Please answer the questions and show all calculations.

What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e., Tronn Servers plus PESA softw

There are four ways to answer this question – each is worksheet 1-4.
Please do the calculations for each of the four options and then suggest your preferred option. Justify your preference

For all calculations we assume that one Tronn server is same as two Zink servers.

Names
n Servers plus PESA software tools)? Please carry out the calculations to price two Tronn servers.

n. Justify your preference for the question in worksheet 5.

Option (a): Status Quo Pricing – the way things were when software is given free. So for this option the price will s

Price: $4,000 3-points

this option the price will simple be the price for hardware.
Option (b): Competition-Based Pricing (Ontario Zink servers as competitors). Break up the price as price for hardw
Points

Price $6,800 3

Break-Up of Price
Hardware $4,000 2
Software $2,800 2

Total Points 7

Hint: Software price should be whaever that is left after accouting for price of hardware.
he price as price for hardware and software.
Option (c): Cost-plus pricing (see footnote 5, planning horizon from 2001-2003 to allocate software development co

Allocation of Software Development Cost 2001 2002 2003 Total

Basic Segment Demand 50,000 70,000 92,000 212,000
Basic Segment Unit Sales 2,000 6,300 12,880 21,180
PESA Shipments for Basic Segment Unit Sales 1000 3150 6440 10590

PESA Costs
PESA R&D $2,000,000 Exhibit 3, page 10 of case
PESA Unit Sales 10590
PESA Unit Cost $188.86

PESA Mark-Up 30% Page 6, Footnote 5

PESA Per Unit Price with Mark-Up $245.51

Price of Two Units Hardware $4,000.00 Exhibit 3

Price of Two Units Software $491.03
Total Price for Two Units $4,491.03
software development costs).

Source Points
Exhibit 1: Projected market volume (Pg 8 of case) 1
Footnote 5, page 6 of case 2
Attachment rate for PESA= 50% (Footnote 5, page 6 of case) 2

1
1
1

1
2

1
1
2

Total Points 15
Option (d): Value in Use Pricing (for definition see Exhibit 2, footnote b and footnote 6). Instead of four Zink’s, cus
Hints: You would need to consider spending\savings in labor, electricity, and software.

Costs 4 Atlantic 4 Ontario

without Tronn Zink
PESA Servers Servers
Hardware (price to customer) $8,000.0 $6,800.0
Labor per year $8,000.0 $8,000.0
Electricity per year $1,000.0 $1,000.0
Cost of application software license per year $3,000.0 $3,000.0
TOTAL $20,000.0 $18,800.0

Source of Savings Savings

Two Tronn for 4 Zink $2,800
Labor $4,000
Electricity $500
Application Software $1,500 Savings per tronn Assuming 50:50 sharin
Total Saving $8,800 $4,400 $2,200

Based on the above calculation of total Saving and assuming Atlantic appropriates all savings do the following calculations:
Price of PESA (i.e., saving) $8,800
Price for two Tronns $4,000
Total Value and Price $12,800
Total Points

Hint: Assume that labor is perfectly divisible.

nstead of four Zink’s, customer buys two Tronn’s loaded with PESA.

Points

1
2
2
2
2

1
1
1
1
2

the following calculations:

2
1
2
20
Based on the price points in problems 1-4, please recommend your price and present the reasons for the recommended price
Note for value pricing, you can use the split (50:50, 100:0) that makes sense and can be defended.

Our recommended price would be $8400 basis the vallue in use pricing using the 50:50 split. Through this method of setting
prices, an attempt is made to capture a portion of what a customer would save by buying a firm's product. This can be done b
communicating to the customer the primary and secondary value they will derive by buying your product. We intend to use th
50:50 split ratio to ensure that we leave enough value on the table that the decision making is eased for the buyer and custom
like daytraderjournal.com derive high value from the purchase.
*Used calculations from question 4 to dervive answer
Points If we use 50:50 split
5 Price of PESA (i.e., saving) $4,400
Price for two Tronns $4,000

Total Value and Price $8,400