Cisco Systems

Currently, our go-to-market structure has overlapping channels that are causing friction amongst downstream channel partners, specifically the value added resellers (VARs). Such overlapping occurs when we implement a "one-size-fits-all" strategy for each of our channels. As we introduce new technologies and products, we need to ensure that existing VAR, systems houses, and telecom divisions' interests are being equally protected.

RECOMMENDATIONS

1. Eliminate direct channel (Figure 1)

2. Utilize channel power to control price and final distribution

3. Implement exclusivity of VoIP products for existing data VARs

4. Widen discount level increments in Partner Program Pyramid (Figure 2)

ANALYSIS

Recommendation Analysis #1: My first concern is the waste of resources and lack of focus on selling hardware directly to customers. I believe that by eliminating this channel we will be in a better position to serve the channels that provide value to customers. Many VARs have concerns that a program where we sell directly to consumers (specifically through the internet) will eventually erode their business completely. A more effective deployment of resources, such as investing in other established channels, can create better service for both the customer and consumer.

Recommendation Analysis #2: My second concern pertains to controlling how our product is bundled through the telecommunications service providers (TSP). As you know, the market price of Cisco products are being diminished due to the marketing and promotional tactics of these companies (e.g. giving our product away for free with service packages). This also leads to a diminished brand value and customer perceptions of our products. One way to eliminate this is by removing TSPs from our discount program if they do not change their promotional practices.

Recommendation Analysis #3: My third recommendation is to exclusively sell the VoIP technology to existing data VARs. Convince data VARs to market this technology as a bundled product with their existing router sales. Giving this new and rapidly growing technology to existing customers will show them that we are interested in their long term success and our current relationship. Also, existing VARs are the most familiar with our current products and company (discount systems, payment systems, etc.). I concur with senior Cisco management that Voice VARs is a poor route to take this new technology to market. These companies have little incentive to sell these products due to the fact that it would cannibalize their current sales, and produces lower profit margins.

Recommendation Analysis #4: Lastly, Cisco has made the right strategic move in regards to their Partner discount program. A specialization points system sets a standard of excellence that will positively reflect Cisco in the long run. Even though that initially many VARs have removed themselves from our authorized retailers, those companies weren't able to represent our products accurately. I suggest that we lower the Premier and Silver discount levels to 25% and 32% respectively, while increasing the discount level of the Gold status to 45%. This change in discounting