Directorate of distance education

Evaluating Channel Performance
The performance of channel members should be periodically 
monitored—a channel member may have looked attractive earlier but may 
not, in practice be able to live up to promises. (This can be either because 
of complacency or because the channel member simply did not realize the 
skills and resources needed to perform to standards). Thus, performance 
level (service outputs) and costs should be evaluated. 
Further, changes in technology or in the market place may make 
it worthwhile to shift certain functions to another channel member 

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(e.g., a distributor has expanded its coverage into another region or may 
have gained or lost access to certain retail chains). Finally, the extent to 
which compensation is awarded in proportion to performance should be 
reassessed—e.g., a distributor that ends up holding inventory longer or 
taking on more returns may need additional compensation.
Channel Design
A firm must become involved in the channel design process when 
it is considering entering the market with a new product or when existing 
supply chains are falling short of performance objectives.
The design process consists of the following steps:
1. Establish objectives.
2. Formulate a strategy.
3. Determine structure alternatives.
4. Evaluate structure alternatives.
5. Select structure.
6. Determine alternatives for individual channel members.
7. Evaluate and select individual members.
8. Measure and evaluate channel performance.
9. Evaluate alternatives when performance objectives are not met, or 
attractive new options become available.
Development of the Channels of Distribution
The emergence of channels of distribution has been explained in 
terms of the following factors:
1. Intermediaries evolve in the process of exchange because they can 
increase the efficiency of the process by creating time, place, and 
possession utility.
2. Channel intermediaries enable the adjustment of the discrepancy 
of assortment by performing the functions of sorting and assorting. 
Discrepancy of assortment will be described shortly.
3. Marketing agencies form channel arrangements to make transactions 
routine.

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4. Channels facilitate the searching process by consumers.
Marketing channels develop because intermediaries (e.g., 
wholesalers and retailers) make the marketing process more efficient 
by reducing the number of market contacts. In primitive cultures, for 
example, most household needs are met by family members. 
By many household needs can be met more efficiently by exchange. 
Specialization in production creates efficiency for this reason; it has 
become a way of life. A household must exchange goods and services to 
provide for all of its needs.
The advantage of an intermediary is greater as the number of 
specialized producers increases.
Intermediaries provide possession, time, and place utility. They 
create possession utility through the process of exchange, the result of 
the buying and selling functions. They provide time utility by holding 
inventory available for sale. 
And they provide place utility by physically moving goods to the 
market. The assortment of goods and services held by a producer and the 
assortment demanded by the customer often differ. The primary function 
of channel intermediaries is to adjust this discrepancy by performing the 
following “sorting” processes:
1. Sorting out.
2. Accumulating.
3. Allocation.
4. Assorting.