Atlantic Computer Case StudyMarketing II Assignment

Group 17

AMITESH PRIOLKAR (2009009)

MANISH ARORA (2009022)

NEELAY THALY (2009026)

SAGAR KHICHADE (2009040)

ALOK SHETTY (2009047)

SIDDHARTH CHAKU (2009048)

Case IssueDevelop a pricing strategy for ‘Atlantic bundle’ - the new Tronn server and the PESA (Performance Enhancing Server Accelerator) software tool before SME trade show

Company Overview Atlantic Computers is a manufacturer of Servers and High-tech

products

Jason Jowers joined the Company four months back and he was

responsible for the pricing strategy of the “Atlantic Bundle” i.e (A

package of the Tronn server and PESA software tool)

The Tronn was developed mainly for the emerging US market

opportunity for basic web servers

The “Performance Enhancing Server Accelerator” (PESA) would

allow Tronn to perform four times faster than its usual speed for

standard procedures and hence the bundling made sense

Existence of 2 market segments - High Performance and Basic

Servers

Atlantic has 20% market share in High Performance Servers with

Radia being premier product over 30 years

An emerging market for basic servers is coming up in the late

1990s

Decided to introduce the Basic server into the market by 2000 with

the belief that it won’t be seen as a substitute of the High

Performance Servers

Advantages of PESA & Tronn

PESA – will improve Tronn speed by 4 times Need to purchase fewer servers

Lower annual electricity charges Less software licensing fee Less labor costs Customer segments which will gain advantage by using PESA –

Customers in web server & file sharing application segments

Two market segments –

Segment size Projected demand(1st yr)

Projected demand(next 2 yrs)

Atlantic Market share

Ontario Market Share

High performance servers

Largest 200000 units 3% annually 20%

Basic Servers 50000 units 36% compound annual growth

Zink – 50%

Competitor: Ontario Computer Inc. Majority sales generated by online trade. Business model based on operational excellence – so drove out

many non value-added costs so could compete largely on price.

Customers

Application Tested Tronn with PESA Tronn without PESAHigh Performance / Compute Intensive Workloads 180 187(e.g., running complex scientific models)

Graphics Applications 280 281(e.g., creating custom graphics / video)

Enterprise Applications 264 254(e.g., supply chain management)

e-Mail Applications 341 300(e.g., Microsoft Outlook, Lotus Notes)

File Sharing 812 404(e.g., shared storage and data backup applications)

Web Servers 2222 542(e.g., running websites such as www.espn.com)

201%

410%

104%

114%

Ratio of performance96%

100%

Sample “Web Server” Basic Server (New SME) Customer This customer will be the target customer as they stand to

benefit the maximum from Tronn with PESA

Sample “File Sharing” Basic Server (New SME) customer: As computing power without PESA is same as the competitors, pricing

will have to be considered in this case. PESA is not giving any added

advantage for graphical application.

Sample Heavy computing application Customer: As computing power without PESA is same as the competitors pricing

will have to be considered in this case. PESA is not giving any added

advantage for high computing application.

Available options for pricing strategy:

A. Status quo pricing Offer PESA free of charge, price Tronn at $2000. Loss of $20,00,000 spent on developing PESA Product may seem equivalent to Ontario’s Zink, and will have to

compete for market share. Not a very good option.

B. Competition based pricing Zink’s 4 servers = 1 Atlantic Bundle Zink’s price - $1700, so Atlantic Bundle’s price = 1700*4 = $6800 This price is very high than competitor’s product – Zink, and

customers may not buy servers as per projection Not a very good option.

C. Cost plus pricingConsidering market is growing at a compounded rate of 36%, the figures have been calculated accordingly

Cost of 1 Tronn server - $1538Cost of developing PESA $2000000.So if we add these costs, total cost for Atlantic Bundle will be more than $1538.

Cost of 1 Zink server - $1214So even cost plus pricing will be not very encouraging for Atlantic

Case3: Cost plus pricing Total No. of Tron servers sold in 3 years 21068Total No. of Tron servers sold in 3 years (with PESA)(50% attach rate) 10534Cost of PESA per server (in $) 189.86Price (without PESA)(in $) 1999.4Price (with PESA)(in $) 2246.22

D. Value in use pricing Atlantic Bundle needs to be projected as a new product with high value addition – one basic

server with 4 times speed Additional savings can be shown to customers by comparing 4 Zink server costs with 1

Atlantic Bundle cost.

Case4: Value based approachOPTION 1 Tronn (1 server) Zink (4 servers)

Price of Tronn (in $) 2000 6800Electricity + Software License charges (in $) 1000 4000Total Price (in $) 3000 10800Savings (in $)Final Price charged to customer (Total Price+50% of savings)(in $)

OPTION 2 (Conservative Estimate) Tronn (2 servers) Zink (4 servers)Price of Tronn (in $) 4000 6800Electricity + Software License charges (in $) 2000 4000Total Price (in $) 6000 10800Savings (in $)Final Price charged to customer (Total Price+50% of savings)(in $)

5900

6400

7800

4800

Note: The cost of labor would be equal in both the cases as salary of administator is fixed irrspective of the no. of servers.

Pricing Strategy for DayTraderJournal.comWe recommend Value based approach as it would lead to:

Lower acquisition cost - $5900.00

Lower possession cost

High speed processing

Savings - $3900.00

Pricing Strategy for Look Sharp AdvertisingWe recommend Value based approach as it would lead to:

Lower possession cost - $1000

Make highly requested information amongst employees readily

available

Availability of top notch post sales support

Pricing Strategy for HGIDMMWe recommend Value based approach as it would lead to:

Capable of maximizing speed of mathematical computations

Availablity of all round support

Flexible payment terms

Savings - $4800.00

Recommendations for Cadena’s sales force

The sales force needs to be trained to sell products on the basis of the

following points

Focus on the value of the server to the customer

Performance especially with PESA software tool

Emphasize on the lower acquisition and possession costs

Ensure excellent after sales service for customers

Reaction of Zink’s management

In the Short Term

Zink’s management might reduce the price of its server

In that case, Atlantic can charge according to the cost plus

approach and show the savings ($2,611) to the client i.e Zink’s

price can fall maximum upto their costs of $1214 countering

Atlantic’s cost of $2246. But since their 4 servers are needed,

the total cost for Zink equals 1214*4 = $4856 on which Tronn

still earns a saving of $2611.

In the Long Term

Zink’s management may come up with an identical software

Atlantic can provide the PESA software free in that case