A New Metric for Sales
Channel Diversity Index
May | 2009
A New Metric for Sales Channel Management | Channel Diversity Index
Across numerous different sectors in an ever-increasing manner, companies are
agreeing with external parties to serve as a part of their sales channels – and, in
some cases, to serve as the sole sales channel. The traditional driving factors for
this shift? Companies are trying to gain certain valuable benefits, such as
increasing their number of sales points, utilizing external parties’ store traffic or
decreasing the operational burden of sales and distribution.
These benefits can bring with them some concerns as well. If and when one of the
external parties begins to represent a significant source of a company’s sales, that
party can cause havoc. With such bargaining power in hand, these kinds of
partners can drive down margins and make demands on the parent company that
can completely wipe out the benefits once obtained. Alternatively, they can take
their business to the competitor if their demands are not met. Such is the
situation that often happens when external partners grow too big.
To prevent such a nightmare scenario from occurring, companies should, and
need, to keep a constant tab on the power of their sales partners. Executives who
define corporate strategy, sales strategy or channel strategy need to ensure there
is always enough diversification in their sales channels to prevent one partner
from gaining too much bargaining power.
Although executives can manage diversification related issues when they have
one or two partners, it is quite difficult to effectively manage the channel’s overall
diversification without a numeric measure when the number of partners is
greater. The Channel Diversity Index (CDI) can be used to measure and to monitor
the power of any one given partner over time.