Staying Competitive in a Downturn

One of the biggest challenges that any solution provider is going to have to deal with in a down economy is the pressure on pricing. It’s hard enough to find a customer who wants to buy any new product, and when they do you can bet that they will push back hard on pricing.

We’re already seeing this trend play out in Cisco’s latest financial results. As the leader of the enterprise networking market, Cisco has always been able to claim a pricing premium. But now customers are less enthralled with grand five-year visions of where technology is heading. Instead, they are focused on brass tacks and trying to save every dime possible. As a result, Cisco is dropping prices of core infrastructure products, namely routers and switches, and paying rebates as high as 15 percent to stimulate sales.

That trend has helped companies such as 3Com claw its way back to relevancy. 3Com is leveraging its Chinese manufacturing muscle in the form of Huawei Technologies to bring aggressively priced switches and routers to the U.S. market. Similarly, we’ve seen Acer leverage pricing to take a significant share of the notebook market.

The dilemma this situation created for solution providers is two-fold. On the one hand it can be more profitable to carry only one vendor per product category on their line card. That not only results in less overhead in terms of the number of vendors that need to be supported, but it usually translates into a little more active support from the vendor.

But all too often a single vendor is not as competitive as they might be in a given category due usually to pricing or the simple fact that they have been temporarily left behind in terms of technological innovation.

In either event, solution providers can find themselves in an untenable position when a single vendor they are counting on falls short in the marketplace. That’s why, despite the additional overhead in costs, solution providers are generally better off when they have relationships with at least two vendors per category.

Obviously, they don’t need to carry every vendor in a product category. But when you get right down to it, products are often a means to an end for solution providers. They need to have competitive products just to stay in the game, because without the product there is no real opportunity to generate downstream services revenue. And as we all know, services revenue is the real life blood of the channel.