ATLANTIC COMPUTER: A BUNDLE OF PRICING OPTIONS

GROUP 4

ABOUT ATLANTIC
Largest player in the overall computer industry Known for high end server manufacturing Known for products like Radia (high end performance server) which has 20% market share Rivals include Ontario, current market leader in the basic server market

The Atlantic Bundle

Current product in basic server category: TRONN Proposition to couple it with a software tool called PESA Coupling results in the server speed and performance going up to four times faster Collectively named as the Atlantic Bundle

The discussion
Debate about the kind of pricing strategy to be employed for the Atlantic Bundle Jason Jowers: appointed product manager He had the main task of developing a sound pricing strategy To find out the kind of businesses which are going to benefit most out the product

The discussion
According to Jowers, it was important that the market segment was to be analyzed carefully and the exact value of use be recognized Cost-plus pricing was used traditionally and the Tronn was priced at $2000 There was a need for change in pricing strategy since the industry norms set no value on any software tools and gave them out for free Hardware health management software could not become a differentiator to win deals (no premium or value attached by sales force)

Meeting with Cadena

Jowers meets Cadena, the director of sales At the SME Trade show stall of the company, he meets potential customers and explains the concept Information gained will help Cadena develop a sales script and train his men better for selling software along with the server

The Presentation
Jowers took DayTraderJournal.com as an exemplary customer that would be visiting their sales booth He found with the help of Cadena that they were seeking four basic servers and also wanted to minimize initial purchase and possession costs He proposed that instead of four basic servers, they buy two Atlantic Bundles He explained the first order savings i.e purchasing fewer servers, and the second order savings i.e saving on annual electricity, software licenses and labor cost, that they will make by purchasing the bundle

Pricing strategies

After developing the required data needed to price the product, the following pricing options were in front:
Use Status Quo Pricing Competition Based Pricing Cost Plus Pricing Value-in-use Pricing

Status Quo Pricing

The industry norms were set at software being given out for free Cost of two bundles $4000 R&D cost of PESA not charged ($2000,000) Customers will choose $1700 Zink against $2000 Atlantic Bundle, so further loss in sales volume

Competition Based Pricing

Setting Ontario as benchmark for pricing, as a result setting the price to $3400 as 4 Zink servers equivalent to two Atlantic Bundles Customers will anticipate risk of half the hardware for the same load of work and also doubt the workability of the software tool on all software applications

Cost-plus Pricing

Using cost plus markup technique the price evaluated to be $2246

Value-in-use Pricing

Would determine the value that each customer would realize from the purchase of the product. In this case, the customer value would be the annual cost of electricity and software licensing for each server It would then calculate the difference between the two figures and assume a 50-50 share of savings when the total costs are added, a customer would potentially realize a $4,800 savings when using two Atlantic Bundles as compared to four Zink servers. After a 50-50 share, the total final price would be $6,400

The value-in-use pricing method allows Atlantic Computers to demonstrate to customers the true value of their product. Because the Atlantic Bundle is a basic server and software tool that allows it to operate at four times the speed, it is equivalent to four Zink servers. Conservatively looking at the numbers, this equates to a savings of $4,800 to a customer

Recommendations
Use Value-in-use method as per the explanation provided Target customers in web servers and file sharing application segments Customers should be made aware of the potential savings at both qualitative and quantitative

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