Atlantic

Computers
G R O U P 3 P R E S E N TAT I O N
Case Summary
Overview The people
Provide a succinct description of Key players and their motivations
This customer.

● Your text here ● Jason Jowers- youngest Product Manager

● Chris Matzer- Head of Server Division
● Emily Jones- Head of R&D
● Harry Fowler- Director of Product Marketing

● Behavior

Jason’s Aim Tronn and PESA

What does the company want him to achieve The new entrants- need, target and positioning

● Internet revolution is the fuel – several basic servers instead of large complex eqpt.
● Opportunity to make a big splash and enter int the new market segment of ● Matzer’s baby- stretch product line downward- basic server with high performance
Atlantic Computers basic servers ● Not a substitute for high performance servers- low cannibalisation
● Get pricing right for Atlantic bundle- what business benefit most, prices ● Competition – Zink by Ontario- 50% market share, sells online- operational excellence-
willingness
aggressive pricing
● How competition will respond
● OEM- Servers and other high ● Get ready with pricing in two weeks for SME ES Trade show ● Tronn with PESA is upto four times faster.
tech products
● Largest player in overall
computing
● High performance enterprise
servers is forte
Customer Communication Notes
● Value Prop- Top notch, highly What talking points should reps, account managers, or marketers bring (or not bring) up?
reliable eqpt. followed by high
quality sales assistance
● Note ● Note
● Note ● Note
● Note ● Note
 Scenario 1: PESA Software Free
Revenue
2001 2002 2003 Total
Unit Sales Scenario 1- Free PESA Software
@ 10%, 20% and 25% Market share in
Y1, Y2 and Y3 respectively 5000 14000 23000 42000 Consistent Revenue with growth only fuelled
Per Server Price 2000 2000 2000 by additional units sold.
PESA Software Price 0 0 0
Annual Maintenance costs per
Pros: No retraining required for sales folks
server @ 10% of price 200 200 200
Total Revenue 11000000 30800000 50600000 92400000
If each server is four times the basic server
Costs offered by Ontario then the premium pricing
Server costs @ 1538 per server 7690000 21532000 35374000 64596000 is explained and acceptable
Apportioned R&D Costs
R&D Costs are apportioned across Cons: The PESA software is treated as a free
three years of sales in the tool and differentiation not utilised
proportion of revenue generated 238095 666667 1095238 2000000
Ontario can reduce price further narrowing the
Maintenance cost @ 5% of Server costs costs
384500 1076600 1768700 3229800
Total Cost 8312595 23275267 38237938 69825800 lead
GM 24% 24% 24% 24%
SGA @10% Revenue 1100000 3080000 5060000 9240000
OM 14% 14% 14% 14%
 Scenario 2: 1 Tronn with PESA = 4 Zink
Revenue
2001 2002 2003 Total
Unit Sales Scenario 2- Four Ontario = 2 Tronn with
@ 10%, 15% and 17% Market share in
PESA
Y1, Y2 and Y3 respectively 5000 10500 15640 31140
Per Server Price 6800 6800 6800
PESA Software Price 0 0 0 High margin but difficult to gain and
Annual Maintenance costs per compete for market share and growth
server @ 10% of price 680 680 680
Total Revenue 37400000 78540000 116987200 232927200 Pros: Sales team motivated by high margin
Costs and commission
Server costs @ 1538 per server 7690000 16149000 24054320 47893320
Apportioned R&D Costs
R&D Costs are apportioned across Cons: No valid reason for customer to switch
three years of sales in the from Zink to Tronn. Pricing is likely to be
proportion of revenue generated 238095 500000 744762 1482857 heavily discounted at some point to drive
Maintenance cost @ 5% of Server costs costs
384500 807450 1202716 2394666 volumes and therefore doesn’t look feasible
Total Cost 8312595 17456450 26001798 51770843
GM 78% 78% 78% 78%
SGA @10% Revenue 3740000 7854000 11698720 23292720
OM 68% 68% 68% 68%
 Scenario 3: Cost Plus Approach
Revenue
2001 2002 2003 Total Scenario 3- Cost Plus Approach
Unit Sales
@ 10%, 20% and 30% Market share in
Significant market share growth and difficult
Y1, Y2 and Y3 respectively 5000 14000 27600 46600
Per Server Price 2000 2000 2000
to competition to undercut
PESA Software Price 1000 1000 1000
Annual Maintenance costs per Pros: The differentiation brought by PESA is
server @ 10% of price 200 200 200 valued by customer as they start paying.
Total Revenue 16000000 44800000 88320000 149120000 Even if the competion lowers the price of
Costs their server, Atlantic can reduce server prices
Server costs @ 1538 per server 7690000 21532000 42448800 71670800
to match and yet earn the primuim from
Apportioned R&D Costs
R&D Costs are apportioned across PESA
three years of sales in the
proportion of revenue generated 214592 600858 1184549 2000000 Cons: Change in sales attitude is the biggest
Maintenance cost @ 5% of Server costs costs
384500 1076600 2122440 3583540 challenge, training needs to differentiate and
Total Cost 8289092 23209458.37 45755789 77254340 sell PESA and not just H/W
GM 48% 48% 48% 48%
SGA @10% Revenue 1600000 4480000 8832000 14912000
OM 38% 38% 38% 38%
 Scenario 4: Value in Use Pricing- for Day Trader Journal.com
Customer Cost without Tronn + PESA
2001 2002 2003 Total Scenario 4- Value in Use Pricing for Day
Basic Servers X 4 6856 0 0 6856 Trade Journal. com
Electricity Costs 1000 1000 1000 3000
Cost of Application Licenses 3000 0 0 3000
Sell Book for Cadena’s Sales:
Cost of Labor 1096 1096 1096 3287.6712
1. 43% Overall cost reduction over three
Annual Maintenance costs @ 10% of
year period
S/W and Server 986 986 986 2956.8
Total Cost 12937 3081 3081 19100
2. The server life is estimated at 6 years so
Customer Cost withTronn + PESA the running benefit is greater
Tronn Server X 2 4000 0 0 4000 3. Every year you save enough to buy a
Electricity Costs 500 500 500 1500 additional server even in OPEX terms
Cost of Application Licenses 1500 1500 (3081- 1130 = 1950)
Cost of PESA 2000 2000 4. With PESA + Tronn- Atlantic bundle on
Cost of Labor 80 80 80 240 every purchase , the commission to sales
Annual Maintenance costs @ 10% of agent is higher by 30% while growth in
S/W and Server 550 550 550 1650 volumes is kept as priority
Total Cost 8630 1130 1130 10890
Difference Basic vs Tronn 33% 63% 63% 43%
 Final Review and Recommendations
PRICING NUMBERS CRITIQUE AND COMPETITO
STRATEGIE RECOMMENDATION R ACTION
S
PESA for free Market share growth estimated at almost Undercutting an opportunity to charge a higher Price cut- Ontario lacks
entire Ontario Zink market today (~ price which is explained by lower overall costs innovation but for smaller
35%) req, this is still cheaper

1 Tronn= 4 Zink High margin (above 60%) but low Overestimating the ability to sell against an No Need, they are not
market share as challenger established challenger with lack of differentiated threatened
outcome for customer

Cost plus Approach Effective selling of PESA can garner Good value for PESA, need the backing of Sales Ontario will cut price to
50% market share of Zink and yet and training to change customer mindset retain smaller customers but
increase revenue and profits find difficult to match for
substantially larger (4+) req

Value in use Pricing Customer savings of above 40%; high
return on PESA investment to fuel
further R&D
This and Cost Plus approach most suited for This can only be defeated by
gaining market share while also keeping in mind innovation; either discredit
that competition can retaliate so differentiation is Atlantic claims or build a
more than price software to enhance own
capabiity