Thursday, February 23, 2012

Case Analysis:
CISCO Systems: Managing the Go-to-Market Evolution Group 5
ROHIT NATH | GAURAV PATANGE | MANGESH PATIL MAHTAAB KAJLA | SACHIN KUMAR

Situation Analysis
 Company Introduction
 Leader in switches and router market and had followed a strategy of growth through acquisitions  Market capitalization greater than $500 bn in 2000  Followed a market coverage model that contemplated approximately five tiers customers based on opportunities available

 Image in the market
 Manufacturer of Highly reliable, innovative and quality products  Highly regarded for the quality of company’s relationships with the resellerdistributors or VARs

 Product Line
 Products available for all the layers of ISO-OSI model of communications but layer 1  Main line of switches were the Catalyst series  Consisted of basic solutions for small businesses to high end solutions for large enterprises  Price varied greatly from low end routers to high end routers
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Situation Analysis
Competitive Landscape
Market
Core Corporate Networking Gear

Market Share
 >70% for enterprise account segment  Nearly 40% for SMB or commercial account  Undisputed market leader  5% share in overall market  25% in top end of market  Market leader with nearly 40% share

Market Size(in $bn)
20

Competitors
 Extreme and Foundry  HP, Nortel, 3Com, Huawei Technology

Telecommunications

50

Nortel, Juniper, Siemens, Alcatel and Lucent NETGEAR and D-Link

Consumer Market

2

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Situation Analysis
Routes to Market
Channel
Direct IT consultant and system houses (IBM ,HP) Large telecommunication service providers(SBC)

Sales Contribution
10% 25-30% 25-30% All

Target Customer
Corporate Customers Customers of carriers

Traditional Value Added Reseller
Direct Marketing Reseller (CDW) Retailers (CompUSA)

30-35%
<10% <10%

enterprise account , mid and small level businesses
Small customers requiring standardize products SOHO

Demand generation was done by account managers and system engineers using a high touch approach
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Situation Analysis
Channel Reengineering
Prior to Dot Com Bubble burst Post Dot Com Bubble burst

Approach

Volume Based

Value Based

Number of Resellers

6,000

3,000

CCIEs Requirements

One per every $10mn (Revenues)

One per every $40mn (Revenues)

Incentives

Based on number of units sold by VAR

Based on the specialization, expertise & customer satisfaction

Customer Emphasis

Hardware

Post sales services offered

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Problem Identification

To evolve the go-to-market strategy and to implement the customized pyramid model, so that the new strategy doesn’t create inter-channel conflict

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VoIP Telephony

Market opportunity to tap the growing internet phone systems market

Competitors have better relationships with existing “voice” channels

Single network infrastructure to transmit audio, video and data
Decreased maintenance cost of networks High channel margins along with possibility of increased revenues due to services provided for maintenance Due to huge cost advantages for end users, it would automatically be “pulled” by end users

Degraded quality and unreliability is a lingering issue

Conclusion: VoIP Telephony has much more benefits than pit-falls. The demand for internet based phone systems would increased due to cost advantages for end consumers and high channel margins
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Motives to revamp the existing model
 To eliminate the “box movers” from the distribution channels
 Cisco choose to cut down the resellers to half by removing those who lacked scale or value adding expertise

 To improve the profitability, working capital, Inventory and other aspects of the business of channel partners
 Better handling of channel partners’ business model and their customer service parameters  Communication of Cisco’s trustworthiness in addressing dealers’ concerns about the loss of business in a tough competitive environment

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Coordination strategies
Alternatives Available
Set Product Boundaries Channel differentiation characterized by product specifications and dimensions Set Market Boundaries Channel differentiation attributed to buying process of end customers

Promote Price Convergence

Compensate for cost differences Reduction in leakages across channels through cost compensation and value incentive programs i.e., penalties or incentives

Reduction of price difference among channels for same products by pushing the discounts to the end of purchasing cycle

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Evaluation of Alternatives
Set Product Boundaries Product differentiation is already existing in the portfolio of Cisco's products Since products are not substitutable among themselves, products are quite well differentiated Set Market Boundaries Direct supply of products to large enterprises; also distribution of products through two tier distributors e.g.: Tech Data

Promote Price Convergence Currently the difference in discounts offered at various level in pyramid is small (2%) It is focused more on volume rather than value generated (in terms of engineering qualifications) by the channel partner

Compensate for cost differences Existing pyramid model lacked fair distribution of rewards for high qualified channel partners than box movers

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Recommendations
 Keep a minimum threshold sales volume level at each level of pyramid  Include VoIP in product portfolio and to avoid channel conflicts majority of the sales should be through data VARs  Best performing channel partner(s) should be rewarded at the end of selling period to avoid price conflicts across the channels(Alternative 4)  Direct sales for core corporate networking gear market to ensure high service levels by internally trained technical workforce  CCIEs support for small and medium businesses  Exploit internet channel to reach home networking customers and ensure efficient handling of small orders
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Questions?

Thank You

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