Case Issue

Develop a pricing strategy for Atlantic Computers:

Bundle of the new Tronn Server & PESA software tool before the SME trade show

Company overview
Atlantic Computers is a manufacturer of Servers and

High Tech products The company has 20% market share in high performance servers with Radia being premier product over 30 years The company manufactures two kinds of products: High Performance Servers & Basic Servers Decided to introduce the Basic Server into the market by 2000 Developed a new server Tronn & a software tool PESA which enhances the performance of the same

 Atlantic Computers planned to sell the Server & the

software together as a bundle. Jason Jowers was responsible for developing a pricing strategy for the bundle.

Characters:
Chris Matzer : Head of server Division
Emily Jones : Director of Division R&D team Harry Fowler : Director of New Product team

Jason Jowers : Product Manager

Basic Server Market details

Advent of Internet: Need of low end performance

servers or Basic Servers Collection of these basic servers could support a companys website Market Demand expected to be 50000 units in 2001

Product
Tronn : Server developed to cater to the Basic Server

Market PESA : Will enhance the speed of Tronn By 4 times Atlantic Computers want to bundle the products together

Advantages of tronn with PESA

PESA will improve Tronn speed by 4 times
Need to purchase fewer servers Lower annual electricity charges

Lower software license fees and labour costs

Customers in the web server and file sharing

applications would benefit most from the same

Competitors
Major Competitor : Ontario Computer Inc.
Product: Low End Server Zink, currently 50% market

share in the basic server market Majority Sales were generated online Zinks server performed at approximately the same level as Tronns Rest competitors were Local Vendors

Key factors influencing the pricing strategy

Status Quo Pricing : Matzer believed that as per the

companys tradition Software should be given for free along with the hardware Cost Plus Pricing : According to Matzer standard approach to pricing should be followed Competitive Pricing : Cost should be as per the industry standards i.e as in accordance with the Zink Server Value-in-use Pricing : Method of setting prices to capture a portion of customers savings by buying a firms products

Status Quo pricing

Offer PESA free of charge & price Tronn at $ 2000
In this case the cost of Software Development (PESA)

would be a loss to the company i.e a loss of 2,000,000 The product would be competing head on with Zink, which is a market leader

Cost plus pricing

Cost of one Tronn server = $1538
Cost of Developing the PESA Software = $ 2,000,000 So the total cost of the bundle would be higher than

$1538. Whereas, the Cost of one Zink Server is $1214 So, the total price of the bundle for the company to make profits should be higher than $1538

Competitive pricing
Performance of one Atlantic Bundle is equal to that of

4 Zink Servers Zinks Market Price = $1700.Therefore,cost of Atlantic Bundle should be approximately 4 times This price would be very high as compared to competitors product

Value In use Pricing

Atlantic Bundle needs to be projected as a new

product with high value addition It is one basic server with 4 times speed Additional savings can be shown in terms of using one Atlantic bundle instead of 4 Zink Servers. Second order savings due to lower electricity charges, software licenses and labour costs should be shared with the customer.

Conclusion
Status Quo Pricing : Loss of the software development

costs Competitive Pricing : It would be very difficult to convince customers why the Basic Server is priced 4 times of its competitors price. Cost Plus Pricing : Customers would prefer buying Tronn alone than paying extra for the PESA software Value-in-use Pricing : The product should be launched as an all together new product with a separate approach highlighting the performance & cost savings. The pricing strategy should be in accordance

Thank You