ATLANTIC COMPUTER: A BUNDLE

OF PRICING OPTIONS

Assignment: Marketing Management – II

Submitted to
Prof. Bipul Kumar

Submitted by
Group Number: 2

Kunal 2015IPM054
Anshuman Agarwal 2015PGP062
Jagati Pavan Kumar Goud 2018PGP159
Moin Faiz Bhutto 2018PGP221
Purva Mukherjee 2018PGP283
Uttaran B Wary 2018PGP412
Ankit Singh 2018PGP471
 PROBLEM IDENTIFICATION
 To determine the pricing of the Tronn server and PESA software tool bundle?
 To determine which businesses to target for our offering?
 To determine the likely action of the customer to the new offering?
 To determine the likely reaction of the competitors in response to the pricing strategy?
 ANALYSIS OF SITUATION AND PROBLEM
 CURRENT SCENARIO
Atlantic Computer, is a New York based manufacturer of servers and high-tech products. There are two
main market segments in the server industry i.e. High Performance servers which are used to run
complex applications and represent the largest segment. The second is the segment for Basic server
which requires computing capability to perform simple repetitive tasks. Currently, Atlantic computer
operates in the segment of high end performance servers by offering Radia to large enterprise customers,
where they are the market leaders. They need to determine a pricing policy for the upcoming Tronn
server bundled with PESA software tool, which is their entry server for Basic server segment before the
upcoming SME Trade show.

Ontario Computer that operates in low end server market by offering Zink product line is the major
competitor with 50% revenue market share in the market for Basic servers.

SITUATION ANALYSIS
Price per server of Atlantic $ 2,000
R&D in PESA $ 2,000,000
Cost per Atlantic server $ 1,538
Price per server of Zinc $ 1,700

There are 4 pricing strategies available for the Tronn bundle:

Option 1: To launch the bundle by charging only for the hardware and giving away PESA tool for free
of cost and will maintain status quo of traditional pricing.
Price for Atlantic Bundle $ 2,000

This option will be lead to a sunk cost of $ 200000.

Option 2: Charge the bundle price based on Ontario Zink servers.

In this pricing strategy 1 Tronn servers with PESA will be sold at a price equivalent to 4 Zink Ontario
servers.
Price of 4 Zinc servers $ 6,800
Price of 1 Atlantic Server $ 6,800
Option 3: Charge a price according to the software tool development costs by following a cost-plus
approach.
Year Market Volume in units Atlantic's Share Sales in units PESA Sales in units
2001 50000 4% 2000 1000
2002 70000 9% 6300 3150
2003 92000 14% 12880 6440
Total 21180 10590
Price of Atlantic Bundle
Cost of PESA per server $ 189
Total Cost of Atlantic Bundle $ 1,727
Price after Markup $ 518
Total Price $ 2,245
Option 4: To price the bundle based on value-in-use pricing method.
2 Tronn Servers 4 Zink Servers
Price of Servers $ 4,000 $ 6,800
Electricity $ 500 $ 1,000
App. Liscensing Cost $ 1,500 $ 3,000
Total Cost $ 6,000 $ 10,800
Tronn Savings $ 4,800
50% Savings Profits $ 2,400
Total cost Atlantic Bundle $ 6,400

Businesses to target: Atlantic Computer should target File sharing, Web servers and e-mail
Applications company as these companies benefit most from the Tronn with PESA bundle. It will be
easier to convince these companies based on data available from Internal Performance Testing Results.
Customer reaction: Customer will not like a high price offering as they might not grasp the long term
benefit of it and might prefer a product at a lower price.
Competitor’s reaction: The competitor will not see Atlantic Computer entry into Basic server as a
threat initially because their sale would be 4% and 9% initially. They might start a price war later on as
the market share of Atlantic increases.
Break-Even Analysis
Price Cost Contribution per unit R&D Cost Break-Even(units) Break-Even(Year)
Option 1 $ 2,000 $ 1,538 $ 462 $ 2,000,000 4329 2002
Option 2 $ 6,800 $ 1,538 $ 5,262 $ 2,000,000 380 2001
Option 3 $ 2,245 $ 1,538 $ 707 $ 2,000,000 2829 2002
Option 4 $ 6,400 $ 3,076 $ 1,662 $ 2,000,000 1203 2001
 RECOMMENDATION

Atlantic Computer should go with the option of pricing bundle based on value-in-use method as they
will be able to reach breakeven by 2001 and also even if the price war starts they can lower down there
50-50 profit margin to sustain in the market.