    Total commercial

Gross profit                27371      10284        136          2461   40256
Selling expenses
Co-op advertising
Sales promotion
Sales administration
Cash discount
General & Admin expenses

Operating profit
Operating margin
         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
                                                                                                   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

                 =                    x      %
                                          Net profit/                                      Sales
Net profit/net       Total assets /
                     net worth            total assets      Assets turnover
worth                                                                                                                    Inventory
                                                                                       ÷                      assets        (+)
                                                              Net sales/                                                  Accounts
                                                              total assets
                                                                                     Total assets                 (+)    receivable
                                                                                                              Fixed         (+)
  Strategic Profit Model                                                                                                  current
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
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

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