Atlantic Computers:

A Bundle of Pricing
Options
GROUP 12
KATYAYANI SONTI 1911067​
AYUSH JAIN 1911019​
ESHAN BEDAGKAR 1911382​
ASHWINI MAHARANA 1911036​
ANUJ SHARMA 1911368​
PRAHARSHITHA KV 1911340​
SIDDHARTH JAYAPRAKASH 1911107​
Agenda
1. Introduction to Problem Statement Problem Statement
 Atlantic Computers who's one of the market leaders in High Performance
2. Objectives of Atlantic  Server market is venturing into a new market segment with its Tronn Server.
3. Critical Information  Step is taken because of the stagnated growth in High Performance server
4. Pricing Strategy
segment while expecting an exponential growth in Basic Server Segment
 Tronn Server will be bundled with PESA software that enhances the
 Pricing approaches & evaluation 
performance of the server up to 4X times when compared to competitor
 Recommendations
Ontario’s Basic Server in specific applications
 Sales Pitch  The decision pending with Jowers is to determine the 
5. Pricing Implementation     Best price for the Tronn + PESA bundle a.k.a "The Atlantic Bundle" ?
 Obstacles that lie ahead and how to
recover – internal Struggle, customer
Objectives
and competitor reaction
 Short term 
Projected Market Value by Segments (units) • Convince the management to sell the PESA software for a price
• Perfect the sales pitch with Cadena and sales team
214000

200000
205000
210500
• Convert the leading customer of Ontario as Atlantic's customer
115000
 Long term: Become the market leader. Capture market share, sell as many basic
70000 92000
50000
servers as it can produce i.e. 4% market share in 2001, 9% in 2002, 14% in 2003
2001 2002 2003 2004
and 20% in 2004
Basic Segment High Performance Segment *Disclaimer : All the objectives and strategies have been designed with the viewpoint of Jason Jowers

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What information needs to be gathered?
Company Analysis
Atlantic is a large manufacturer of servers and other high-tech products
• High performance servers—largest segment—growth (3%), market share (20%)
• Planning to enter Basic Servers segment with Tronn + PESA bundle
Atlantic differentiated on basis of quality of servers and post-sales service
Long term objectives—Max. market share & Max. profit margin
Align price objective with company cost structure for compatibility
Atlantic must also establish their own capabilities and limits—
What are Atlantic’s production limitations?
Walkaway point in case of price war?
Possibility of cannibalization?
Market Analysis
Basic servers—new segment—growth (36%) due to advent of internet (1990s)  Customer buying process stage varies from New Task (for companies just
• Increasing preference for low-end, low-complexity systems
Potential demand, sensitivity to price, and profitability based on bundling
Atlantic must figure out the technological, economic, social and service
benefits for different customer segments and create distinct value
propositions
• Cost drivers: value creation by cost savings for customer
• Revenue drivers: facilitate revenue or margin expansion
Atlantic must also highlight the added value of PESA bundles with Tronn in
order to substantiate (or not!) the premium price placed on Bundle
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Competitor Analysis
Ontario, current market leader in the basic server segment, has a lower cost
structure than Atlantic due to their expertise in supply-chain/operations—
better placed to be a cost-leader
How far can it afford to push down prices?
Ontario has a market share of 50% in the low-end 'Basic Server' segment
How many of these are loyal customers? How many see servers as a
commodity? How many stick with Ontario due to lack of other options?
Sales done mostly by online channels—
Is post-sales service not a differentiator in this segment?
Customer Analysis
entering market) to Strategic straight rebuy (for competitors’ customers)
• Need to convert to modified rebuy as out-supplier
Research the value for each potential customer in terms of—
• End use: how important is the server performance to user?
• End market: what are the trends in important final markets?
• Switching costs: can buyer access relative performance easily?
Two major customer profiles in the basic server segment identified—
• Basic server (New SME), Web server customer—DayTraderJournal.com
• Basic server (New SME), File sharing customer—Look Sharp Advertising
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Objectives for Jason Jowers
1. Determining Pricing Model 2. Implementing Pricing Model

Status Quo Pricing Internal Approval

Price does not account for value created by PESA Convince internal stakeholders on effectiveness of the model

Meet the Competitor Customer Inertia

Price the bundle equivalent to the performance of Ontario’s offering Convince customer’s DMU (unfamiliar) to switch to Atlantic Bundle

Cost-Plus Pricing Salesforce Motivation & Training

Price the bundle based on Atlantic’s per unit cost with 30% mark-up Incentivize and train the salesforce to adopt them to the new market

Value in Use Pricing Ontario’s Retaliation

Price bundle to capture monetary value to buyer in terms of savings Anticipate Ontario’s response and plan counter-action if needed

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Bottleneck 1: Internal Approval—Pricing Summary
Conservative Approach
Pricing approach Price Cost Contribution Profit in 2001 Profit in 2002 Profit in 2003 Total Profit
(Conservative) per unit
Status Quo Pricing $2,000  $1,727 $273  $272,681  $858,945  $1,756,066  $2,887,692 
Competitor based pricing $3,400 $1,727 $1,673 $1,672,681  $5,268,945  $10,772,066  $17,713,692
Cost plus pricing $2,246 $1,727 $518 $518,196  $1,632,316  $3,337,180  $5,487,692
Value in use pricing $4200 $1727 $2473 $2,472,681 $7,788,945 $15,924,066 $26,185,692

Aggressive Approach
Pricing approach Contribution
Price Cost Profit in 2001 Profit in 2002 Profit in 2003 Total Profit
(Aggressive) per unit
Status Quo Pricing $2,000  $1,727 $273  $272,681  $858,945  $1,756,066  $2,887,692 
Competitor based pricing $6,800 $1,727 $5,073 $5,072,681 $15,978,945 $32,668,066 $53,719,692
Cost plus pricing $2,246 $1,727 $518 $518,196 $1,632,316 $3,337,180 $5,487,692
Value in use pricing $8,900 $1,727 $7,173 $7,172,681 $22,593,945 $46,192,066 $75,958,692

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Bottleneck 1: Internal Approval—Proof of Concept

• Proof of Concept for Value-in-Use Pricing can be obtained by generating Purchase Orders in the upcoming

Trade Show

• Needs to be achieved in collaboration with Director of Sales, Jairo Cadena

• With Pricing Summary + Proof of Concept, Jowers can convert internal stakeholders by co-opting/acknowledging their

ideas

Harry Fowler Emily Jones Chris Matzer Jairo Cadena Jason Jowers
Proposed entry into Developed Bundled Customer Value in use
Basic server market PESA (Tronn + Pesa) expertise pricing

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Bottleneck 2: Customer Inertia

• Need Expertise and Authority about buyers decision making units—collaborate with Director of Sales,
Jairo Cadena
• Jowers has to determine and implement pricing but he is new and does not have connections/relationships
• Cadena has been the director of sales—he has insight into the customers’ buying patterns and behaviours
• Identify the customers with the lowest switching cost—in modified rebuy phase with needs suited to the value
proposition
• Customers could be converted from straight rebuy phase to modified rebuy based on savings through the new
server
• DayTraderJournal.com (Web server) , Look Sharp Advertising (File Sharing)

• Cadena must initiate communications and introduce Jowers to customers—gives credibility due to Cadena’s
authority

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Bottleneck 3: Salesforce Motivation & Training
Observations/ Facts Recommendations

Mature
Mature market
market for
for Radia
Radia Split
Split Commission
Commission Incentives
Incentives
AA lesser
lesser push
push and
and aa predefined
predefined pitch
pitch needed
needed from
from salesforce
salesforce 15%
15% for
for each
each of
of the
the two
two segments
segments will
will be
be provided
provided to
to salesforce
salesforce

Extra
Extra Incentives
Incentives for
for Basic
Basic Segment
Segment
‘Tronn
‘Tronn ++ PESA’
PESA’ is
is aa new
new product
product with
with aa lower
lower ticket
ticket price
price
Over
Over and
and above
above the
the 15%
15% fixed
fixed commission
commission for
for target
target completion
completion of
of
More
More detailed
detailed research
research &
& motivation
motivation needed
needed by
by salesforce
salesforce 50,000 units. They will receive incentives for every new convert
50,000 units. They will receive incentives for every new convert

Salesforce
Salesforce Training
Training
70-30
70-30 Commission
Commission Model
Model
Train
Train the
the salesforce
salesforce to
to align
align them
them to
to business
business objectives,
objectives, motivate
motivate
Current
Current Incentivisation
Incentivisation Scheme
Scheme them
them with
with showing
showing great
great business
business potential
potential in
in future
future

More
More Converts
Converts ->
-> more
more commission
commission
Short
Short term
term sales
sales target
target for
for 2001
2001 After
After meeting
meeting the
the target
target of
of minimum
minimum sales
sales quota
quota volume,
volume, they
they will
will be
be
To
To sell
sell 200000
200000 Radia
Radia packages
packages while
while 50000
50000 for
for Basic
Basic Tronn
Tronn package
package rewarded 15% each for RADIA & Tronn. But for Tronn incentives
rewarded 15% each for RADIA & Tronn. But for Tronn incentives will will
go
go beyond
beyond and
and will
will be
be available
available basis
basis new
new conversions
conversions

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Bottleneck 4: Ontario’s Retaliation
Atlantic's
"low TCO"
entry • Assumption: Atlantic has successfully
demonstrated 'total cost of ownership' savings
from their bundle to customers
• If so, Ontario cannot win a price war – its lowest
Would price cut by Ontario cost more than
sales loss due to loss of mkt share?
possible price for 4 servers (Web server segment)
is $4856, and for 2 servers (File sharing segment)
is $2428, versus Atlantic's lowest price is $1538
If Yes
per server. 
• Hence, price cut by Ontario would cost more than
Is Ontario's position in other markets at risk? sales loss in those 2 segments
• Since Atlantic's bundle offers no advantage in
If No If Yes other segments, Ontario's position in other
Invest in markets is not at risk – hence Ontario can
Accommodate software 'Accommodate or ignore' this development.
or ignore package of
their own
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Thank you!
Pricing Strategy (1/2)
Status Quo Cost Plus
Price ($)​ Price $​
Tronn server 2000​ Sales in 2001 (0.04*50000*0.5) 1000
Software tool​ 0​ Sales in 2002 (0.09*70000*0.5) 3150
Atlantic bundle​ 2000​ Sales in 2003 (0.14*92000*0.5) 6440
Atlantic Bundle price (2 servers) 4000​
Atlantic Bundle price (1 server) 2000​ R&D cost per unit (2000000/10590) 189
Competitor's price (4 servers) 6800​ Cost per Tronn server 1538
Total Cost of Atlantic Bundle 1727
Competitive 
Price ($) Atlantic Bundle Selling price (30% markup) 2246
Ontario's price (Zink) ​ 1700​
Competitor price 1,700
Atlantic Bundle Price(conservative approach) 3400​
Cost 1,214
Atlantic Bundle Price(aggressive approach) 6800​
Profit margin 0.40
Competitor's price (Equivalent performance) 6800​
Price of 4 Ontario servers 6800

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Pricing Strategy(2/2) Price = Server cost + 0.5*Savings 
Value in Use - Web Services Ontario Value in Use – Web Services Atlantic Bundle
Ontario 4 Servers 2 Servers
Atlantic Bundle 1 Server (Conservative)
Hardware cost 4*$1700 = $6800  Hardware cost 1*$2000 = $2000  2*$2000 = $4000
Electricity cost 4*$250 = $1000 Electricity cost 1*$250 = $250 2*$250 = $500
Software license 1*$750 = $750 2*$750 = $1500
Software license 4*$750 = $3000 Labor cost $80000*1/40 = $2000 $80000*2/40 = $4000
Labor cost $80000*4/40 = $8000 Total Cost $5000 $10000
Total Cost $18800 Price $8900 $8400

Value in Use – File Sharing Ontario Value In Use – File Sharing Atlantic Bundle
Ontario 2 Servers Atlantic Bundle 1 Server
Hardware cost 1*$2000 = $2000 
Hardware cost 2*$1700 = $3400 
Electricity cost 1*$250 = $250
Electricity cost 2*$250 = $500
Software license 1*$750 = $750
Software license 2*$750 = $1500
Labor cost $80000*1/40 = $2000
Labor cost $80000*2/40 = $4000 Total Cost $5000
Total Cost $9400 Price $4200

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