CASE ANALYSIS SUBMISSION

OF
ATLANTIC COMPUTER: A BUNDLE OF PRICING OPTIONS

MARKETING MANAGEMENT 1

(2017-2019)

Submitted to: - Submitted By: -

Prof. Joffi Thomas Rishabh (PGP/21/347)
Question 1) What price should Jowers charge Daytraderjournal.com for the Atlantic Bundle (i.e.,
Tronn Servers +PESA software tool)? Calculate the prices for alternative pricing strategies. (Note
from the Planning the Strategy section in the case that Jowers make a conservative estimate that
two Tronn servers plays PESA equals the performance of four Ontario Zink servers.)
Answer 1) DayTraderJournas Business Model: A day trading company which provides information
and tips to prospective day traders.
It needs web servers to host the companys new website DayTraderJournal.com, where day traders
can review articles and relevant training information. From Exhibit 2, which showcases Atlantic
Internal Performance Testing Results, we can see that Tronn with Pesa (2222) scores four times as
compared to Tronn without Pesa (542). This further emphasizes the use of Pesa in the company.
The pricing strategy that Jowers should charge DayTraderJournal is Value-in-use. The different pricing
methods available are as follows:
1) The traditional approach
- This option entails giving the PESA free in the Atlantic Bundle.
- Thus the cost would only include the cost of the Atlantic Bundle, which is equal to 2000$
- This pricing strategy excludes cost of PESA software development = $2,000,000.
Thus, price for DaytraderJournal will be $2000
2) Competition Based Pricing
- A pricing method in which a seller uses prices of competing products as a benchmark instead of
considering own costs or the customer demand.
- Price of 1 Zink Server =$1700
-We can follow to methodologies for this-
a) Aggressive- 1 Tronn Server is equivalent to 4 Zink Servers
b) Conservative- 2 Tronn Servers are equivalent to 4 Zink Servers
Thus, price for DayTraderJournal in aggressive method will be = 1700*4= 6800
& price for DayTraderJournal in conservative mode will be = 1700*2= 3400
3) Cost-plus approach
- Atlantics share of Basic Server segment will be 4% in 2001,9% in 2002 and 14% in 2003
Projected Market Volumes by Segment
Year 2001 50,000
Year 2002 70,000

Year 2003 92,000

- Cost of 1 Tronn Server = $1538
- Expected Sales in 3 years = (4*50,000 + 9*70,000 + 14*92,000)/100 = 21,180
- Given Attach Rate=50%. Thus, the number of servers with PESA=21180/2 = 10590
- Cost of PESA per Bundle = Total R&D Cost/Number of units of PESA = 2,000,000/10590 =$189
- Total cost of Atlantic Bundle= Cost of 1 Tronn Server + Cost of PESA per bundle= 1538 + 189 = $1727
- Assuming 30% markup above cost, Final cost = 1.3*1727 = $2245.1
Thus, price for DayTraderJournal = $2245.1
-Possession Cost = Electricity Cost + S/W License Cost + Labor Cost+ Acquisition cost
= 250 + 750 + 80000/40 + 2245.1= 1000+2000+2245.1= $5245.
4) Value-in-use pricing
- Value-in-use is a pricing strategy which sets prices primarily, but not exclusively, on the value,
perceived or estimated, to the customer rather than on the cost of the product or historical prices.
- An attempt is made to capture a portion of what a customer would save by buying a firms product.
Assumption: a 50-50 sharing of the savings gain with the customer.
-Price of 2 Tronn servers = 2*2000=$4000
-Price of 4 Zink servers = 4*1700=$6800
 Tronn Zink Remarks
Electricity 500 1000 $250 per server
S/w License Cost 1500 3000 $750 per server
Total Cost 4000+500+1500= 6000 6800+1000+3000=10800

- Savings by Tronn = 10800-6000 = $4800

- Given 50-50 sharing of the savings gain with the customer, savings on 2 Tronn Servers = $2400
- Thus, Total Cost for 2 Atlantic Bundles = 4000+2400 = $6400
Thus, price for DayTraderJournal = $3200
- Possession Cost per server = Electricity Cost + S/W LicenseCost+Labour Cost+Acquisition cost
= 250 + 750 + 80000/40 + 3200= 1000+2000+3200=6200
- Jowers should charge Value-in-use pricing for DayTraderJournal because-
a) Low acquisition cost - $3200.00
b) On every Tronn that the company buys, it saves $1200 including all the operating costs.
c) Substantially high performance of the web servers

Question2). Anticipate the reactions to your recommendation and formulate plans to address
them, for the following individuals/groups: (a) Matzer (b) Cadena & salesforce (c) Sr. Management
at Atlantic (d) Customers (e) competition (Ontario Zinks Sr. Management)
Answer2):
a) Matzer
Matzers belief is that software tools should be generally free for customers. But the
recommended value-in-use pricing strategy, the tools are not free and customers are paying
$1200 extra per unit.
Matzer could be convinced by following points for charging on severs with PESA
- The PESA software tool is making significant difference in performance for server.
Server with PESA is four times more productive than without PESA sever.
- The R&D cost for developing PESA is $2,000,000

b) Cadena & salesforce

Cadena would of the view that we should follow the pricing strategy in which more revenue
is generated and go by the competition based pricing. According to the Cadenas sales force
compensation structure 30% is for commission. Therefore, he would be inclined for higher
pricing of servers.
Cadena could be convinced for value-in-pricing by following arguments:
- Although the selling price in value-in-pricing is lower than in competitive pricing but the
value-in-pricing will increase the sales.
- The value-in-pricing structure can be used by sales persons and make the customers realize
the amount that they are saving by using the server with PESA
- The customer is saving $1200 per Tronn server including all the operating cost

c) Sr. Management at Atlantic

The senior management would recommend cost-plus pricing structure as it has been
traditionally followed the company. Also, the priced arrived at by cost-plus pricing structure
is lower than value-in-pricing. The senior management can be convinced by the argument
that the cost-plus pricing structure do not promote the saving factor for customer which can
increase the sales. Also, the price of the competitors product is high as compared to its
 performance therefore we can increase the price for Tronn server which is twice as
productive as the competitor.
d) Customers

Initially the customers would not be willing to buy Tronn sever as it is priced higher than the
competitors price. But the customers can be convinced by giving the argument that
although the Tronn server is as productive as two Zink sever (conservative approach) but still
it is priced much lower than two Zink servers. The price of two Zink servers is $5,400
including all the operating cost but the Tronn cost only $3,200.
e) Competition (Ontario Zinks Sr. Management)

The competitors reactions can be

- More budget would allocated for R&D to replicate Tronn software tool model of
PESA.
- Market product as more economically viable option as compared to Tronn server.

Question3). Compare the top line revenue implications of alternative pricing strategies to the firm
over the next three years?
Answer3):

Number of unit sales for three years = 10590 (as calculated above)
1) The traditional approach
- Price = $2000
- Revenue = 10590*2000=21180000
2) Competition Based Pricing
- Price (Aggressive) = 1700*4=6800
- Revenue = 10590*6800=72012000
- Price (Conservative) = 1700*2=3400
- revenue = 10590*3400=36006000

3) Cost plus approach

- Price= $2245.1
- Revenue= 10590*2245.1=$23775609

4) Value-in-use pricing
- Price= $3200
- Revenue= 10590*3200=$33888000