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ATLANTIC COMPUTER A BUNBDLE OF PRICING OPTIONS By Kanishka Poddar (220)
ATLANTIC COMPUTER
ATLANTIC COMPUTER

A BUNBDLE OF PRICING OPTIONS

ATLANTIC COMPUTER A BUNBDLE OF PRICING OPTIONS By Kanishka Poddar (220)

By Kanishka Poddar (220)


Case Analysis
Case Analysis

In this case,Atlantic Computer is a manufacturer of servers and high-tech products.

is a manufacturer of servers and high-tech products.  Two market segments exist in the server

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?
Problem Area
Problem Area

What pricing strategy should Atlantic Computers implement to price the

Atlantic Bundle?

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
Pricing Strategy
Pricing Strategy

There are four main types of pricing

strategies which Atlantic Computers can

choose.

of pricing strategies which Atlantic Computers can choose.  First, Atlantic Computers could stay with the

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
Status Quo Pricing
Status Quo Pricing

This option consider only the cost of server and treats PESA software as free

product along with servers:

and treats PESA software as free product along with servers: Price of 1 Tronn Server: 2

Price of 1 Tronn Server:

2 Tronn Servers + PESA Software (Free) $4000 ($2000 x 2)

$2000

Price of Atlantic Bundle =

$4000


Competition Based Pricing
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:

Server with PESA software is equivalent to 4 Zink servers: Price of 1 Zink Server $1700

Price of 1 Zink Server

$1700

2 Tronn Server + PESA Software

$6800

(4 x $1700)

Price of Atlantic Bundle

=

$6800

Cost Plus Pricing Market volume (in units) 2001 2002 2003 Total Market Volume of Basic
Cost Plus Pricing
Market
volume (in
units)
2001
2002
2003
Total
Market Volume
of Basic Server
50000
70000
92000
Atlantic Share (
in %)
4
9
14
Estimated Total
Sale of Tronn
Server
2000
6300
12880
21180
Estimated Total
Sale of PESA
software (50% of
Tronn Server
Sales)
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
Cost Plus Pricing
Price per server:
Cost
30% Markup ($)
Total ($)
PESA Cost per server
188.9
56.658
245.52
Cost per Tronn server
1538
461.4
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 +
Value-in use Pricing
Value-in use Pricing

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

server is equivalent to 2 Tronn server + 2 PESA software   Amount Cost Savings ($)
 

Amount

Cost Savings

($)

Saving in Electricity

500

Software Licenses

1500

Labour

4000

Cost of Server

2800

Total

8800

As per value pricing model of 50-50% Price of PESA

4400

2 Tronn + 2 PESA

8400

Cost of Atlantic Bundle

4200

Comparison: Projected Revenue and Profit for 3 Years Competition Cost Plus Particulars Status Quo Based
Comparison: Projected Revenue and
Profit for 3 Years
Competition
Cost Plus
Particulars
Status Quo
Based
Approach
Value in use
Estimated Number
of Units over 3
years
21180
21180
21180
21180
Price Per Atlantic
2000
3400
2245
4200
Bundle ($)
Total Revenue from
Sales ($)
42360000
72012000
47549100
88956000
Variable Cost per
unit ($)
1538
1538
1538
1538
Total Variable Cost
($)
32574840
32574840
32574840
32574840
Fixed Cost for
development of
PESA ($)
2000000
2000000
2000000
2000000
34574840
34574840
34574840
34574840
Total Cost (in $)
7785160
37437160
12974260
54381160
Profit (in $)
Conclusion On detailed comparative study of 4 different pricing approch for Tronn Servers & PESA
Conclusion
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%,

share is already owned by competition to an extent of 50%, hence price plays a vital

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.