Atlantic Computers

Section B | Group 4 Apoorva Dave 12P133 Faiz Haque 12P134 Gautam Hariharan 12P137 Kshitij Ahuja 12P143 Rajesh Choudhary 12P158

Case Overview
Atlantic Offering
The Tronn : Developed mainly for the emerging US market opportunity for basic web-servers

Marketing Kick-off meeting members

Jason Jowers Responsible for the pricing strategy of the Atlantic Bundle Chris Matzer Businesses most likely to benefit Customer reaction No Cannibalization belief Harry Fowler Director of New product marketing Describes the market segments and Bundle

PESA: Specifically designed to make frequently requested information (files, data picture, etc) extremely accessible
Bundling made sense: Would allow Tronn to perform 4 times faster than its standard speed for standard procedures

Emily Jones Director of Divisions R&D team

Existence of 2 main market segments

High Performance Nature of segment Usage Leadership position Expected demand Largest segment Traditional use to run complex applications SCM and ERP 20% market share, Radia being premier product over 30 years 200000 units Basic Servers Growth of Internet led to an emerging market in late 90s Performing simple, repeatable tasks, showing web info Dominated by Ontario, Zinc 50% revenue market share 50000 units

Growth

Growth 3% following 2 years

CAGR 36%

Atlantic Bundle Pricing

Positive Pricing Factors Reduced amount spent in buying new servers -> 1st Order Savings Shortcomings Traditional Focus on Hardware Limited emphasis on developing and selling software tools Salesforce historically gave away software tools

2nd Order Savings

Electricity Labor Software Licenses

Significant Performance Improvement

in application types
File Sharing Performance Improvement Ratio

Ontario had an innovative and flexible

supply chain fostering operational excellence enabling it to compete purely on price -> Could be hard to match

= 812 /404 = 2.01 (Exhibit 2)

Web Server Performance Improvement Ratio = 222 / 542 = 4.10 (Exhibit 2)

Atlantic Bundle Pricing

From footnote #5,

2001 Total Market Market Share Volume Share 50000 4% 2000

2002 70000 9% 6300

2003 92000 14% 12880

Total Volume Share = 2000 +6300 + 12880 = 21180

Status Quo Approach

Price of single Tronn server = 2000 PESA software offered for free

Competition Based Approach

Price of Ontario Zink Server = 1700 2 Tronn Server + PESA = 4 Zink Server Cost of 2 Tronn server + PESA = 4*1700 = 6800 Price per bundle = 6800 / 2 = 3400

Price of bundle = 2000

Atlantic Bundle Pricing

Cost Plus Approach
From Exhibit 3 PESA R and D Costs = 2,000,000 Cost per Tronn Srever = 1538 Estimated total sale of PESA = 50% of Tronn Server Sales PESA volume share 2001 = 2000/2 = 1000 PESA volume share 2002 = 6300/2 = 3150 PESA volume share 2003 = 12880/2 = 6440 Total PESA sales = 10590 Unit Cost of PESA = 200000 / 10590 = 188.8 With 30% markup Cost of PESA = 188.86 + 30%(188.8) = 245.5 Cost per Tronn Server = 1538 +30% (1538) Total price of bundle = 245.5 +1999.4 = 2245

Value-In-Use Approach
4 Zink Server = 2 Tronn Server + 2 PESA Labor Savings
Labor Cost per basic server = 80000/40 = 2000 Net Saving on 2 servers = 4000 (Exhibit 3) Elec Cost per basic server = 250 Net Saving on 2 servers = 500 (Exhibit 3) Annual License Cost= 750 Net Saving on 2 servers = 1500 (Exhibit 3) Cost of 4 Zink servers = 1700*4 = 6800 Cost of 2 Tronn Servers = 2000*2 = 4000 Savings = 6800-4000 = 2800

Electricity Savings

Software License Savings

Savings on server costs

Total Savings = 4000 + 500 + 1500 + 2800 = 8800 Since savings shared 50:50 with customer Savings to customer = 8800/2 = 4400 Cost of PESA per server = 4400/2 = 2200 Total Bundle Price = 2000 + 2200 = 4200

Atlantic Bundle Pricing

Variable costs = 1538 Fixed Cost = R and D in PESA development = 2, 000, 000

Status Quo
Bundle Cost = 2000 Total Revenue =

Competition
Bundle Cost = 3400 Total Revenue =

Cost-Plus
Bundle Cost = 2245 Total Revenue = Total Variable Cost = Net Profit = Revenue

Value-in-Use
Bundle Cost = 4200 Total Revenue = Total Variable Cost = Net Profit = Revenue

21180 *2000 = 42360000

Total Variable Cost = 21180*1538 = 32574840 Net Profit = Revenue

21180 *3400= 72012000

Total Variable Cost = 21180*1538 = 32574840 Net Profit = Revenue

21180 *2245= 47549100 21180 *4200= 88956000

21180*1538 = 32574840 21180*1538 = 32574840

Cost = 7785160

Cost = 37437160

Cost = 12974260

Cost = 54381160

Recommendations
Value-In-Use Pricing
Sharing of savings with customers Allows customers to realize true value of product in terms of monetary savings Atlantic can recover huge cost incurred in R and D sooner

Competitor Threat: Low

End of first year, expected market share is 4% Highly unlikely for Ontario to respond with price cuts

Salesforce Motivation
Salesforce habituated towards selling software for free 30% of commission on sales, their focus would always be on selling more volumes at lower prices Training them about product benefits and convincing them of gaining higher commissions by selling superior products at higher costs

Post-Sales Assistance
Continue for new product and communicate to customers

Target Web Server and File Sharing segment by emphasizing key benefits of Atlantic Bundle