Marketing II Case 5

Atlantic Computer: A Bundle of Pricing Options

PGP1 Section C
Group 05

Submitted by: Aditi Royal Rebello Anjali Krishnanivas Chowdry Arjit Agarwal Ishan Gurg Khagen Hamirbhai Ravaliya Ravi Vinayak Chikkam 2013PGP016 2013PGP043 2013PGP070 2013PGP160 2013PGP318 2013PGP320

Problem Statement
The case focuses on Atlantic Computers decision for pricing the Atlantic Bundle. Atlantic Bundle is the basic server Tronn and the software tool PESA which would allow Tronn to perform four times faster. Atlantic Computers is a leading developer of high-tech servers. It has recently decided to expand its product line to take advantage of the emerging market for basic servers. Before it can launch the Atlantic Bundle, Atlantic Computers must decide which pricing strategy to implement. They have four options: 1. 2. 3. 4. Status Quo Competition Based Cost-Plus Value in Use pricing

Case Facts:
Existing Product and Company Competency: Strong player in high performance server market High Performance Server Radia Had captured 20% of the revenue market share Offerings to larger enterprise customers Currently, software tools are provided free of cost

New Trends in computer server market: With growth of internet, companies are looking for basic computing capabilities to perform simple-repeatable tasks In the basic server market Ontario Computers has been the dominant player Ontarios product- Zink currently had 50% revenue market share in the basic server market Excellent supply chain and operational efficiency Online selling The growth potential and large market for basic servers led Atlantic Computers to launch their basic server Tronn

Atlantic Computer Bundle Consisted of Basic server Tronn and Performance enhancing tool- PESA The Tronn with PESA was 4 times faster than the Ontarios Zink server Strategy was based on the assumption that high performance servers and basic servers would not be viewed as substitutes

Atlantic Bundle Value Proposition -Since the Tronn servers had better performance than other basic servers in market, it gave the following value proposition to customers: Reduced costs Reduced software licensing fee Reduced space requirements Reduced Electricity charges Reduced labour costs

Pricing Strategies: Pricing Strategy Advantages Disadvantages Profit

Status Quo Charge only for hardware and provide software free No change in sales and pricing methods No resistance from sales team

Competition Based - It uses the prices of competitors as a benchmark for pricing products rather than considering costs

More profit No retaliation effect from competitors as priced higher (equivalent to four Zink Servers).

Cost Plus Pricing- It is determined by adding the direct, indirect and fixed costs associated with a product and converting it into a per-unit cost for the product

Easy to implement Assured of profits since operating on a mark-up percentage

PESA R&D costs $28,92,580 recovery issue No differentiation between Tronn and Zink Perceived value will be low It would be hard to justifythe additional$1,200 in price (4 x Zink= $6800 and 4 X Atlantic Bundle = $8000 Consumers can get $177,18,580 4 Zink in the price of 2 Tronn servers Perceived value is low Training of sales people will be required to communicate the advantage of Tronn $54,87,130 Internally driven Ignores competitors cost Tends to ignore the role of consumers

Value-in-use pricing It defines the value of the product or service in terms of what the consumer would lose, or what the consumer would have to pay, if the product or service was not available and then share the savings

It will fully demonstrate, in monetary terms, the true value of the Atlantic Bundle. More profits as Atlantic Computers will share savings of customers TOC for customer is less

Resistance from $261,90,580 sales team Need for training the sales team New sales model may cause customers to be reluctant

Recommendations
As per quantitative analysis, we would recommend Atlantic Computer to go for a Value-in-use pricing strategy for the Atlantic Bundle as it is providing maximum profits. (This is assuming, that there is uniform demand across all pricing strategies and applying conservative approach of comparing two basic servers loaded with PESA software tool versus four basic servers) Qualitatively, there are some issues which Atlantic Computer will face while implementing the Value-in-Use pricing strategy: Resistance from Sales team as this pricing strategy is new to them as well as the market, which would reduce their sales and consequently their commissions Atlantic Computer will need to train them Make them realise that the bundle is actually better positioned and more customers will be willing to take it, thereby increasing their commission (70-30 compensation structure).

Retaliation from Ontario They will try to imitate this strategy and lower prices/ give discounts leading to a price war Since the Value-in-use strategy leads to a saving of almost $8,800 for the customer, any retaliation from Ontario on price would not affect Atlantic Bundle much

Final Inference: Atlantic Computer to go for a Value-in-use pricing strategy for the Atlantic Bundle with a proper training plan for the sales team and to effectively communicate the value proposition. This will maximize profits as well as lead to smooth implementation of the strategy.