Cisco Systems

M A N A G I N G T H E G O - TO - M A R K E T
E VO L U T I O N
 Introduction – Cisco systems

• Network hardware – Switches and routers

Products
Core competencies: • Classification – 1 to 7 layer continuum with
Product design, custom solutions increasing complexity

• Cisco focused on layers 2 and above only,

focusing on high margin, high tech products

Channel Control

Internet Tele-channels Distributors VARs Company sales force

Low touch High touch

$ $$$$$
90% of Cisco’s sales came from high touch channels
 Cisco – Routes to Market
Channels Levels
Markets

Direct selling Zero level, 10% sales

Enterprise accounts
System houses/
One level, 25% sales
aggregators

Telecommunication
Teleservice providers One level, 25% sales
customers

Cisco

Value-added resellers One level, 30% sales

SMB
Direct marketing Two levels, <10%
resellers sales

Two levels, <10%

Consumer markets Retailers
sales
 Cisco – Channel Evolution (Volume to Value tiers)
Engineering
Lab equipment Support required
G requirements
ol 24*7, 4 hours
d Minimum 16 $100k/year
Volume focus – response
Sales volume
based (5 8*5, 24 hours
Silver%(5%) Minimum 8 $40k/year
response
)
8*5, 24 hours
Premier (90%) Minimum 3 Demo
response
G
ol
• Need for change – Middle market commoditization
d
Value focus – • Points system revolving around value – Based on new technology
Specialization, (1
5 specialization, customer satisfaction, engineering expertise
solutions based Silver
%
(10%) • New technology specialization – demonstrated ability
)
Premier (75%) • Customer satisfaction – survey of 30 customers focused on
responsiveness, skill level, problem-solving abilities
 Cisco – Channel Evolution (Service Provider Initiatives)

Model 1 – VARs bundling services to provide one stop solutions:

Old structure

Network E-commerce Solutions design

Carrier contract Hardware
management storefront services

New structure

Model 2 – Agreement with teleservice and solution providers:

• Need for change – Price/margin
erosion by teleservice providers
Cisco gear Solutions design
Carrier services • Tactical response shifting price
(hardware) services
control to Cisco and its VARs
Marketed under the name of teleservice providers
 Cisco – Channel Evolution (Salesforce co-ordination along value chain)
Old structure New structure

Lead generation Lead generation

Lead qualification Lead qualification

Cisco salesforce Cisco salesforce
Bid & proposal Bid & proposal

Negotiation/sales Negotiation/sales
closure closure
VAR partners
Fulfilment Fulfilment
VAR partners
Customer care Customer care
and support and support

Neutral to value engagement – gives a chance to the VARs to add their inputs/value to the product specifications/pricing
 Positives and Negatives in Channel Evolution
Positives:
Step by step improvement, adapting to market changes.
From direct selling to multiple channels (system
houses, telecommunication, resellers)​
Due to fast growth, needed value added and cost-
effective channel partners apart from direct sales force. ​
Eg: Reseller program​
After telecom and dot-crash, shift from volume to
value. Shift from standardized product to specialized
VARs/aggregators (IBM). Focus on customer satisfaction,
certification and specialization​
Rationalized the channels. Reduced number of channel
partners. Gold, silver and premier status awarded based
on goals, specialization​
Performance parameters to ensure satisfaction. Eg. Min
number of cisco-certified eng. staffs, customer surveys ​
Negatives: ​
Not strategizing much on route to market strategy
(focused more on growth). Stimulus-response approach
and "box pushing" model​
Large number of VARs (6000 in 2000). Difficult to
maintain control during uncertainties​. Dissatisfaction
among reseller during Telcom and dot-com crash​
Less margin for resellers due to high competition
(though cisco gave 40% discount, gross margin boiled
down to 5%-18%)​
Easy qualification of become gold
partner. Dissatisfaction among higher tiers due
to intense competition​
Lesser ROI while pushing volumes​
 Positives and Negatives in Channel Evolution

Positives: Negatives: ​
Value engagement model: Partners brought into sales Higher control requirement over VARs (especially w.r.t
cycle early in the process. Partners involved in future communication and solutions)
strategies
Service provider initiatives: Addressed Price erosion due Price parity among channels. Higher dissatisfaction
to teleservice providers by introducing bundled carrier among VARs when Cisco collaborated with Tele service
services providers
Diverse markets (home networking, VoIP, storage
networking). Diverse customers (enterprises, Small-
Medium-businesses, telecom service providers,
consumers market). Complex channels
 Channel Conflicts and Possible Solutions
Channel Conflicts

Introducing Cisco products in their product

line offering
Possible solutions
Ventured into networking business to lure
Telecoms customers with an added advantage of new
source of revenue.  • Clear product boundaries & customer segments for
Telecoms, VARs and Direct sales.
Router dumping • Redirect Telecomms to buy from resellers instead of direct
sales.
• Including channel partners in new product delivery
by improving service offerings and analytics support
Pre-configured low-end equipment to SMO &
• Standardizing price floors, bundling options for channels
SOHO
Direct sales
Fear among resellers about becoming irrelevant
Network in a box

• Premier partners faced difficulties - lack of resources.

• Ease of CCIE requirement – fear of over-crowding.
• Joining forces with SBC communication to offer all-in-one set up.
 How should Cisco distribute VOIP?
Through Voice VARs? Through Data VARs?
Or both?
 Utilize existing Data VARs

Advantages:

1. Existing VARs are already familiar with the company's products and rules.

2. This is a great way to bundle products and thus drive sales of Cisco's core products

3. This would strengthen the relationship between Cisco and the VARs thus ensuring long-term
success

Disadvantage:

1. Intense channel competition leading to lower margins

 Utilize existing Voice VARs

Challenges:

1. It is very hard to incentivize because the new product gives lower margins to the VARs
and cannibalizes their sales

2. It would take time to negotiate and enter a consolidated channel where relationships
are already strong

3. It might hamper the existing relationship with the data VARs which would take a hit on
the core business sales as well

Advantage:

1. Consolidated and comprehensive channel with higher margins

 Takeaways
• VOIP is beneficial to big enterprises as well as small enterprises and individual customers

• Cisco can focus on targeting big enterprises (A, B) via the data as well as voice channel since the
numbers are small. Encourage bundling the product with other options like routers so that the
VARs don't feel that the product will completely cannibalize their sales

• For customers in C, D, E of the pyramid, Cisco can utilize the traditional data VARs since the reach
is much wider and the data VARs have the expertise in handling different customer segments and
approaches. Bundling strategy can be utilized here as well to drive sales
Cisco Systems
Thank You
M A N A Abu
G I N G TMHSE– 2111402
Shahir G O - TO - M A R K E T
E VO L U T I O N
Mano Vignesh M – 2111405
Aditya Kanthraj – 2111325
Jeevanth D – 2111101
N Sameeksha Rai – 2111339