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When students have the English-language PDF of this Brief Case in a coursepack, they will also have the option to purchase an audio version. Atlantic Computer, a leading player in the high-end server market, has detected a marketplace opportunity in the basic server segment. They have developed a new server, the Tronn, to meet the needs of this segment. In addition, they have created a software tool, called the "Performance Enhancing Server Accelerator," or PESA, that allows the Tronn to perform up to four times faster than its standard speed. The central question revolves around how to price the Tronn and PESA. Although cost-plus, competition-based, and status-quo pricing are the most common means by which firms establish prices for their offerings, these approaches may prevent firms from fully realizing the benefits that are due to them. Provides an opportunity to optimize value capture for the firm by utilizing value-in-use pricing (i.e., examining the value that a firm's offering creates for the customer, and using the savings generated as the basis for developing prices). Also allows for the exploration of the challenges surrounding the implementation of a value-in-use pricing strategy. These include the reactions of competitors, customers, and stakeholders within the firm.

learning objective:
To be used during the pricing module of the core MBA Marketing course or in an elective course on pricing. To allow instructors to contrast a customer-focused approach to pricing (value-in-use) with company-centric (cost-plus), competitor-based (competition-based), and status-quo approaches. To provide students an opportunity to calculate the price of a new offering utilizing the traditional approaches to pricing as well as value-in-use pricing, and then evaluate the respective approaches to see which yields optimal value capture for the firm. Also to allow students to take into consideration how other important stakeholders (competitors, customers, internal mangers, and the sales force) can potentially impact the implementation of pricing strategy.

subjects covered:
Business to business; Marketing; Pricing; Pricing strategy

LINKS Pricing Tool:

POSSIBLE ANSWERS Atlantic Computer: A Bundle of Pricing Options 1.24.2012

Question #1) What price should Jowers charge for the Atlantic Bundle (i.e., Tronn servers+PESA software tool)? 1) Under the status-quo pricing, Jowers should chard $4000 for the Atlantic Bundle. 2) Under the competition-based pricing, $6800 should be charged for the Atlantic Bundle. 3) Under the cost-plus pricing, $4491.04 should be charged for the Atlantic Bundle. 4) Under the value-in-use pricing (maximum value), $12800 should be charged for the Atlantic Bundle. 5) Under the value-in-use pricing (shared value), $8400 should be charged for the Atlantic Bundle. Question #2) Think broadly about the top-line revenue implications from each of the four alternative pricing strategies. Approximately how much money over the next three years will be left on the table if the firm were to give away the software tool away for free (i.e., status quo pricing) versus utilizing on of the other pricing approaches? 1) The revenue from status-quo pricing will be $42,360,000. 2) The revenue from competition-based pricing will be $72,012,000. 3) The revenue from cost-plus pricing will be $47,560,113.60. 4) The revenue from value-in-use pricing (maximum value) will be $135,552,000. 5) The revenue from value-in-use pricing (shared value) will be $88,956,000. Decision: The most advisable recommendation would be to sell the Atlantic Bundle at the cost-plus pricing approach of $4491.04. This is advisable for several reasons. The first being that although the revenues are the highest from value-in-use pricing approach, this pricing is significantly above what customers are currently paying. Since customers are paying $6800 for the competitors servers a payment of $12800 for our servers would be too steep of an increase. In addition, since we are marking up our products at 30%, we will guarantee a profit of at least 30%. Lastly, pricing our..-----------CASE ANALYSIS: ATLANTIC COMPUTERS-A BUNDLE OF PRICING OPTIONS SUBMITTED BY: KRITIKA JAIN PG20112055 Atlantic computers are the largest manufacturer of servers and other high tech products with a 20% market revenue share in the segment. The company plans to launch a basic server TRONN and software PESA due to growth in demand for basic servers. Important Details * competitor: ONTARIO ZINK * CAGR: 3%(BS segment) * TRONN along with PESA works FOUR times more efficiently. * Value of 2 TRONNs = Value of 4 ZINKs Four types of pricing strategies:

* Competition based pricing * Cost plus pricing * Charging only for TRON * Value in use pricing RECOMMENDATION: The company should adopt COST PLUS PRICING with a price of $2245.5 because: * Charging for PESA would increase its value and act as a key feature * Although revenues will not be the highest, but the possibility is that the customers might not be willing to pay a very high price as in case of value in use. * It has a 30% margin which means that the company will surely make 30% profit CALCULATING PRICE IN EACH MODEL(* all calculations done based on assumptions and figures given in case) MARKET SHARE | 2001 | 2002 | 2003 | Total | Basic server | 50000 | 70000 | 92000 | 212000 | Market share | 4% | 9% | 14% | | Share | 2000 | 6300 | 12880 | 21180 | 1. Competition based pricing Price for 2 TRONN = 2 * $2000 = $4000 Price for 4 ZINK = 4 * $1700 = $6800 Acc to competition based pricing, Price for 2 TRONN= $6800 Price for 1 TRONN= $ 3400 2. Charging only for TRONN Price for 1 TRONN= $2000 3. Cost Plus Pricing total market share for 3 years= 21180 volume of market share with PESA (50%)= 10590 R&D costs = $2000000 Per unit cost of PESA= $2000000/10590 = $189 Add margin 30%=189+30% = 245.5 Total price per unit of TRONN&PESA= $2000+245.5= $2245.5 4. Value in use pricing Savings to CONSUMER (per unit) On cost of TRON against