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1. Calculate the Total cost involved in building the Basic server units.
2. Calculate the break-even point to do minimum sales to retain the cost and go for profits.
3. Taking the break even point, and revenue expectations set by Sr. Management; Decision has to be
drawn to set the target unit of sales for each year
4. After deciding on target sales for the year, decide upon pricing for each unit based on best fit pricing
technique.
5. The price decision above should involve the cost incurred for developing the PESA software also, which
is provided in Exhibit 3. i.e., $2000,000
• PESA cost if given for free (Following Company tradition of only server is
charged)
– Dip in profit contribution by Basic server is 50% only in the first year. Subsequent years it
will regain the profits as before.
– The positive side of it is, sales will raise up high in Medium and small Enterprise divisions
in next years.
• Charge a price equal to what the customer would pay for four competitors
servers
– Here Customers will have challenge to motivate to this price until and unless they
believe in performance which is a long run test results.
– If sales remain same 300% revenue growth contribution by Basic servers.
– If sales dip, regaining the confidence and loyal customers will be a bigger challenge.
• Charge a price based on a Cost-plus approach to pricing PESA
– This is the figure shown in previous slides.
• Value-in-use pricing
– This approach is difficult to approve for all kinds of customers. So there will be challenge
in justifying for all customers like Web Servers, File Servers and Mail servers.
– Keeping varied price for the same Hardware and Software based on Segment will loose