Atlantic Computer

A Bundle of Pricing
Problem Statement

To develop the pricing strategy for the Atlantic

Bundle.
To take into consideration :
 Which businesses are most likely to benefit from new offering
 How customers are likely to react
 How competitors are likely to respond to recommended pricing
strategy
Background

 In server market for 30 years ; high end performance servers called Radia
 Strategy based on Customer Intimacy and product differentiation
 Martzer, head of server division : Internet had yielded a market for low end
systems.
 Tronn, with PESA Software, 4 times faster than standard speed, designed to
make frequently requested information easily accessible.
Competitor Analysis :
Ontario Computer Inc
 Manufactures only low-end server market, Zink Product line
 50% revenue market share in basic server market
 Competed largely on price as business model was based on operational
excellence
 Atlantic’s Tronn competed directly against Ontario’s Zink

*Beta Test – Exhibit 2*

Business customer receive same level of performance by one Tronn loaded
with PESA as compared to buying 4 basic servers.
Major Benefactors : Web-Server and File-Sharing application Segments
Factors Influencing Pricing Strategy

 Traditional focus on hardware

 Rely upon cost-plus pricing analysis
 Careful consideration of customer segments
• Importance of conveying savings
o First order (fewer servers)
o Second order (electricity charges, software license fees, labor costs)
Alternatives

 Status-Quo Pricing : Stick with company tradition

 Competition Based Pricing : Charge price equal to 4 Ontario Zink servers
 Cost-plus Pricing Approach
 Price based on value-in-use pricing
Status-Quo Pricing

 Atlantic Computers will sell Tronn at the price of $2000 with PESA software
Tool free.

Price of one Tronn Server(in $) 2000

Cost per Server (in $) 1538
Profit per Unit (in $) 462
Fixed Cost on PESA R&D (in $) 2000000
Break-Even Sale Target to cover 4329 units
Fixed Costs
 Competition Based Pricing

Alternative 2 : 1 Tronn Servers Vs 4 Zink Servers

Alternative 1 : 2 Tronn Servers Vs 4 Zink Servers

Price of 1 Tronn Server = Price of 4 Zink server

Price of 1 Tronn Server = Price of 4 Zink server / 2
= 4*1700
= (4*1700)/2
= $6800
= $3400
Cost of 1 Tronn Server = $1538
Cost of 1 Tronn Server = $1538
Contribution per unit = $5262
Contribution per unit = $1862
Break Even Sales = 381 units
Break Even Sales = 1075 units
 Cost-plus Pricing Approach
Year Forecasted sale Percentage Forecasted sale Forcasted sale of
in the year for share of Tronn of Tronn (with Tronn with PESA
basic category (Atlantic and without PESA
(industry figure) Computers) software)
2001 50,000 units 4% 2,000 units 1,000 units
2002 70,000 units 9% 6,300 units 3,150 units
2003 92,000 units 14% 12,880 units 6,440 units
Total 212,000 units 21,180 units 10,590 units
 Total R&D expense on PESA software = $2,000,000
 R&D expense per unit= ($2,000,000/10,590units)= $189
 Total Cost per Unit= $1,538+ $189= $1,727
 Markup= 30%= $518
 Total Price= $2,245
 Contribution= $2245- $1538= $707
 Units required to be sold for break-even= 2,829
 Value-in-use pricing
SL Particulars 2 Tronn Server 4 Zinc Server
No
1 Original Selling Price $ 4000 $6800
2 Operational $ 500 $ 1000
Expenses(Electricity)
3 Software License Cost $ 1500 $ 3000
4 Total Operational Expenses $ 2000 $ 4000
5 Saving Achieved $ 4800
6 50 % Sharing of savings $ 2400
7 New Selling Price ( Original $ 4400
Selling Price of 1 server +
50% Sharing)
8 Contribution per unit (S.P – = $ 4400 – $1538
V.C) = $ 2862
9 Break-Even Units 697
10 Break-Even Time < 1 year
 Comparison of Alternatives
Option Selling Cost Contributi Total Fixed Cost Profit Break- Year
Price on Per Unit Contribution even of
units Break
-
even
1 $2,000 $1,538 $462 $4,892,580 $2,000,000 $289,2580 4,329 2003
2 (Alt1) $,3400 $1,538 $1,862 $19,718,580 $2,000,000 $17,718,580 1,075 2002

2(Alt $,6800 $1,538 $5,262 $55,724,580 $2,000,000 $53,724,580 381 2001

2)

3 $,2245 $1,538 $707 $7,487,130 $2,000,000 $5,487,130 2,829 2002

4 $,4400 $1,538 $2,862 $30,308,580 $2,000,000 $28,308,580 697 2001
 Recommendations

 Atlantic should prefer Value-In-use Pricing approach as Break even is

achieved within one year of launch and huge profit is obtained. Also the
price is comparable to current market standards.
 PESA software is a patented software so if competitors are to compete on
same efficiency they have to come up with a new software like this and it
will take a long time
“
Thank You
Achyut Murarka
”
Anurag Lohokna
Himanshu Dixit
Apoorva Chaudhary
Anubhav Rana
Aashna Srivatsava
Harshit Sharma
Usaid Md.