Atlantic Computer is determining the pricing strategy for its new product bundle consisting of the Tronn Server and PESA software. There are four pricing options under consideration: status quo pricing, competitive pricing, cost-plus pricing, and value-in-pricing. Status quo pricing would involve giving PESA away for free to Tronn customers, forgoing $2 million in development costs. Competitive pricing based on a competitor's model would yield lower profits than status quo. Cost-plus pricing with a 30% margin would result in a price of $2245 per server. Value-in-pricing compares the total cost of ownership of the Tronn bundle to a competitor's product, showing savings of $48
Atlantic Computer is determining the pricing strategy for its new product bundle consisting of the Tronn Server and PESA software. There are four pricing options under consideration: status quo pricing, competitive pricing, cost-plus pricing, and value-in-pricing. Status quo pricing would involve giving PESA away for free to Tronn customers, forgoing $2 million in development costs. Competitive pricing based on a competitor's model would yield lower profits than status quo. Cost-plus pricing with a 30% margin would result in a price of $2245 per server. Value-in-pricing compares the total cost of ownership of the Tronn bundle to a competitor's product, showing savings of $48
Atlantic Computer is determining the pricing strategy for its new product bundle consisting of the Tronn Server and PESA software. There are four pricing options under consideration: status quo pricing, competitive pricing, cost-plus pricing, and value-in-pricing. Status quo pricing would involve giving PESA away for free to Tronn customers, forgoing $2 million in development costs. Competitive pricing based on a competitor's model would yield lower profits than status quo. Cost-plus pricing with a 30% margin would result in a price of $2245 per server. Value-in-pricing compares the total cost of ownership of the Tronn bundle to a competitor's product, showing savings of $48
Atlantic Computer is determining the pricing strategy for its new product bundle consisting of the Tronn Server and PESA software. There are four pricing options under consideration: status quo pricing, competitive pricing, cost-plus pricing, and value-in-pricing. Status quo pricing would involve giving PESA away for free to Tronn customers, forgoing $2 million in development costs. Competitive pricing based on a competitor's model would yield lower profits than status quo. Cost-plus pricing with a 30% margin would result in a price of $2245 per server. Value-in-pricing compares the total cost of ownership of the Tronn bundle to a competitor's product, showing savings of $48
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
You are on page 1/ 2
Atlantic Computer: A Bundle of Pricing Options ( Analysis by Group 8)
1. Identification of the problem
The pricing strategy for Atlantic Computers new product Atlantic Bundle a combination of Tronn Server and the PESA software tool has to be determined. There are four options available status quo, competitive based pricing, cost plus pricing & value in pricing. In addition to that, products target market, competitors and customers reaction need to be answered.
2. Analysis of the situation and the problem
Option 1 Status Quo In this case we will be following traditional pricing where we will have to give PESA for free to Tronn Customers which implies we will be forgoing PESA software development costs of $2,000,000. Sales Price Per Server
- $2,000
Cost Price Per Server
- $1538
Assuming 4%, 9% and 14% market shares in 2001, 2002 and 2003 respectively we get 21,180 units and loading the cost of R&D for PESA in these items, we get $94.5 per item as cost. Therefore, Profit per Server = $2,000 - $1,538 - $94.5 = $367.5 Option 2 Competitive Pricing Pricing as per Ontarios Zink Model Sales Price Per Server
- $1,700
Cost Price Per Server
- $1538
Assuming 4%, 9% and 14% market shares in 2001, 2002 and 2003 respectively we get 21,180 units and loading the cost of R&D for PESA in these items, we get $94.5 per item as cost. Therefore, Profit per Server = $1700 - $1,538 - $94.5 = $67.5 Option 3 Cost Plus Approach with 30% margin. Total Number of Tronn Servers sold in 3 years
21,180 units
Number of Tronn Servers sold with PESA (Attach Rate = 50%) =
10,590 units
Total R&D Cost of PESA
$2,000,000
Cost per unit of PESA
$188.86
Cost per unit of Tronn Server
$1,538
Total Cost per unit of Tronn Server
$1727
Price per unit of Tronn Server (with 30% mark up)
$2245
Margin Per unit of Tronn Server
$518
Option 4 Charge a price based on value-in-use pricing.
Conservatively 2 Tronn Servers with PESA is equivalent to 4 Zink Servers. Cost to Consumer Comparison:
Two Tronn Servers
+PESA
Four Zink Servers
Price of Servers
$4,000
$6,800
Electricity
$500
$1,000
$250 per server
S/W License Cost
$1,500
$3,000
$750 per server
Total Cost
$6,000
$10,800
Remarks
Savings if Consumer chooses Tronn Server Bundle => 10,800 6000 = $4,800 Considering 50-50 Sharing Benefit sharing Basis, Final price of bundle can be $4,000+50% of $4,800 = $6,400 Margin per two units = $6,400 ($1538*2)-$189 = $3015 Margin per one unit = $3015/2 = $1508
3. Recommendation
As it is evident from above per unit margin calculations, it is advisable to opt
for Option 4 Value-In-Pricing as it has high margin contribution compared to other options and also this is considering all the benefits that a customer can be availed if he/she chooses this option.
