VU QUYNH HUONG
1. Initially, from 1985 to 1995, Cisco mainly offered switches and multiprotocol routers. They focused mainly on enterprise accounts. Their channels consist mainly of direct sales force and a small percentage of channel partners (indirect sales and retailers). From 1995 to 2000 which are their growth years, they offered more variety and options for their switches and routers which belong to layer 2, layer 3 and above continuum. Their switches range from basic connectivity to high-end, multilayer intelligent service and their routers range from low-end, basic routers in the few-hundred-dollar range to high-end routers priced in six or seven figures. Their market segments also started to grow to consist of enterprise accounts, small-and-medium businesses and telecommunications service providers. Together with the growth in customers, Cisco rapidly added system houses (e.g. IBM, Accenture, etc), telecommunications (e.g. SBC) and value-added resellers (VRA) to accommodate the growth that their sales force alone cannot handle. Each of these channels accounted for approximately 25% to 30% of Cisco sales, overtaking direct sales force at only 10%. Lastly, from 2001 to 2005, Cisco started to offer a new product which is VoIP telephony. With the acquisition of Linksys in 2003, Cisco attained a new market segment which is the consumer market and with this followed the need to expand the channel to include direct marketing resellers and retailers to serve the many dispersed small customers requiring standardized products from Cisco. During this period, Cisco also strived to increase direct sales and once again placed strong emphasis on direct sales by launching a pilot program aimed at selling its product to the SMB directly. Cisco also contracted with online retailers e.g. CDW, Insight, etc to expand direct-sell options.
2. Cisco’s strategic management of their channel structure from 1985 to 2005 can be considered as C – fair. Firstly, during the initial years where their main customers are enterprise accounts, they managed their channels well by employing mostly direct sales force. Due to their high buying volume, these enterprise accounts are Cisco’s strategic partners whose relationships with Cisco are best managed by direct sales force who Cisco has considerable control over and undergo essential technical training to best attend to customers’ needs. Channel partners constituted less than a quarter of Cisco sales, which prevents excessive mark-ups, keeps prices in check and ensures Cisco’s profitability. In the next period, we still observe good strategic management from Cisco as they quickly added channel partners to accommodate the growth in customers. Channel partners accounted for 90% of Cisco’s sales and added unique value and cost effectiveness to further consolidate Cisco’s competitive advantage. Meanwhile, only 10% of Cisco’s sales were made directly, which helped to avoid channel conflicts. Cisco’s good strategic management was seen through their divide-and-grow principle – doubling the number of sales territories by cutting each in half and expecting the same business from each half. Furthermore, we observe Cisco’s ability to manage their channels through their management of the VAR channel, particularly the “value-added reseller pyramid”. By granting greater discounts for resellers who achieve higher hardware sales volumes, Cisco motivated the VARs to continuously strive to attain more discounts, which benefit the VARs themselves through higher profit margin and Cisco through greater overall revenues. At times where the discount spread between the top and bottom tier was large, Cisco’s channel managers narrowed the gap and raised eligibility requirements to maintain 5:5:90 ratio. On top of that, Cisco ensured consistency in customer service by requiring a certain number of technicians and engineers who had been certified at “Cisco school”. Having said that, this system does create the basis