In a move that could hike prices for customers, Cisco Systems is eliminating a key component of its trade-in program covering competitive equipment.
Cisco last week ended predetermined discounts for resellers under its Competitive Technology Migration Program (CTMP), according to an internal e-mail obtained by ARN sister publication Network World in the US. Channel partners used the CTMP calculator to predetermine trade-in discounts and would use the precalculated discounts to negotiate sales deals with end users.
Instead, Cisco will review and determine discounts for competitive replacement opportunities on a "case-by-case basis," which means discounts awarded to resellers will fluctuate, as will follow-on prices to enterprise and service provider end users.
The Cisco e-mail also said resellers can no longer offer preset pricing to customers when trading in existing Cisco equipment. All trade-in credits offered on Cisco equipment will require the prior approval of a Cisco sales employee.
"This will allow us to preserve our margin and create better opportunities to sell value into our installed base of accounts," wrote Rick Justice, Cisco senior vice president of World Field Operations, in the e-mail.
Cisco is making the changes because some resellers reportedly were abusing the CTMP system.
"Some channel partners were using the program to gain an unfair discount advantage over those partners who set preference for Cisco solutions," says Tom Mitchell, senior vice president of Worldwide Channels at Cisco. "This is not consistent with our current channel strategy to focus on value-added service instead of price."
Some Cisco customers, who received the Justice e-mail last week, scrambled to purchase what Cisco products they could before the predetermined discounts were scrapped.
"We have been informed that the trade-in program is ending," says Raymond Santana, network engineer at the University of California, Davis, Medical Center in Sacramento. "It means we will have to accelerate our purchases to take advantage of the trade-in."
Justice's e-mail also said Cisco will no longer collect or retrieve competitive equipment that's replaced with Cisco gear.
"Rather than focus on the logistics of collection and destruction of our competitors' legacy products, we will apply these efforts into other competitive sales programs and into further enhancing the Cisco value proposition," Justice wrote.
One reseller corroborated Cisco's claim that the program was being abused by the channel.
"I heard there were many abuses of this program and that it cost Cisco a lot of money to verify receipt of the 'Vendor X' equipment and to eventually dispose of it," says Joe Wenker, a principal engineer at Qwest Communications. "It also seems to make sense to not [give customers incentives] to replace gear from vendors that are no longer in business . . . say 3Com. I believe Cisco will still be aggressive on price when in competitive situations, but it may cost them less to just discount their equipment rather than discount and then collect other vendors' equipment."
CTMP was created three years ago to accelerate adoption of Cisco products by companies and service providers.