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

Sales & Distribution Management Term V

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 reseller-distributors 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

Sales & Distribution Management Term V

Situation Analysis

Market Market Share Market Size(in $bn) Competitors

Core Corporate Networking Gear

>70% for enterprise account segment

Nearly 40% for SMB or commercial account

Undisputed market leader

20 Extreme and Foundry

HP, Nortel, 3Com, Huawei Technology

Telecommunications 5% share in overall market

25% in top end of market

50 Nortel, Juniper, Siemens, Alcatel and Lucent

Consumer Market Market leader with nearly 40% share

2 NETGEAR and D-Link

Competitive Landscape

Sales & Distribution Management Term V

Situation Analysis

Routes to Market

Channel Sales Contribution Target Customer

Direct 10% All

IT consultant and system houses (IBM ,HP)

25-30% Corporate Customers

Large telecommunication service providers(SBC)

25-30% Customers of carriers

Traditional Value Added Reseller 30-35% enterprise account , mid and small level businesses

Direct Marketing Reseller (CDW) <10% Small customers requiring standardize products

Retailers (CompUSA) <10% SOHO

Demand generation was done by account managers and system engineers using a high touch approach

Sales & Distribution Management Term V

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

Sales & Distribution Management

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

Term V

Sales & Distribution Management

VoIP Telephony

Term V

Market opportunity to tap the growing internet phone systems market

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

Competitors have better relationships with existing “voice” channels

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

Sales & Distribution Management

Motives to revamp the existing model

Term V

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

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

Channel differentiation attributed to buying process of end customers

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

Sales & Distribution Management

Coordination strategies

Term V

Set Market Boundaries

Promote Price Convergence Compensate for cost differences

Channel differentiation characterized by product specifications and dimensions

Set Product Boundaries

Alternatives Available

Direct supply of products to large enterprises; also distribution of products through two tier distributors e.g.: Tech Data

Sales & Distribution Management

Evaluation of Alternatives

Term V

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

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

Set Market Boundaries

Promote Price Convergence Compensate for cost differences

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 Product Boundaries

Sales & Distribution Management

Recommendations

Term V

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

Sales & Distribution Management

Questions?

Thank You

Term V