Problem Definition Cisco’s IP telephony solutions were generally targeted at the $750 billion telecommunications and equipment market. More specifically, Cisco was targeting the Internet phone systems market, which was expected to grow form $3.5 billion to $10.5 billion by 2008. While most people at Cisco were agreed that voice VARs needed to be added to the mix of Cisco’s already existing data VARs, there was hardly any agreement on the channel margins. On the one hand it would make sense to stay with Cisco’s margin structure because the new VoIP technology delivered huge cost advantages for the end user, who would pull in and generate the demand anyway. However voice VARs were entrenched with incumbent PBX firms, and to ask them to take on new product that would cannibalize their existing line, and at a lower margins, which did not make sense to the senior management at Cisco. Some minority argued the need to keep the product exclusively with Cisco’s existing data VARs. They think that the maturing nature of the networking market and is going to provide them opportunity to expand their business. Also, VoIP technology would inevitably attract demand for networking equipment, which these VARs had currently carried and already knew how to handle. The current issue being faced by the top executives of Cisco Sidhu, Rick Justice, and Mountford is to decide which distribution channel to choose when launching their new VoIP program. This is a very critical step because the project was very important in increasing the derived demand for their existing lines. The more inherent issue is how to correct their hierarchy of interface levels as stated in Figure A. Critical Issues
Telecommunication providers dumping routers in the market
Cross channel raiding: one channel distributor sabotaging another channels sales
Conflicting self distribution strategies Alternatives Alternative 1 – Data VAR’s Using traditional data VAR’s to distribute their VoIP services exclusively;...