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    Case Analysis - Atlantic Computers

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    Kanishka Poddar
    Atlantic Computer manufactures high-performance and basic servers. It has developed the basic Tronn server and PESA software to enhance server performance for the growing basic server market. It is considering bundling the Tronn server and PESA software and must determine the appropriate pricing strategy. The document analyzes four strategies - status quo pricing, competition-based pricing, cost-plus pricing, and value-in-use pricing - and recommends competition-based pricing as it would be competitive with prices of similar products and has the potential to gain market share while still being profitable.

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    Case Analysis - Atlantic Computers

    Uploaded by

    Kanishka Poddar
    11K views11 pages
    Atlantic Computer manufactures high-performance and basic servers. It has developed the basic Tronn server and PESA software to enhance server performance for the growing basic server market. It is considering bundling the Tronn server and PESA software and must determine the appropriate pricing strategy. The document analyzes four strategies - status quo pricing, competition-based pricing, cost-plus pricing, and value-in-use pricing - and recommends competition-based pricing as it would be competitive with prices of similar products and has the potential to gain market share while still being profitable.

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    Atlantic Computer manufactures high-performance and basic servers. It has developed the basic Tronn server and PESA software to enhance server performance for the growing basic server market. It is considering bundling the Tronn server and PESA software and must determine the appropriate pricing strategy. The document analyzes four strategies - status quo pricing, competition-based pricing, cost-plus pricing, and value-in-use pricing - and recommends competition-based pricing as it would be competitive with prices of similar products and has the potential to gain market share while still being profitable.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    11K views11 pages

    Case Analysis - Atlantic Computers

    Uploaded by

    Kanishka Poddar
    Atlantic Computer manufactures high-performance and basic servers. It has developed the basic Tronn server and PESA software to enhance server performance for the growing basic server market. It is considering bundling the Tronn server and PESA software and must determine the appropriate pricing strategy. The document analyzes four strategies - status quo pricing, competition-based pricing, cost-plus pricing, and value-in-use pricing - and recommends competition-based pricing as it would be competitive with prices of similar products and has the potential to gain market share while still being profitable.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 11
    At a glance
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    Atlantic Computers is considering different pricing strategies for bundling its new basic server, Tronn, with a performance enhancing software, PESA. The key strategies discussed are status quo pricing, competition based pricing, cost plus pricing, and value in use pricing.

    Atlantic Computers can choose from status quo pricing (offering PESA for free), competition based pricing, cost plus pricing, or value in use pricing.

    Under the cost plus pricing approach, the cost per Tronn server is $1538 and the cost per PESA software is $188.9 after adding a 30% markup to cover costs and profit.

    ATLANTIC COMPUTER

    A BUNBDLE OF PRICING OPTIONS

    By Kanishka Poddar (220)

    Case Analysis

    In this case, Atlantic Computer is a manufacturer of servers and high-tech products. Two market segments exist in the server industry: High performance and Basic Servers. Atlantic Computers has held a 20% share of the High Performance market with their Radia servers being their premier product. However, the market for Basic servers is growing and this has caused Atlantic Computers to develop and introduce a Basic Server called the Tronn and a software tool called the Performance Enhancing Server Accelerator (PESA). The Tronn was developed mainly for the emerging US market opportunity for basic servers. The PESA would allow the Tronn to perform up to four times faster than its standard speed and make frequently requested information more accessible. Thus, bundling the Tronn and PESA made more sense. Atlantic is not concerned that the Tronn will be considered a substitute for its High Performance servers.

    Problem Area

    What pricing strategy should Atlantic Computers implement to price the Atlantic Bundle?

    Pricing Strategy

    There are four main types of pricing strategies which Atlantic Computers can choose.
    First, Atlantic Computers could stay with the status quo and offer software tools for free. Second, it could choose competitive based pricing. Third it could choose from Cost-plus pricing. Finally, it could choose value-in use pricing.

    Status Quo Pricing

    This option consider only the cost of server and treats PESA software as free product along with servers:
    Price of 1 Tronn Server:
    2 Tronn Servers + PESA Software (Free) ($2000 x 2) Price of Atlantic Bundle =

    $2000
    $4000

    $4000

    Competition Based Pricing

    Pricing the Tronn servers based on price of competitor server (Zink by Ontario) and PESA for free. Since 2 Tronn Server with PESA software is equivalent to 4 Zink servers:
    Price of 1 Zink Server 2 Tronn Server + PESA Software (4 x $1700) Price of Atlantic Bundle = $1700 $6800 $6800

    Cost Plus Pricing


    Market volume (in units) Market Volume of Basic Server Atlantic Share ( in %) Estimated Total Sale of Tronn Server Estimated Total Sale of PESA software (50% of Tronn Server Sales)

    2001
    50000 4 2000

    2002
    70000 9 6300

    2003
    92000 14 12880

    Total

    21180

    1000

    3150

    6440

    10590

    Cost of Tronn Software PESA Software Development Cost

    $1538 $2,000,000

    Cost Plus Pricing


    Price per server: Cost 30% Markup ($) Total ($) PESA Cost per server Cost per Tronn server 188.9 1538 56.658 461.4 245.52 1999.4

    Pesa Cost per Server

    = = =

    Total Cost involved/ Total Estimated Sales 2000000/10590 $188.9

    After the Markup 30%, as calculated in the above table: Cost of Atlantic Bundle = $2245

    Value-in use Pricing

    Considering 4 Zink server is equivalent to 2 Tronn server + 2 PESA software


    Cost Savings Saving in Electricity Software Licenses Labour Cost of Server Total As per value pricing model of 50-50% Price of PESA 2 Tronn + 2 PESA Cost of Atlantic Bundle Amount ($) 500 1500 4000 2800 8800 4400 8400 4200

    Comparison: Projected Revenue and Profit for 3 Years


    Particulars Estimated Number of Units over 3 years Price Per Atlantic Bundle ($) Total Revenue from Sales ($) Variable Cost per unit ($) Total Variable Cost ($) Fixed Cost for development of PESA ($) Total Cost (in $) Profit (in $) Status Quo 21180 2000 42360000 1538 32574840 2000000 34574840 7785160 Competition Based 21180 3400 72012000 1538 32574840 2000000 34574840 37437160 Cost Plus Approach 21180 2245 47549100 1538 32574840 2000000 34574840 12974260 Value in use 21180 4200 88956000 1538 32574840 2000000 34574840 54381160

    Conclusion
    On detailed comparative study of 4 different pricing approch for Tronn Servers & PESA Softwares, it is eveident from the above chart that Competition Based pricing is the most suitable option.

    This approach takes into consideration competitors prices and provides superior services at same rate. The market share is already owned by competition to an extent of 50%, hence price plays a vital role. It needs to highly competitive and at par with the pricing of competitive products. Low price does not always means that product will bhe accepted by the market. If the prices are very low, the market even presumes that the quality of product if inferior. If the pricing are very low, competitors can also reduce there prices to that extent as there product already command certain share in the market. If prices are too high as given in Value in Use Pricing, then consumer may not accept the product and would prefer to buy two products of competition in place of one Tronn Servers.

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