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Chambers Q&A--Defending Cisco's Prices

Customers are more concerned about value than prices, and Cisco provides value, Chambers argues.

Don't think price hike, think value hike

Don't think price hike, think value hike
Is Cisco trying to sneak through a price hike by moving toward separate pricing for hardware and software? CEO John Chambers says it's more about the V word: value. Chambers discussed Cisco's moves in an e-mail exchange with InformationWeek's J. Nicholas Hoover. Here's an excerpt.

Q. Are you comfortable with a perception that Cisco is the highest-priced networking vendor? If not, what are you doing about it?

A: We look at bringing the most value to the customer--that's how they make their decisions. That value is expressed in terms of how the customer uses the technology to achieve business goals, how Cisco helps protect their investment, how we allow them to invest in one product and then to expand with nominal increases to move into other product areas, such as adding switching, IP telephony, security, and wireless to a router. Customers value Cisco in terms of the total cost of ownership and total return on investment we provide.

Q. You've talked about unbundling software from hardware in some cases and moving to a licensing model. What's in it for customers, and what's the benefit for Cisco?

A: Cisco is committed to providing strategic value to our customers. The key concept here is that rather than charge a total bundled price, customers can give us a better sense of what is of value to them in the product--here is what security is worth to me, here is what the ability to add new capabilities such as switching or wireless is worth, here is the value that new application software brings to my architecture. As opposed to bundling it all together and competing against companies that only bring a hardware or software solution in a piecemeal fashion, this type of approach allows customers to make an à la carte decision if that's the way they would like to buy.

Q. Networks are increasingly more complex. How do you keep customers from getting confused? How do you keep it simple?

A: Customers used to buy technology as single products, and they had to be the systems integrator of those products. I think if you look at buying individual point products versus buying an architecture, making an investment and building upon that investment is worth a huge premium to customers.

We help our customers be successful in ways others cannot. We're driven by customers, we help them protect their investment, we catch market transitions well, and we help them more than any of our peers in terms of installing the technology successfully, but more importantly in applying it to meet their business needs.

Continue to the sidebars:
Here's How One Competitor Challenges Cisco
and Cisco's Support Team Provides Another Edge

Return to the story:
In Depth: Chambers Is Changing Cisco's Pricing. How Far Will He Go?

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