ATLANTIC

COMPUTERS
Group 9
Sanchit Bidwai 190101100
Shivam Gupta 190103135
Sai Ram Susheel 190103044
Aishwarya 190103016
Payel Sen 190103095
Paras Jain 190103092
 ATLANTIC BUNDLE
• Launching new product of Atlantic Computer
– Tronn Server
• It can perform up to four times faster than its
standard speed with help of PESA.
• They wanted to sell this server with software
Case Context tool called PESA (Performance Enhancing
Server Accelerator). The combined package
of Tronn Server and PESA Software tool is
called “Atlantic Bundle”
• They want to develop a pricing strategy for
this product
Pricing Strategy Alternatives

• Status Quo – Charge only for server & give PESA for free
• Competition Based – Charge twice the price of Ontario Zink(Conservative
approach)
• Cost Plus – Charging price based on software development costs
• Value Based – Charging based on value and showing differentiation.
 Status Quo Pricing

Total Market Share Atlantic Demand

  Demand Projection Projection Revenue Projected
2001 50000 4% 2000$4,000,000
2002 70000 9% 6300$12,600,000
2003 92000 14% 12880$25,760,000 Price : $2000
Total = Total Cost : $32,574,000
      Total = 21,180 $42.36Million
PESA R&D : $2,000,000
Total Revenue: $42,460,000
  2001 2002 2003
Cost / Unit 1538 1538 1538 Margin in Status Quo Pricing:
$7,786,000
Units
Projected 2000 6300 12880
Cost/Year $3,076,000 $9,689,400 $19,809,440
Total Cost $32.574 Million
 Competition Based Pricing

Market Share Atlantic Demand

  Total Demand Projection Projection Revenue Projected
2001 50000 4% 2000 $6,800,000
2002 70000 9% 6300 $21,420,000
2003 92000 14% 12880 $43,792,000 Price : $3400
Total = Total Cost : $32,574,000
      Total = 21,180 $72.0126Million PESA R&D: $2,000,000
Total Revenue: $72,016,000
  2001 2002 2003
Cost / Unit 1538 1538 1538
Margin in Status Quo Pricing:
$37,442,000
Units
Projected 2000 6300 12880
Cost/Year $3,076,000 $9,689,400 $19,809,440
Total Cost $32.574 Million
 Cost Plus Pricing

Price Calculation
Total Market Share Atlantic Demand
Per Server Costs $1538   Demand Projection Projection Revenue Projected
PESA R&D Investment $2,000,000 2001 50000 4% 2000 $4,489,700
Market Demand 21180 2002 70000 9% 6300 $14,142,555
Total Sales with PESA(50%) 10590 2003 92000 14% 12880 $28,913,668
Cost of PESA/Server $188.85       Total = 21,180 Total = $47.454Million
Cost/Server $1538
Cost / Server including PESA $1726.85
Markup (30%) $518   2001 2002 2003
Total Cost $2244.85 Cost / Unit 1538 1538 1538
Units
Projected 2000 6300 12880
Price : $2244.85
Cost/Year $3,076,000 $9,689,400 $19,809,440
Total Cost : $32,574,000
Total Cost $32.574 Million
PESA R&D: $2,000,000
Total Revenue: $47,454,000

Margin in Status Quo Pricing:

$12,880,000
 Value Based Pricing

Total Market Share Atlantic Demand

Zink(2   Demand Projection Projection Revenue Projected
  Tronn servers) 2001 50000 4% 2000 $8,400,000
Software 750 1500 2002 70000 9% 6300 $26,460,000
Electricity 250 500 2003 92000 14% 12880 $54,096,000
Labor 2000 4000 Total =
Server 2000 3400       Total = 21,180 $88.956Million
Total 5000 9400
Price : $2244.85
Savings - $4400 Total Cost : $32,574,000
Profit Sharing - $2200(50% profit sharing) PESA R&D: $2,000,000
Price - $4200(2000 – server price Total Revenue: $88,956,000
2200 – profit shared)
Margin in Status Quo Pricing:
$54,382,000
 Recommended Pricing Strategy

  Price Cost Contribution R&D Break Even Units

• Atlantic Computers should go with Value
Status Quo 2000 1538 462$2Million 4329 Based Pricing
Competition 3400 1538 1862$2Million 1074 • It is giving them Highest Revenue &
• Also Fewest Units to Break Even
Cost Based 2244.85 1538 706.85$2Million 2829
Value Based 4200 1538 2662$2Million 751
How do you think Matzer is likely to react to Jowers’ proposal, and
what could Jowers to do get Matzer to agree to his proposal?

• Tronn is in introduction stage of PLC, higher margins can give us the flexibility to reduce
margins in the growth stage
• Since market is increasing constantly 36% YoY, focus should be on high profitability
• Cost of acquisition of Tron is low in comparison to Zink
• First order and second order can be easily communicated to the customer in Value In Based
pricing
What issues could Jowers face from the sales team for the proposal, and what can
he to do get the team to understand & sell the value of the PESA tool effectively?

• The Sales Force was Hardware oriented and wasn't trained for Value-based selling
• The 30% component of their CTC was dependent on the sales and any change in the
pricing strategy would not be well received as they might have to modify their already
existing sales pitch
• To get the Sales Force to understand and sell value the sales force needs to be trained about
the benefits that will be delivered with software and best in class after sales service.
• The training along the lines of communicating the first order and second order savings
• The sales force can be communicated the idea that more the revenue more the commission
to motivate the sales force to work on the new pitch to push the sales
How do you think the target market may react to the new pricing proposal? What
issues/fears/ objections could they have and what would you do to tackle these?

• Target Market: Web Server and File Sharing

• Market used to free software
• Highly unlikely to pay premium for Software
• Communication of Value that Software provides along with a basic server is very important
• The recommendations will likely convince our target market because of reduction in cost
of possession(i.e. cost of ownership), cost of acquisition, and fast serving speed
• First order savings effects from purchasing one server instead of four, while second order
savings effects included lower electricity charges, software license fees, and labor costs