A.

The Importance of Channel Evolution: How have Ciscos channels evolved

in the last 15-20 years? Please evaluate the following distinct time segments
in Ciscos history (i.e., what has changed from time segment to time
segment?) from the perspectives of products offered, targeted customers,
and channels employed.
Cisco divided its customer segments into 5 categories, based on the
opportunity they provided Cisco. As these customers needed different levels
and means of services, Cisco had 5 different channels for these 5 customer
segments Direct sales to EU, System houses, Telecommunications, VARs
and Direct Marketing resellers or Retailers.
Before 1995, Cisco did not pay too much emphasis on development of
channel partners. Resellers were only responsible for only a small percentage
of products delivered. Channel partners added unique value in a cost
efficient way and substituted for a direct sales force. Cisco developed a 3 tier
partener pyramid structure and allotted gold, silver and premier status to
partners based on volumes of sales. There were various other membership
requirements (such as technical certifications) to be fulfilled apart from
volume as well to reeive a certain status, which then ultimately decided the
discounts and margins these pertners could make. Ciscos reseller program
was highly regarded for the quality of companys relationships with its VARs
(Value added resellers). Cisco also sold equipment through resellers that fell
outside the pyramid structure but specialized in particular markets and
through resellers that acted as product fulfillment houses.
After 2001, Cisco made a shift from volume to value. The new channel
blueprint included the following highlights Cisco raised its certification
requirements reducing the number of number of certified partners from 6000
to 3000 (1000 in US, down from 2200 earlier), the status now depended not
only on volumes but these certifications, customer satisfaction index and the
the value the channel provided in overall service to customers, discounting
policy for the tiers was changed and as a renewed sign of commitment to its
VAR channel, Cisco announced a value engagement model that would bring
reseller early on in the selling cycle.

B. If all channel decisions should be regarded as strategic, how would you

evaluate Ciscos management of their channel evolution? What is the basis
of your evaluation? Please identify positives and negatives in your
assessment.
I feel that Ciscos mangemnet did a good job with the channel evolution and
management as they evolved and changed with the time and requirement
of the industry and customers overall. Few decisions taken early on such as

the VAR pyramid structure, reducing the number of partners to reduce

conflicts and focusing more on overall quality added by the partner to the
customer were quite significant in its growth over the decades as it helped
improve profitability, working capital, inventory and other aspects of the
business of channel partners. It helped Cisco to better handle their channel
partners business model and customer service parameters. Similarly, a shift
from a neutral engagement model to value engagement model that
would bring resellers early into the selling cycle improved coordination
between resellers and Ciscos direct sales force. A few downsides were
however seen when Cisco tried to consolidate its partners, leading to
dissatisfaction among resellers as their customers were now getting
assigned to telecom giants. Also, when Cisco tried to sell directly to SMB and
SOHO segments to capture higher share of this price sensitive market, the
channel partners were not happy as they felt that their territories were being
encroached upon by Cisco itself and soon bigger businesses would start
buying direct as well.
C. Against the background of your responses to questions #A & #B, how
should Cisco distribute VoIP products through voice VARs, data VARs, both,
or through another channel? How should Cisco prepare to effectively
manage this new technology through this channel?
VoIP was projected to grow at a rate of 40-45% as compared with a 15%
projected growth for Ciscos core technology and was expected to generate
derived demand for Ciscos core products. The attractiveness of this market
meant rise in competition from firms such as Nortel and Siemens, which
already had strong relationships with voice channels. In order to capture
on this, Cisco should add voice VARs to its existing mix of data VARs.
However, in order to avoid channel conflicts, Cisco should make a team of
voice VAR, data VAR and sales reps from Cisco work together with customer
accounts that prefer to work with voice VARs, where the existing data VAR
can help with the demand for networking products of customer in future.
Thus this will benefit the customer as they will get a one stop solution and
both the VARs and Cisco would get the business. Since customers would like
this packaged deal, the VARs would be more willing to work together and
retain the customers.