Viviana Lewis

TAM 557
February 9, 2020

Atlantic Computers: A Bundle of Pricing Options

Option #1—Stay With Company Tradition

The case study mentions that Atlantic Computers has always used the pricing strategy in which
they only charge for the hardware. In doing so, they will be required to offer the PESA software
took for free with the Tronn server. This means that Atlantic computers would lose the $2,000,000
invested into the R&D costs for PESA. Additionally, the Tronn server would pretty much be the
same as Zink servers which would make it difficult to gain market share.

Option #2—Competitor Based Pricing

When it comes to competitor-based pricing, you must use the prices of computers as a benchmark
to price your product. The case of Atlantic Computers, they would be required to use the price of
Ontario’s Zink servers which is $1,700 but since the Tronn and PESA bundle is equivalent to two
Zink servers, that means that the total cost would be $1,700x2=$3,400. Adding PESA to Tronn is
equivalent to four Zink servers therefore $1,700x4= $6,800. Although this might generate profits
for Atlantic Computers, but there is a possibility that customers won’t purchase the bundle at this
price-point because it might not be worth the risk

Option #3—Cost-Plus Pricing Approach

The cost-plus approach is the standard approach to pricing in the industry in which the price 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. In addition to that there is a predetermined percentage to
account for profit margin.

Year 2001 2002 2003 Cost of Atlantic Tronn Server $1,538

Market Volume 50,000 70,000 9,200 Cost Of PESA Per Server 2,000,000÷10,590=$189
Atlantic market share 4% 9% 14% Total Total Bundle Cost $1,538+$189= $1,727
Total sales 2,000 6,300 12,880 $21,180 30% Markup Cost $1,727x30%= $518
Attach rate (50%) 1,000 3,150 6,440 $10,590 Final price $1,727 +$518= $2,245

The calculations above show that the final price for Tronn loaded with PESA would be $2,245
which is $545 more than the Zink server. In terms of a conservative per annum estimate, we can
assume two Tronn servers are the equivalent of four Zink servers. Therefore, it would cost $2,245
x 2=$4,490 compared to $6,800 for Zink servers (which are priced at $1,700 each). It might be
hard to convince customers to purchase using this pricing method because they will think they are
only getting two servers instead of the four for $4,490 when they can just purchase two Zink
servers for $3,400, making it $1,090 more expensive than Zink servers.

Option #4—Value-In-Use Pricing

Two Tronn Servers Four Zink Servers Savings difference between Tonn and Zink
Server Price $2,000x2= $4,000 $1,700x4=$6,800 $10,800-6,000= $4,800
Electricity Cost ($250) $250x2= $500 $250x4= $1,000
Software License ($750) $750x2= $1,500 $750x4= $3,000 Total Final Customer Price $6,400
Total Price $6,000 $10,800

Using the value-in-use pricing method, Atlantic Computers would determine the value that each
customer would realize from the purchase of the product. As demonstrated above, customers
would save $4800 when using two Atlantic bundles compared to two Zink servers. After taking
into account the 50/50 share, the total final price would be $6,400 which will save customers
$2,400 when buying two bundles. This pricing method is probably the best because it allows
Atlantic Computers to demonstrate to customers the true value of their product.