Assessing distributor performance is a crucial part of channel management that cannot be ignored. It allows manufacturers to reflect on the past and plan for the future. If manufacturers neglect distributor assessment, they will find it difficult to control their distributors, channel problems may go unnoticed, and manufacturers will be put in a passive position, eventually being led by the nose by their distributors. Moreover, without assessment, manufacturers will lack a factual basis for formulating, adjusting, and improving policies, as well as for rewarding and punishing distributors. Neglecting distributor assessment is a major taboo for manufacturers and can even be fatal.
Currently, many manufacturers focus only on product sales volume and payment collection when assessing distributors. While these are important indicators, they should not be the only ones, as this can mask problems that companies fail to see, such as distributor inventory and cross-regional selling (channel stuffing). The manufacturer may receive payment, but the products might be sitting unsold in the distributor's warehouse, or the sales could be the result of large-scale cross-regional selling. To stand firm in the industry and achieve their own goals, distributors must reach an acceptable level of performance. Assessment is a positive way to help distributors improve their performance while also achieving channel value-added for the manufacturer.
This article discusses a quantitative assessment system for distributors based on the principles of simplicity, practicality, efficiency, and avoiding uniformity.
I. Assessment Indicators To assess distributors, it is essential to clarify the scope of assessment, determine the assessment cycle, and set assessment indicators. The assessment cycle can generally be divided into monthly, quarterly, semi-annual, and annual assessments, depending on the manufacturer's actual situation and needs. Assessment indicators are divided into two categories: quantitative and qualitative.
Quantitative Indicators (see Table 1) Among the two types of assessment standards, quantitative standards are the most effective for evaluating distributor performance. These standards have specific data and represent the final results. Each quantitative indicator must have a target value that aligns with the actual situation. How to determine target values is beyond the scope of this article.
Qualitative Indicators (see Table 2) Many manufacturers only use quantitative assessment standards, but qualitative standards are also very important. They represent the distributor's main work activities and explain why the quantitative results are what they are. Qualitative assessments are primarily based on the investigations and observations of the manufacturer's marketing personnel who manage the distributors, but care should be taken to minimize the assessor's personal bias and subjectivity. How to evaluate through surveys and visits is also not discussed in this article.
II. Determining Assessment Results After setting the assessment indicators, the next step is to determine the final assessment results. The weighting method is used here: both quantitative and qualitative indicators are expressed in scores, each indicator is given a weight, and then the weighted values are summed. There is no fixed standard for determining weights; manufacturers can set them based on their actual situation, different requirements for distributors, historical data, and experience.
- Quantitative Indicators (Table 1)
- Set weight scores for each indicator.
- Calculate the actual values of each indicator.
- Compare the actual values with the target values to calculate the target completion rate.
- Multiply the target completion rate by the weight score to get the actual score for the indicator.
- Sum the actual scores of all quantitative indicators to get the total quantitative assessment score.
- Qualitative Indicators (Table 2)
- Set weights for each indicator.
- Assess the actual score for each indicator.
- Multiply the actual score by the weight to get the actual score.
- Sum the actual scores to get the total qualitative assessment score.
- Following the principle of simplicity, quantitative and qualitative indicators are handled separately. The final result is obtained by weighting the total scores of quantitative and qualitative indicators again, for example, quantitative indicators account for 70% and qualitative indicators for 30%, resulting in a final score for a distributor (Table 3).
III. Explanation of Assessment Indicators
- Quantitative Indicators ● Sales Volume (Shipment Volume) Sales volume here should be based on shipment volume. Manufacturers typically assess distributors based on the quantity ordered from the company, but this can easily lead to distributors stockpiling goods before the assessment. The goods are merely moved from the manufacturer's warehouse to the distributor's warehouse, and may be returned to the manufacturer if they exceed the distributor's sales capacity or expire. Therefore, using order volume alone to assess sales performance is unreasonable and does not accurately reflect the distributor's performance level. Using shipment volume as the assessment indicator is more realistic. Shipment volume is the quantity shipped directly from the distributor's warehouse to customers and retailers.
● Sales Volume (Shipment Volume) Growth Rate If product sales are not in a natural phase (e.g., product entering peak season or market growth stage), the sales growth rate can reflect the distributor's operational level. Sales Growth Rate = (Assessment Period Sales - Previous Period Sales) / Previous Period Sales × 100%
● Market Share There are usually two assessment methods for this indicator: one is absolute quantity assessment, such as requiring a distributor to achieve a 30% market share in their territory; the other is relative ranking assessment, such as requiring the distributor to be second in market share in their territory. This article adopts the first method. Market Share = Distributor's Sales Volume / Total Sales Volume of Similar Products in the Territory × 100%
● Distribution Rate (Placement Rate) This indicator is more applicable in the early stages of product launch. A distribution rate that is too low is not conducive to sales, but it is not necessarily better to have a higher rate; it depends on product characteristics and the manufacturer's market strategy. Distribution Rate = Number of Retail Outlets with Product Display / Number of Retail Outlets Where Product Should Be Displayed × 100%
● Full Product Line Purchase Rate Some distributors are unwilling to carry products that are not fast-moving or have low profit margins. Therefore, the number of product categories a distributor purchases from the manufacturer within their capability is also an indicator for assessment. Full Product Line Purchase Rate = Number of Product Categories Carried by Distributor / Total Number of Product Categories of Manufacturer × 100%
● Return Rate Manufacturers may allow a certain level of returns to support distributors, but for manufacturers, fewer returns are better. When calculating the return quantity, products that are defective due to the manufacturer's fault or damaged by the distributor should be excluded. Return Rate = Quantity of Returns / Distributor's Sales Volume × 100%
● Input-Output Ratio This indicator reflects the distributor's contribution to the manufacturer's profit. Input-Output Ratio = Distributor's Sales Revenue / Manufacturer's Sales Expenses for the Distributor × 100%
● Payment Speed Payment speed (or payment cycle) can be used to assess whether the distributor pays for goods according to the contract. It reflects the distributor's credibility. This indicator can also be used as a qualitative indicator based on whether the distributor pays on time. Payment Speed = Accounts Payable / Average Daily Purchases.
● Exclusive Sales Rate The proportion of the manufacturer's products in the distributor's total product mix reflects the distributor's emphasis on selling the manufacturer's products. If the distributor is exclusive, the target value should be 100%. Exclusive Sales Rate = Manufacturer's Product Sales / Distributor's Total Sales × 100%
- Qualitative Indicators ● Price Execution Distributors should implement the manufacturer's pricing policy as stipulated. Violations should be severely penalized.
● Cross-Regional Selling (Channel Stuffing) Distributors selling across regions is strictly prohibited by manufacturers. Some manufacturers impose extremely strict penalties for cross-regional selling, including revoking distribution rights upon discovery.
● Pre-Sales and After-Sales Service For example, distributors provide customers with pre-sales product information; after-sales services such as product exchange and repair.
● Timely Delivery Whether distributors deliver goods to customers in a timely manner reflects their operational capability and service attitude.
● Point-of-Sale Atmosphere Distributors should strive to secure larger display areas and better display positions at retail points; product displays should create an attractive purchasing atmosphere, such as POP, standardized stack displays, prominent product placement, and complete product categories; product displays should align with customers' habitual sightlines, and products should be neat and clean.
● Work Reports If manufacturers require distributors to submit monthly, quarterly, and annual plans and summaries on a regular basis (e.g., monthly), distributors should actively cooperate.
● Compliance with Coordination In the event of channel conflicts, distributors must comply with the manufacturer's coordination.
● Participation in Training Distributors should actively participate in training provided by the manufacturer. If training effectiveness needs to be assessed, distributors should take it seriously.
● Information Feedback Distributors should report various relevant market information to the manufacturer as required, especially information about competitors. For important information, distributors should report promptly so that the manufacturer can take timely measures to analyze and forecast the market. This indicator can be evaluated together with work reports.
● Confidentiality Distributors must strictly keep the company's various business secrets. If a distributor leaks information causing serious impact, the manufacturer can impose severe penalties, including revoking distribution rights and pursuing legal liability.
● Work Cooperation Distributors must actively cooperate with the manufacturer's promotional activities in their territory.
● Management of Sub-Distributors The distributor's level of management over sub-distributors is of great significance to the manufacturer's product sales and brand image maintenance. This indicator can also include the quantity and quality of sub-distributors developed by the distributor.
IV. Supplementary Notes When assessing distributors, do not apply a one-size-fits-all model; adjust according to different situations. For example, for sales growth rate, products with strong seasonality such as air conditioners should not be used across seasons; it is also not suitable during the introduction, growth, and decline stages of the product life cycle, because natural forces differ from the distributor's operational efforts.
Manufacturers should not use all indicators. First, some manufacturers' specific situations do not require all indicators; for example, some manufacturers do not conduct distributor training; some manufacturers are responsible for after-sales service; in the maturity stage, distribution rate is no longer important. Second, using all indicators may lead to high assessment costs, which may not be cost-effective for manufacturers, such as the high cost of investigating qualitative indicators. Additionally, for serious violations such as cross-regional selling or price policy violations, manufacturers can handle them separately, such as disqualifying from awards or revoking distribution rights. Even if some indicators can be used, if they are considered unimportant to the manufacturer, they can be omitted, such as market share if it is not the manufacturer's goal.
V. Application Example At the end of the year, J Food Company planned to award first, second, and third prizes to regional distributors in H province. After initial screening, they decided to choose from three top performers: A, B, and C. However, the manufacturer was in a dilemma because the sales revenues of the three regional distributors were almost identical: 5.38 million yuan, 5.30 million yuan, and 5.32 million yuan, respectively, and all payments were made on time. If sales revenue alone were used as the basis for awards, it might cause dissatisfaction among distributors B and C. Finally, the manufacturer decided to select key assessment indicators to evaluate the three distributors. Marketing personnel and financial staff quickly got to work.
Since the company's product sales were relatively stable, and the company and distributors had cooperated for nearly three years selling all product categories, the distribution rate and full product line purchase rate were not assessed. The company adopted a market-following strategy, so market share was not considered. Distributors paid on time, so payment speed was not assessed. The quantitative assessment results for A are shown in Table 1. In the qualitative assessment, no violations of price policy or cross-regional selling were found. The company selected several important indicators for assessment; A's qualitative assessment results are shown in Table 2. The weights were determined based on the company's experience and judgment.
Filling in Table 4 with the results from Tables 1 and 2, A's final score was 80.81. Using the same method, B and C scored 84.09 and 82.23, respectively. It can be seen that although A had the highest sales volume, it ranked third; B had the lowest sales volume but won the first prize, and all distributors were convinced.
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