Marketing Management - 1

Atlantic Computers

Name: Megha

Roll No.: PGP/22/143

Q: 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.)

Day trader journal needs to provide training information and tips to prospective day traders. They
wish to sell advertising space to other companies who are attempting to reach the day trader
market.

They need web servers to host the company’s website where traders can review articles and
potential trading information

Tronn is roughly four times more efficient when used with PESA. Thus optimal bundle would be the
optimal server and tool for Daytraderjournal.com.

1. If traditional approach is used then the price would be $2000 only as PESA would be free and its
development cost won’t be considered.

2. If Competitor-based pricing is used, then they could charge a minimum price of $2000 and the
maximum price = 4 * Price of Ontario Zink = $6800

3. If Cost-plus approach scheme is used, then as mentioned, Atlantic’s share in basic server segment
would be 4% in 2001, 9% in 2002 and 14% in 2003.

Projected market volumes are also mentioned, so

2001: 0.04 * 50000 = 2000

2002: 0.09 * 70000 = 6300

2003: 0.14 * 92000 = 12880

Total= 21180

So no. of servers loaded with PESA = 0.5 * 21180 = 10590

Cost of PESA = $2000000

Cost of PESA/bundle = $2000000/10590 = $189

Hence Cost of TRONN = $1538

Cost of TRONN + PESA = $1727

Accounting for 30% as markup, PRICE for bundle: 1.3*1727 = $2245.1

4. For Value in use pricing,

As one Atlantic Bundle is equivalent to 4 Zink servers,

Price of 4 Zinke Servers: $6800

Electricity: $1000

Software License Cost: $3000

Labour Cost: $2000

Total: $14800

Price of Atlantic Bundle: $4000

Electricity: $500

Software License: $1500

Labour Cost: $2000

Total: $8000

Difference = 6800/2 = $3400 per server

Hence Value-in use pricing should be used.

Q2. 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 Zink’s Sr. Management)

a) Matzer: He favours traditional pricing strategy and would want PESA should be free. However, to
address him, the plan should be to make him aware about the huge R&D investment on PESA and
the benefits of using Tronn with PESA.

b) Cadena & salesforce: They will be in favour of the competitor based pricing as the commission is
30% which would be an advantage for them.

The plan should be to make them realize the long-term impact and increase in sales of using Value-in
pricing.

c) Sr. Management: They would recommend the cost-plus pricing as the company has been
traditionally following it. They also are to be made aware about the benefits for value-in pricing.
d) Customers: They would be sceptical of buying Tronn cause of its high price but they are to be told
about the efficiency of the bundle and its equivalence of 4 Zink servers.

e) Competitor would also try to make their product more efficient and since they have significant
market share, they will pose a major threat.

Q3. Compare the top-line revenue implications of alternative pricing strategies to the firm over the
next three years?

Answer:

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