Atlantic Computer Case Study

Marketing II Assignment

Group 17 AMITESH PRIOLKAR (2009009) MANISH ARORA (2009022) NEELAY THALY (2009026) SAGAR KHICHADE (2009040) ALOK SHETTY (2009047) SIDDHARTH CHAKU (2009048)

Case Issue
Develop a pricing strategy for Atlantic bundle - the new Tronn server and the PESA (Performance Enhancing Server Accelerator) software tool before SME trade show

Company Overview
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Atlantic Computers is a manufacturer of Servers and High-tech products Jason Jowers joined the Company four months back and he was responsible for the pricing strategy of the Atlantic Bundle i.e (A package of the Tronn server and PESA software tool)

The Tronn was developed mainly f or the emerging US market opportunity for basic web servers

The Performance Enhancing Server Accelerator (PESA) would allow Tronn to perform four times faster than its usual speed for standard procedures and hence the bundling made sense

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Existence of 2 market segments - High Performance and Basic Servers Atlantic has 20% market share in High Performance Servers with Radia being premier product over 30 years

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An emerging market for basic servers is coming up in the late 1990s Decided to introduce the Basic server into the market by 2000 with the belief that it wont be seen as a substitute of the High Performance Servers

Advantages of PESA & Tronn

PESA will improve Tronn speed by 4 times Need to purchase fewer servers Lower annual electricity charges Less software licensing fee Less labor costs Customer segments which will gain advantage by using PESA Customers in web server & file sharing application segments

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Two market segments

Segment size Projected demand(1st yr) Largest 200000 units Projected demand(next 2 yrs) 3% annually Atlantic Market share 20% Ontario Market Share

High performance servers Basic Servers

50000 units

36% compound annual growth

Zink 50%

Competitor:
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Ontario Computer Inc. Majority sales generated by online trade. Business model based on operational excellence so drove out many non value-added costs so could compete largely on price.

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Sample Web Server Basic Server (New SME) Customer

 This customer will be the target customer as they stand to benefit the maximum from Tronn with PESA

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Sample File Sharing Basic Server (New SME) customer:

 As computing power without PESA is same as the competitors, pricing will have to be considered in this case. PESA is not giving any added advantage for graphical application.

Sample Heavy computing application Customer:

 As computing power without PESA is same as the competitors pricing will have to be considered in this case. PESA is not giving any added advantage for high computing application.

Available options for pricing strategy:

A. Status quo pricing
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Offer PESA free of charge, price Tronn at $2000. Loss of $20,00,000 spent on developing PESA Product may seem equivalent to Ontarios Zink, and will have to compete for market share. Not a very good option.

B. Competition based pricing

y Zinks 4 servers = 1 Atlantic Bundle y Zinks price - $1700, so Atlantic Bundles price = 1700*4 = $6800 y This price is very high than competitors product Zink, and customers may not buy servers as per projection y Not a very good option.

C. Cost plus pricing

Considering market is growing at a compounded rate of 36%, the figures have been calculated accordingly
y Cost of 1 Tronn server - $1538 Cost of developing PESA $2000000. So if we add these costs, total cost for Atlantic Bundle will be more than $1538. y Cost of 1 Zink server - $1214 So even cost plus pricing will be not very encouraging for Atlantic

Case3: Cost plus pricing

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D. Value in use pricing

y Atlantic Bundle needs to e projected as a new product with high alue addition one asic ser er with times speed y Additional sa ings can e shown to customers y comparing Zink ser er costs with Atlantic Bundle cost.
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alary of admini tator i fixed irr pective of the no. of erver .

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OP ION 2 Con ervative timate Pr ce o Tronn n $ ec r c y + o ware L cen e char e n $ To a Pr ce n $ a n n$ na Pr ce char ed o cu omer To a Pr ce+50% o a n
d a ac p q g h c y p hp a h d d q hb i ac Y d ac ac pq at i ha a h a a b W g h g a gf au

ronn 2 erver 000 2000 6000

Zink 4 erver 6 00 000 0 00 00 6 00

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Pr ce o Tronn n $ ec r c y + o ware L cen e char e n $ To a Pr ce n $ a n n$ na Pr ce char ed o cu omer To a Pr ce+50% o a n

` v Y d a ac p q g h Y c X p hp W a h d d q hb i ac d ac ac pq at i ha a h a a b g h g a gf au

ronn 1 erver 2000 000 3000

Zink 4 erver 6 00 000 0 00 00 5 00

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Case : Value ased approach OP ION 1

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Total o. o Tron ser ers sold in 3 years Total o. o Tron ser ers sold in 3 years with Cost o per ser er in $ rice without in $ rice with in $
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50% attach rate

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Pricing Strategy for DayTraderJournal.com

We recommend Value based approach as it would lead to:     Lower acquisition cost - $5900.00 Lower possession cost High speed processing Savings - $3900.00

Pricing Strategy for Look Sharp Advertising

We recommend Value based approach as it would lead to:    Lower possession cost - $1000 Make highly requested information amongst employees readily available Availability of top notch post sales support

Pricing Strategy for HGIDMM

We recommend Value based approach as it would lead to:     Capable of maximizing speed of mathematical computations Availablity of all round support Flexible payment terms Savings - $4800.00

Recommendations for Cadena s sales force

The sales force needs to be trained to sell products on the basis of the following points     Focus on the value of the server to the customer Performance especially with PESA software tool Emphasize on the lower acquisition and possession costs Ensure excellent after sales service for customers

Reaction of Zink s management

In the Short Term   Zinks management might reduce the price of its server In that case, Atlantic can charge according to the cost plus approach and show the savings ($2,611) to the client i.e Zinks price can fall maximum upto their costs of $1214 countering Atlantics cost of $2246. But since their 4 servers are needed, the total cost for Zink equals 1214*4 = $4856 on which Tronn still earns a saving of $2611. In the Long Term 


Zinks management may come up with an identical software Atlantic can provide the PESA software free in that case