Lead Question

Approximately how much money over the next three years will be “left on the table” if the firm were
to give away the software tool away for free (i.e., status quo pricing) versus utilizing one of the other
pricing approaches?

In Status quo pricing is a strategy where companies mimic the prices of their competitors or
maintain current price points of similar products or services on the market.

 Price of Tronn as mentioned in case study we will take as $2000.

 Since the software tools are expected to be available for free, we don’t consider PESA price.
 It’s mentioned that projected sales of the first year would be 50,000 and it will increase at
the rate of 36%.
 But due to production constraints, with the sales that Atlantic can do (Assuming all the
server produced are sold) the projected market share for the basic segment will be 4% in
2001, 9% in 2002 and 14% in 2003.
 Cost of Tronn is mentioned as per Exhibit 3 is $1538.
 To find the amount left on table over the next three years can be calculated by knowing the
Net Present Value (Which is the difference between the Current investment and the profit
acquired over 3 years with 36% rate).

STATUS QUO PRICING

  STRATEGY    
       
  YEAR 1 YEAR 2 YEAR 3
Basic Server Price 2000 2000 2000
Software Tool Price 0 0 0
Total Sales Price 2000 2000 2000
Market Share 50000 68000 92480
Actaul Market Share Projection 4% 9% 14%
Total Sales 2000 6120 12947
Total Sales Revenue 4000000 12240000 25894400
Cost of Tronn 1538 1538 1538
Cost price of Tronn 3076000 9412560 19912793.6
Total Profit 924000 2827440 5981606.4
Margin Price 462 462 462
       
Total Profit 9733046.4    
Initial Investment 2000000    
Net Present Value $ 13,72,080    

Now, If we are using our competitor-based price strategy, were we charge a price equal to
what the customer would pay for four Ontario Zink servers.
 Then we can find the new price and Net Present value as shown in below table;

COMPETITION BASED PRICING STRATEGY

       
  YEAR 1 YEAR 2 YEAR 3
Competetor Price 1700 1700 1700
Comparison number 4 4 4
Total Sales Price 6800 6800 6800
Market Share 50000 68000 92480
Actaul Market Share Projection 4% 9% 14%
Total Sales 2000 6120 12947
Total Sales Revenue 13600000 41616000 88040960
Cost of Tronn 1538 1538 1538
Cost price of Tronn 3076000 9412560 19912793.6
Total Profit 10524000 32203440 68128166.4
Margin Price 5262 5262 5262
       
Total Profit 110855606.4    
Initial Investment 2000000    
Net Present Value $ 3,64,06,683    

2. How is Matzer likely to react to your recommendation?