Managing the Go-to-Market Evolution

AASTHA TRIVEDI BINOY SUBBA BIPIN RAVI MINZMANISH DEV SAROJ LATA

Agenda• Introduction

• Evolution of CISCO

• Channel

• Rating the channels

• Re-engineered channel

• Distribution of VoIP

About Cisco• Leader in switches and router market

• Growth through acquisitions

• Highly reliable, innovative and quality product’s Brand

• Highly regarded for the quality of reseller network

• Products available for all the layers of ISO-OSI model but layer 1

• Price variability high from low end routers to high end routers

Market AnalysisMarkets Market Share Competition

Corporate Network Gear Market 70% Extreme, Foundry

SMB 40% HP, Nortel,3Com, Huawei Technology

Telecommunication Service Providers 5% market share in overall market

25% market share of narrow, $2 billion-$3 billion top end of the market

Nortel, Juniper(market leader in higher end – 30% market share), Siemens, Alcatel, Lucent

Consumer market 40% market share

Doubled sales to nearly $800 mi after acquiring Linksys

NETGEAR, D-Link

Direct

Other Channels22%

78%

Prospecting

Cisco Customers

Cisco made its wide range of products in multiple plant locations worldwide, channels became important staging points before fulfillment to the customers

• Early 90’s indirect sales was responsible for small percentage

• Grew almost 90% by the end of the decade• Emergence of thousands of new companies• Cisco increasingly relied on channel partners• Partners added unique value and it was cost effective• Divide and grow principle• Instituted “value-added-reseller” pyramid• Demand for network gear was enough through box pushing

• 2:1 split between the value of hardware and services

Pre Dot com bubble blast

Value-added reseller pyramid

GOLD

SILVER

PREMIER

42% discount

40% discount

38% discount

The gross margin boils down to 5% -18% across the industry, depending on the product

Minimum 16 ER

Minimum 8 ER

Minimum 3 ER

One Additional CCIE per $10 million in Cisco Business

• Demand of routers and switches reduced. • Reverse trends in value of hardware and software split• Companies with international presence (HP, IBM), and niche

player, solution houses, though small but specialized in regions, technologies and vertical markets were the survivors.

• Cisco’s direct online selling to SMB and SOHO was perceived as a threat by the VARs

• Telecommunication companies entered the networking business causing further problems for other resellers by “router dumping”• Cisco was loosing smaller regional solution provider• Competitors had started exploiting this unhappiness

Post dot-com bubble blast

Channel

Cisco

Linksys

Direct

System Houses

Telecommunication

Value Added Resellers

Direct Marketing resellers

Retailers

2 Tier Distributors

Customers

Consumers

10% sales

25-30%

25-30%

30-35%

<10% sales

Gross Profit Margin 5%-7%

Gross Profit Margin in 2003, 20%

Channel RatingsPost Dot Com Crash

Shift from volume to value

Reward for resellers based on levels of new technology, certification and customer satisfaction

Cisco would work with the reseller during the 6 months “get-well” period

Reduction in the no. of gold, silver and premier-certified partners from 6000 to 3000

All discounts based on meeting “certification” and “specialization”

“value engagement” model bringing resellers early into the selling cycle

Internet one stop solution for SMB and SOHO, discontent of resellers

Agreement of Cisco with SBC communications – discontent of resellers

Channel conflict between carriers and resellers

Rating

Pre Dot Com Crash

Reseller Program Based on sales volumes

Humongous demand for both resellers and carriers

Reseller program successful for indirect sales channel strategy

Cisco Certification requirements for engineering professionals

Quality of relationships with value added resellers

Distribution Model and reseller program suited the demand

Reseller Discounts based on sales volumes achieved

Channel most reseller friendly

Rating

Re-engineered Channel

VOLUME VALUE

Point system for reseller6 months “get well” period for unsatisfactory resellers

Based on specialization, expertise & customer satisfactionAimed to reduce competition among resellersResult and suggestions provided based on analysis

Raised certification requirements

Reduced the number of Gold, Silver and Premier resellers

Discounting policyChanged the discounting policy for 3 tier VARsWould be based on “certification” and “specialization”

Value engagementRenewed signed of commitment towards VARsBring resellers early in selling cycle with Cisco generated lead

Created “playbooks” defining services and effective staffing“Channel MBA” for enterprise sales team

Re-engineered Channel

Top 100 enterprise accounts & about 25 service providers. Global Customized Sales Model. Intense Interface

Nest 125-10000 Customers, with a collaborative channel partnership. High Degree of Interface.

Next 10000-100000 customers with a significant channel activity and marketing support. Medium degree of Interface

Nearly 1 million Small business customers completely channel lead. Low level of Interface, high level of marketing

Nearly 10 million consumer accounts served through retail and/or web, with heavy marketing and promotional support

B

A

E

D

C

COMPLEXITY

SPECIALIZATION

INTERFACE

Re-engineered Channel

VP of Worldwide Service Provider Partners

To show both service provider and channel partner can succeed

Created New Position

Agreement with SBC CommunicationsCisco, SBC and select reseller jointly market Services managed by SBC

Reseller not happy with the agreement

Bundled Internet AccessAnother vendor congruence method

Through Tech Data

Included opportunity for solution provider

AlternativeAlternatives Description Evaluation

Set product boundaries Channel differentiation based on product specification and dimensions

Product differentiation already exists.

Set Market boundaries Channel differentiation based on buying process of end customer

Exists except for Telecommunication service provider and VARs

Promote price convergence Reduction of price difference among channels by pushing the discounts to the end of the purchasing cycle

Value based discounting implemented

Compensate for cost difference Reduction in leakage across channels through cost compensation and value incentive program (penalties/incentives)

Distribution of reward for high qualified and performing channel partners

Distribution of VOIP Products

VOIP technology - Pull in demand from end consumers

Threat to other existing line of products

Expertise of handling networking equipment

Dilemma of channel’s influence on final sale

Avoids channel conflicts-demand for core products increases

No clear calculation / knowledge of margin

Growth rate is high due to improvement in technology

Depend on the incumbent firm such as PBX firms - No expertise of handling new product

Voice channel is more consolidated in market

May lead to channel conflict, demand - core product increase

Individual attention as competition is growing

Uncertainty whether work or not

VOIP products: Infrastructure, IP, Cisco Call Manager and Voice applications

Data VARs

Suggestion: Sales of VOIP products should be through Data VARs.

Voice VARs