4.

What can Jowers recommend to get Cadenas hardware

-oriented sales force to understandand sell the value of the PESA
software effectively?

The industry norm is to give away software tool and price for the server
only. But here, it is the software tool that is going to create most of the
value both for customers and for Atlantic Computers. Hence it is very
important to communicate to customers how and how much PESA can
help them to save. The only effective way to communicate this is
charging appropriate price for PESA. So to get Cadena's sales force to
understand the value of PESA and sell it at appropriate price, Jowers
should recommend using the calculation per shown in exhibit-1 and
exhibit-2 Each sales person should be knowing the calculations to find
overall value that PESA can create and how we are determining the
price of the software by sharing a portion of overall value

6. How is Ontario Zinks senior management team likely to react to the

Atlantic Bundle?

As the market share of the Atlantic Bundle grows, they may react by
lowering prices because this is their way of competing. If Ontario uses
this approach, Atlantic can change according to the cost-plus approach
and continue to solidify the cost saving by purchasing one server. In the
long term, Ontario Zink might try to replicate the software Atlantic uses.
In this case, Atlantic can offer the software as a free addition to the
Tronn server.
In second scenario, Ontario's senior management is not expected to
reduce the price of Zink server as to give more of round-1 benefits
(acquisition cost savings) because reducing price will impact their
profitability for short term without gaining much of benefits (in terms of
greater market share)at long run. At current price of $1700 per Zink
server, Ontario is earning at 40% of profit margin. Suppose that to
match with Atlantic Computer's profit margin for Tron server (without
PESA) of 30%, Ontario reduces the price of Zink server by $100 per
server; it will not be able to create significant value in terms of lower
acquisition cost as compared to that with Atlantic Bundle. Even after
reducing the price of Zink server, due to the fact that number of servers
required for meeting processing needs is not going to change,
operational costs will remain higher compared to that with Atlantic
Bundle