Atlantic Computers

Case Analysis

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 Overview
Jason Jowers was required to develop a pricing strategy for the
"Atlantic Bundle."
Atlantic is the largest player, occupying 20% of the market share in
High-Performance Servers.
In the past, Atlantic has always given away the software for free
However, the PESA Software is different from the standard software
because it will allow customers to purchase fewer servers and would
also lower operating costs such as electricity, labor, and software
license fees
Matzer has a belief that high-performance servers and basic servers
would not be viewed as substitutes by customers
The CAGR for the basic servers segment is about 36% through 2003 for
3 years
PESA enhances the Tronn server’s speed four times its normal speed
Atlantic is a market leader in the traditional market with its product
Radia, which is a premium product
The sales force compensation structure was roughly 70% salary and
30% commission
 Prising Strategies

01
Status Quo Pricing 02
Competition Based
Pricing

03
Cost-Plus Value 04
Value-in Use
Pricing Prising
 Basic Info
2 Tronn+ PESA = 4 Tronn  
(Conservative Approach)

R & D Cost of PESA

2000000
software development

Cost of Tronn 1538

Price of Tronn 2000

Cost of Ontario Zink 1214

Price of Ontario Zink 1700

Year 2001 2002 2003

Market of Basic Server (Units) 50000 70000 92000

Market Share of Atlantic 4% 9% 14%

Sales of Atlantic Tronn Server(Units) 2000 6300 12880

Total Sales( 3 Years) 21180

Status Quo Pricing

Status
Quo Pricing

Price of Tronn $2,000

Total Sales $21,180

Revenue
Generated ( 3 $4,23,60,000
Years)
 Competition Based Pricing(2 Tronn+ PESA = 4 Tronn or 4
Ontario Zink (Conservative Approach))
R & D Cost of PESA software development $20,00,000

Price of Ontario Zink 1700

Price of Tronn 2000

Number of servers required of Tronn 2

Number of servers required of Ontario Zink 4

Total Price of Ontario Zink(4 units) 6800

Total Price of Atlantic Tronn +PESA (2 units) 6800

Total Price of Atlantic Tronn +PESA (1 units) 3400

Number of units sold Tronn server 10590

Number of units sold Tronn bundle 10590

Revenue generated (part1) $1,80,03,000

Revenue generated (part2) $3,60,06,000

Total Revenue Generated $5,40,09,000

 Cost Plus Value Pricing
R & D Cost of PESA software development 2000000

Number of units sold Tronn bundle 10590

Per Unit Price of PESA Software 188.86

30% Markup(PESA Software) 245.51

Cost of Tronn 1538

30% Markup(Tronn Server) 1999

Total cost Per Unit 2245

Number of units sold Tronn server 10590

Number of units sold Tronn bundle 10590

Revenue generated (part1) $2,37,73,646

Revenue generated (part2) $2,11,80,000

Total Revenue Generated $4,49,53,646

 Value In Use Pricing Adding savings to Price of Tronn

Price of Tronn(2 Units) 4000

2 Tronnserver +
  4 Zink Server
PESA Savings (Added Value) 8800

Electricity cost
500 1000 Total price (2 Units) 12800
($)

Total price (1 Units) 6400

Price of server 4000 6800

Cost of Price of Tronn 2000

1500 3000
software
Price of Tronn+PESA 6400
Labour cost 4000 8000
Number of units sold Tronn server 10590
Total cost 10000 18800
Number of units sold Tronn bundle 10590
Saving for Tronn users when
8800
compared to Next best option Revenue generated (part1) $2,11,80,000

Revenue generated (part2) $6,77,76,000

Total Revenue Generated $8,89,56,000

 How much money will be left on the table over a three
year period if they were to give the software tool for free
compared to each of the 4 options mentioned

Pricing Revenue Money left on

Technique Generated the table

Status quo
42360000 46596000
Pricing

Cost- Plus
44953646 44002354
Pricing

Competition-
54009000 34947000
based pricing

Value- in-use Recommended Pricing

88956000
pricing Method
How do you think Matzer is likely to react to Jowers’
proposal?

From the case, it is evident that Matzer, the Director of Server Marketing, has a
conservative approach and a belief that software tools should generally be
provided to customers for free. However, Jowers is considering a different
approach by proposing various pricing strategies for the Atlantic Bundle,
including charging for the PESA software tool.
What could Jowers to do get Matzer to agree to his
proposal?

Gathering Support Data

Highlighting customer needs and preferences
Demonstrating Financial Impact
Address Objections and Concerns
Collaborate and Seek Feedback
Pilot Programa and Evaluation

By taking these steps and effectively presenting his proposal, Jowers can
increase the likelihood of getting Matzer to agree to his pricing strategy for
the Atlantic Bundle, including charging for the PESA software tool.
Issues Jowers could face from the sales team for the
proposal, and things he can do to get the team to
understand & sell the value of the PESA tool effectively

Lack of Knowledge: Through training materials,

demonstrations, and case studies, inform the
sales force about the advantages of PESA.
Resistance to Change: Highlight the advantages
of the PESA bundle and how it aids in the sales
team's ability to clinch more deals.
Lack of Confidence: Help the sales team gain
confidence in pitching PESA to customers by
providing training and support.
Target market reactions to the new pricing proposal and
their issues/fears/ objections
Potential reactions of customers to the new pricing proposal:
• Affordability Concerns: The customers may feel that the product would
now cost them more since the company is now providing an add on feature
that is exponentially increasing the performance of the existing product
• Resistance to change: The customers are always aiming to minimize the
initial purchase costs and subsequent possession costs, leading them to
prefer 4 basic servers over 2 basic servers loaded with PESA. This resistance
to change is expected to negatively influence their reaction to the new
pricing proposals
• Switching to alternatives: If the value provided by Atlantic computer is not
properly communicated to the customers, they might switch to an
alternative provided by the competitors since the customer's initial
considerations revolve only around the savings
Tackling the issues/fears/ objections of the target
market

Understanding the decision-making process

of customers and their price sensitivity
through customer surveys
Communicating the value proposition and
the benefits and ultimately justifying the new
pricing.
Providing transparent pricing details to tackle
the fears and uncertainties the customers
might face
Thank You